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TMI Blog2011 (4) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... e had required, rather assigned the contractors to pay compensation to the farmers for losing of their trees/crops etc., and for removing and carting of the logs to its storing places. The assessee had neither in the course of proceedings before the AO nor before the FAA came up with the details of compensation of amounts so paid to the farmers. Even at the time of hearing before this Bench, the assessee had not come up with any details and the quantum of compensation so paid to the farmers. Thus in view of the above this issue should go back on the file of the AO for fresh consideration with specific directions to the effect that in respect of compensation paid; two issues were interlinked compensation amounts for loss of trees/crops and removal of trees and allied works executed by the respective contractors. Survey work - assessee contented that survey work fall within the ambit of 'professional service'. - Held that:- The survey work undertaken by the assessee does fall within the ambit of 'professional service' as the assessee's argument was not backed with any documentary evidence to suggest that it had, in fact, incurred an expenditure to the extent of Rs.17,08,766 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AYs : 2002-03 to 2009-10 - u/s.201(1A) of the Act:- 3. Likewise, for the AYs under challenge, the assessee had raised three identical grounds, out of which, ground No.1 becomes non consequential as it being general and no specific issue involved. In the remaining grounds, the issues raised are reformulated as under:- 1. the CIT (A)-LTU was not justified in sustaining the action of the AO (TDS) in treating the assessee as 'assessee in default' and demanding interest on tax:- - that the CIT (A)-LTU was not further justified in upholding the stand of the AO in levying interest u/s 201 (1A) of the Act when the assessee's case doesn't fall within the sphere of s.201(1) of the Act. 4. As the issues raised in these appeals being identical and interlinked pertaining to the same assessee, they were heard, considered together and disposed off in this common order for the sake of convenience and clarity. 5. Briefly, the assessee - a State Government Public Sector company - was carrying on the business of transmission of electricity from electricity generating points to various electrical sub-stations in the State through the network of transmission lines and sub-stations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strong reliance, the Ld. CIT (A) had observed thus:- "4.12. (c) (On page 31) From the facts stated above, it can be seen that the contract itself specified the material and work with estimated cost of supply as well as work and labour. Thus, supply and work are distinct and identifiable. In the instant case, the appellant floated a tender and there is no separation of supply, erection and installation as well as civil works. Only after awarding the tender, the appellant entered into agreement with the contractor for supply, civil works and erection. Thus, the facts of the case law cited are distinguishable and is of no assistance to the appellant's case. 4.13. In the written submissions, the appellant further stated that it is not the case of the AO that the contractor has failed to fulfill the tax obligation and that the Government was deprived of tax due, relying on the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT (2007) 293 ITR 226 (SC) where the payee had already paid the tax on the income which was the subject matter of short deduction of tax at source, recovery of tax cannot be made once again from the tax deducto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out physical verification and certain administrative formalities which are discussed in brief as follows:- (i) KPTCL would have approached the revenue authorities of the State Government to identify and demarcate the plots on which trees are standing. Similarly, they will identify the owner of the respective plots and accordingly issued no objection certificates; (ii) Similarly, the forest department must have verified the proposed area and the standing trees and, accordingly issued no objection certificate; (iii) After identifying the plots and the trees standing thereon, trees were valued by either the authorities of the forest department or the horticulture department; (iv) After completing all these formalities, the appellant wanted to make payments to the owners of the trees or farmers of the crops. It is significant to note that the contractor not only paid the compensation but he also carried out the work of cutting the trees, cut them into pieces and removed and transported them to the storing place designated by the appellant. 5.4. Thus, it may be seen that the contractor not only paid compensation to the owners but also carried out the work of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... + 2040241 u/s 201(1A)] on account of short deduction of tax and interest thereon. In his order dated: 26.2.2009 in para 23(8) and (9), the AO held as follows:- 8. Hence ...................................................... 9. With. regard................................................ Henceforth, we will ensure that TDS will be deducted at applicable rates." (i) The AO made the following observations on the said submissions of the appellant:- "The assessee's plea of lack of knowledge/ignorance cannot be accepted as a valid reason for dropping the proceedings. The tax has to be deducted at the appropriate rates as prescribed under the Act." 6.2. There is force in the AO's observation and even the appellant admitted that the survey work involves professional skills and knowledge and payment made towards survey work involves professional charges. Thus, by this fact also, the payment attracts the provisions of section 194J of the Act and tax at source would be deductible at the rate of 10% at the time of payment or credited in the accounts. 6.3. It is pertinent to note that where, in the case of any income of any person, income-tax is required to be deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. the assessee cannot be categorized as an 'assessee in default' when there was no obligation on the part of the assessee to deduct tax u/s 194C of the Act for supply portion; 2. amendment of s. 194C through Finance Act(No.2) of 2009, clarify deduction doesn't extend to supply of materials (portion); 3. the materials in question were purchased from the suppliers by the assessee and given to the contractor(s) for carrying out the work of civil, erection, etc., 4. the contract between the assessee and the contractor was a 'contract for supply' and NOT for 'contract of work' and the Revenue had consistently refused to see the reason and to recognize the distinct meaning - SUPPLY and WORK; 5. it was wrongly visualized that the equipments, materials component parts were fabricated and installed at work site premises; 6. it was wrongly presumed that the contracts entered into between the assessee and the contractor were composite contract and an indivisible contract whereas there were three separate contracts, viz.,- (i) supply of materials; (ii) for erection; and (iii) for civil work portion; 7. Instruction to Bidders (Section - II - ITB) under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded therein hold good for the issues on hand. It is ordered accordingly. 8. With regard to the Ld. CIT (A) observations in respect of compensation paid for removal of trees etc., Shri K.K. Chythanya, the Ld. A. R. made the following submissions:- (i) Treating the reimbursement to contractor towards compensation for cutting of trees or loss of crops to the farmers or landlords:- - that, the CIT (A) was not justified in sustaining the action of the AO that the Appellant ought to have deducted tax at source in respect of payment towards trees. He had failed to appreciate that the AO had brushed aside the factual contentions of Appellant without recording any reason; - that, in the course of installing the towers the Appellant was liable to pay compensation for having removed the standing crops, cutting of trees etc. to the farmers and for this purpose and as a matter of convenience the contractors were instructed to pay the sums to the farmers and landlords on behalf of the assessee; - that the CIT (A) had failed to appreciate that the sums paid by the Appellant were in the nature of reimbursement and therefore, the provisions of section 194C do not get attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation, it is contended that the tax was deducted at source based on the actual payment made to the non-resident companies to provide technical know-how and so also, the consultancy charges. Since small amount was spent by the company towards the accommodation and conveyance of the officers of non-resident companies, when they visited India, under the bona fide belief the same was not deducted and there was no intention to violate the provisions of s. 195 of the IT Act. We do see some force in the arguments advanced by the learned counsel for the appellant on the first question of law. Since the authorities have not properly considered the explanation offered, when the assessee company had deducted the tax at source in respect of the major payments made by it to a non-resident company, an ordinary man of prudence has to accept the explanation offered by the appellant In the circumstances, we are of the opinion that the levy of penalty under s. 201 in respect of the tax not deducted on account of the reimbursement made by the assessee has to be set aside.........." (ii) In the case of ITO, Bangalore vs. M/s CGI Information Systems and Management, BIAL vs. ITO, Bangalore (200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1987] 165 ITR 416 (Cal). Also relied on the following case laws:- a. CIT vs. Dunlop Rubber Co. Ltd (1983) 142 ITR 493 (Cal); b. CIT vs. Tata Engineering and Locomotive Company Limited (2001) 165 CTR 67 (Bom.); c. CIT vs. Industrial Engineering Projects Pvt. Ltd. 202 ITR 1014 (Del); d. Rolls Royce India Ltd vs. ITO 25 ITR 136 (Del) (Trib) (TM); e. Saipem SPA vs. DCIT [2004] 88 ITD 213 (Delhi) (TM); f. Clifford Chance UK 82 ITD 106 (Mum); g. HNS India VSAT Inc vs. DDIT 95 ITD 157; h. Gujarat Ambuja Cements Ltd vs. DCIT [2005] 2 SOT 784 (Mum); i. MSEB vs. DCIT [2004] 90 ITD 793 (Mum); j. Sedco Forex International Drilling Inc v. DCIT [2000] 72 ITD 415; k. Pilcom vs. ITO [2001] 77 ITD 218 (Cal); l. ACIT vs. Modicon Network (P) Ltd. (14 SOT 204) (Delhi); m. Decta In Re (1999) 237 ITR 190 (AAR); II. In respect of survey charges as professional charges and applicability of s. 194J etc:- - that the CIT (A) was not justified in not addressing ground of the Appellant to adoption of incorrect amount by the AO at Rs. 40,06,13,291/- instead of Rs. 17,08,766/- - that the CIT (A) had wrongly stated that the appellant admitted hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removal of trees and destruction of standing crops being an isolated incident while installing of a tower, we would have, without any iota of hesitation, accepted the theory of the assessee? However, the amounts paid towards cutting of trees [source: Annexure 'B' to the AO's order] were running into crores of rupees which unambiguously exhibit the enormity of trees have been removed to facilitate for installation of towers and also subsequent hauling of uprooted trees to the storing places of the assessee. These twin works have been executed by the contractors on behalf of the assessee. In such an event, one could safely infer that the assessee had required, rather assigned, the contractors:- (i) to pay compensation to the farmers for losing of their trees/crops etc., and (ii) for removing and carting of the logs to its storing places. However, the AO in his impugned order had made a sweeping conclusion that the assessee had incurred expenses for cutting of trees to the tune of more than Rs.2 crores for which the assessee was required to deduct tax u/s 194C of the Act. 8.2.3. As rightly highlighted by the CIT (A), the contractors have not only obliged the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the contractors for which, the assessee was obliged to make payments for such execution, which involve work and labour coming within the purview of section 194C of the Act. In a nut-shell:- (i) the assessee shall quantify the compensation so paid which, as recorded supra, will not attract the provisions of s.194C of the Act; (ii) the balance amount out of the total amounts [Annexure B to the impugned order of the AO] shall attract the provisions of s.194C of the Act. It is ordered accordingly. 8.2.6. Before parting with the issue, we would like to record that we have duly perused the case laws on which the assessee had placed reliance and of the considered view that they were distinguishable and not directly applicable to the facts of the issue under dispute. Survey work:- 8.3. With regard to survey work, it was the contention of the assessee that the issue in question has not been properly dealt with by the first appellate authority. It was, further, contended that the assessee had, in fact, paid only Rs.17,08,766/- whereas the AO had adopted the figure of Rs.40.06 crores. On a glimpse of the additional grounds of appeal raised before the CIT (A) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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