2008 (11) TMI 21 - HC - Income Tax

TDS in respect of amounts paid to persons who have already paid tax on the said receipts ITAT was right in holding that whatever assessee pays, payee would be required to claim the refund & whole exercise will be in futility - both CIT and ITAT have concluded on facts that the payments made by the assessee were not in the nature of payments under contract but had the character of wages, hence liability to deduct tax under Section 194C not arises - no substantial question of law arises

Summary

Issues:
1. Deduction of tax at source on amounts paid to persons who have already paid tax.
2. Characterization of payments as contract payments or wages.
3. Consideration of interest under Section 201(1A) for delayed payments.

Analysis:

Issue 1: Deduction of tax at source on amounts paid to persons who have already paid tax:
The case involved appeals arising from a common order by the Income Tax Appellate Tribunal regarding Sections 201(1) and 201(1A) of the Income Tax Act, 1961 for financial years 2001-02 to 2004-05. The Assessing Officer noted that if the deductees had already paid tax on the income received from the assessee, the deductor would not be liable. However, the deductor needed to prove that the deductee declared the payments as income and paid taxes. The Commissioner of Income Tax (Appeals) and the Tribunal found that the assessee provided confirmations from payees with PAN numbers and tax acknowledgments, meeting the onus of proof. The Tribunal relied on the Supreme Court's decision and a board's instruction, concluding that the assessee was not in default under Section 201(1).

Issue 2: Characterization of payments as contract payments or wages:
The second issue was whether payments made were under a contract or as wages to laborers. Both the Commissioner of Income Tax (Appeals) and the Tribunal determined that the payments were wages, not contractual payments under Section 194C of the Act. Since payments were made to employees on daily wages, they were not contractual. The authorities' findings were upheld, and no legal infirmity was found in their conclusion.

Issue 3: Consideration of interest under Section 201(1A) for delayed payments:
The appellant raised the question of interest under Section 201(1A) for delayed payments, which the Tribunal did not address. However, the Commissioner of Income Tax (Appeals) had directed the computation of interest based on tax liabilities in respective financial years. The respondent did not dispute this position. Consequently, the Court found no substantial question of law for consideration and dismissed the appeals.

In conclusion, the judgment clarified the deductor's liability when deductees had already paid taxes, distinguished between contract payments and wages, and addressed the computation of interest for delayed payments under Section 201(1A) based on the Commissioner of Income Tax (Appeals) orders.