2015 (5) TMI 476 - HC - Income Tax

Non deduction of TDS u/s 194C - assessee acting as an agent / group leader between the contractor and labourers - Held that - Merely because the amount was calculated on the basis of the cubic meter, running meter and square meter on fixed price according to the SR rules of the PWD, no inference could be drawn that the relationship is that of an employer and a contractor. Of course it is purely a question of fact and it is seen from the impugned order that the assessee has failed to produce evidence and, therefore, the assessing authority had drawn such an inference. The assessee submits that they have maintained records according to the standing orders of the Karnataka Land Army Corporation and a group leader is entrusted with all the responsibilities to disburse payment. After payment is made to the workers, receipt is obtained by the assessee, attendance is maintained and group leader is responsible to maintain the entire account for disbursing the payment to the workers and he is entitled only for the value for his labour. Thus end the matter back to the assessing authority reserving liberty to the assessee to produce such documents to substantiate its claim - Decided in favour of assessee for statistical purposes.

Issues:
Interpretation of section 194C of the Income-tax Act, 1961 regarding payments made to group leaders who are not employees of the company.

Analysis:
The judgment involves an appeal by a State Government undertaking against the Tribunal's order, which held that payments made to group leaders, who are not employees but outsiders, fall under the provisions of section 194C of the Income-tax Act, 1961. The assessing authority considered group leaders as contractors acting between the company and laborers, attracting section 194C. The Appellate Commissioner set aside this decision, stating that payments to employees through group leaders do not qualify as sub-contractor payments without a contract agreement. The Tribunal upheld the assessing authority's view due to the lack of evidence for individual payments to workers, setting aside the Appellate Commissioner's order. The appellant argued that group leaders are not contractors but workers, highlighting the corporation's process of paying workers through group leaders to avoid exploitation. The court found that the corporation transfers project funds to engineers, who engage workers through group leaders. The court emphasized the need for evidence to determine the nature of the relationship and remanded the case to the assessing authority for further examination based on the Appellate Commissioner's directions for the subsequent year.

The court observed that the corporation's practice of engaging workers through group leaders aims to eliminate middlemen and benefit rural development projects. The court noted that payments to group leaders, who then distribute funds to workers, do not inherently establish an employer-contractor relationship. The assessing authority's inference was based on the lack of evidence presented by the appellant. The court acknowledged the appellant's claim of following established procedures and assigned responsibilities to group leaders for payment disbursement and record-keeping. Consequently, the court decided to remit the matter to the assessing authority to allow the appellant to produce necessary documents for substantiation. The assessing authority is directed to evaluate the nature of agreements with workers and individual payment practices to determine the applicability of section 194C of the Act.

In conclusion, the court allowed the appeal, setting aside the orders of the Tribunal and the assessing authority. The case was remitted back to the assessing authority for fresh consideration, emphasizing the importance of producing relevant documents to support the appellant's claims. All contentions were kept open for adjudication by the assessing authority in accordance with the law.

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