2021 (2) TMI 758 - HC - Income Tax

TDS u/s 194C OR 194J - payments made to M/s. Karnataka Board and M/s. Rites Ltd for rendering of services in connection with construction of Engineering and Polytechnic college Buildings in the State of Karnataka - relationship between the assessee and RITES and Karnataka Housing Board was principal and agent OR not? - HELD THAT - Assessee is a wing of Government of Karnataka carrying out the constitutionally mandate function of imparting education to the students in the state of Karnataka. It was further held that appellant controls the technical education being provided in around 195 Engineering Colleges, 291 Polytechnic Colleges, 12 Junior Technical Schools and 76 fine Arts College. It has further been held that the government of Karnataka directed the assessee to appoint a particular agency like M/s Rites Ltd. Or M/s Karnataka Housing Board for every new building. The agency is remunerated by providing a specific percentage usually around 7% to 10% of the project cost for each building in the form of service charges. It has further been held in paragraph 8.10, the Commissioner of Income Tax (Appeals) has gone into details of memorandum of understanding entered into with M/s Rites Ltd. or M/s Karnataka Housing Board and has held that the provisions of Section 194C are not applicable to the facts of the case. The aforesaid finding of fact has been affirmed by the tribunal. In the peculiar facts of this case, we are not inclined to interfere with the concurrent findings of fact, in the absence of any perversity being demonstrated before us. Therefore, the substantial question of law is answered against the revenue and in favour of the assessee.

Summary

Issues:
1. Whether the assessee is liable to deduct tax on payments made to certain parties for services rendered in connection with construction projects?
2. Whether the provisions of Section 194C or 194J of the Income Tax Act, 1961 are applicable to the fact situation of the case?
3. Whether the assessee is an assessee in default for not deducting tax as required under Section 194C of the Act?

Analysis:
1. The appeal pertained to the Assessment year 2011-12, where the appellant, the Technical Education Department of Government of Karnataka, entered into construction agreements with Karnataka Housing Board and M/s. RITES Ltd. for engineering and polytechnic college building construction work. An enquiry revealed that tax was not deducted as required under Section 194C of the Act, resulting in the Deputy Commissioner of Income-tax holding the assessee liable to pay a sum of &8377;1,79,76,000 under Section 201(1) of the Act.

2. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, which was challenged by the revenue before the Tribunal. The revenue contended that the relationship between the assessee and the parties was that of principal and agent, making the assessee an assessee in default under Section 194C. However, the Tribunal upheld the appeal, stating that the provisions of Section 194J were applicable to the fact situation of the case, not Section 194C. The Tribunal's decision was based on the fact that the assessee was a government entity responsible for technical education and the agreements with the parties did not fall under Section 194C.

3. The High Court, after considering the submissions, upheld the concurrent findings of fact by the Commissioner of Income Tax (Appeals) and the Tribunal. The Court noted that the assessee's role in providing education and the nature of agreements with the parties did not align with the requirements of Section 194C. Therefore, the Court ruled in favor of the assessee, stating that the provisions of Section 194J were applicable, and there was no perversity in the findings to warrant interference under Section 260A of the Act. Consequently, the appeal by the revenue was dismissed, and the Court found no merit in the case.