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TMI Blog2023 (11) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied in this case in view of the CBDT circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988), as these payments were not contract payments. AO merely based on the fact that these payments were made for the work and relying the statement given by the AAO u/s 131 fasten the liability u/s 194C which is against the various facets argued by the ld. AR of the assessee. It Also noted here that in the statement recorded the AAO in answer to Question no 4 denied of involvement of contractor in his department. Considering these facts, and CBDT circular no 502 dated 27.01.1988, we are of the considered view that payments made to these Van Samitis are not contract payments and provisions of section 194C thus do not apply. As decided in M/s. Santur Infrastructure Pvt. Ltd [ 2019 (12) TMI 1106 - ITAT DELHI] assessee was not required to deduct TDS as the payment of EDC was not made out of any statutory and contractual liability to HUDA with whom the assessee has no privity of contract - Decided against revenue. - Dr. S. Seethalakshmi, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Sh. Sunil Porwal (CA) For the Revenue : Sh. Anup Singh (Addl. CIT) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i has erred in deleting the levied tax demand u's 201(1)/201(1A) of the L. T. Act, 1961 of Rs 1,62,92,205/- (TDS demand u/s 201(1) Rs. 1,17,77,975/- interest u/s 201(1A) Rs. 45,14,230/-) on the grounds that payments made to AOPs namely Ecco Development committees (EDCs) Van Surksha and Prabandh Samiti (VFPMCs) are not contract payments under the provisions of section 194C of the I.T. Act, 1961 where as these EDCs/VFPMCs do not fall into category of State Government or Local Authority as per Section 10(20) or section 10(46) of the Income Tax Act or any sub-section of section 10 comes to their relief nor they are registered as trust as per provisions of section 11 and 12 of the Income Tax Act, 1961. Since these EDCs/VFPMCs are not registered as Co-operative Society, the provisions of Section 80P of the Income Tax Act are also not applicable on them. Hence by virtue of their creation they are not 2. Whether on the facts and circumstances of the case, the ld. CIT(Appeals), NFAC, Delhi has erred in referring CBDT's circular no 502 (F No.385/49/86-ITC dated 27.01.1988) without appreciating the facts of the case that conditions for exemption us 194C are not satisfied in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajasthan. During a spot verification survey conducted on the appellant on 03.01.2019 u/s 133(2A) of the Act it was found that the appellant has been making payments of large sum of to certain groups for executing work for the appellant. These groups were Eco Development Committee (EDCs) and Van Suraksha and Prabandhan Samiti (VFPMC). These groups were incorporated as Self Working Group for jointly working with the Government for preservation of forest and other such programme as a part of implementation of Panchayati Raj. as per Rajasthan State Government Notification S.No. F/7(39)/VAN/90 dated 17.08.1999. During the course of assessment proceeding, the appellant before the AO submitted that payments made to these EDC/VFPMC do not constitute as contract payments as there were specific on employing contractor. It was submitted that these Van Samitis are not contractor and the work executed by them under Government Public Partnership under Government Scheme of National Rural Employment Programme(NREP) and Rural Landless Employment Guarantee Programme (RLEGP). Further, as per Government notification members of the samitis would only be local inhabitants of the village or the area an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in the category of 'thekedar' i.e. contractor. Thus work was executed through participation of people and government as per notification framed by the State Government as per National Forest Policy (1988) of the Central Government. Therefore, conditions for exemption u/s 194C are satisfied in this case in view of the CBDT circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988), as these payments were not contract payments. The AO was incorrect in placing reliance on the statement given by the AAO u/s 131 for fixing liability u/s 194C. It is to be noted here that in the statement recorded the AAO in answer to Question no 4 denied of involvement of contractor in his department. Considering these facts, and CBDT circular no 502 dated 27.01.1988, I am of the opinion that payments made to these Van Samitis are not contract payments and provisions of section 194C thus do not apply. The AO is directed to delete the tax demanded u/s 201 of the Act. Grounds raised by the appellant are thus allowed. 7. Feeling dissatisfied revenue has preferred the present appeal challenging the finding of the ld. CIT(A) on the grounds as reiterated here in above. All the grounds raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat CBDT S circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988) applicable to payments of VFPMC are squarely applicable to such VFPMC S. BOTH THE GROUND ARE COMMON IN NATURE HENCE DEALT JOINTLY. 1. BRIEF OF FACTSOF CASE ARE AS UNDER:- (a) That the deductor assessee is an office of state government of Rajasthan who works as forest department of state of Rajasthan it s work include conservation of forest and increasing the forest area through re-foresting in Ajmer Region of state. (b) It has been observed by A.O. during spot verification; that assessee is regularly paying large sum of money to AOPS, called Eco Development Committee (EDC S) or Van Suraksha and Prabandh Samiti (VFPMC). (c) The work of these VFPMC so called AOP include supplying of labour and carrying of any such work which include defence of forest in their assigned zone etc. thus these are schemes of the state government for planning, coordination, supervision, monitoring and implementation of the programme is the responsibility of district rural agencies and in such implementation the panchayati raj is actively involved as well as such voluntary organization are also involved and under these schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not even tried to refer the provisions exemptions available in Income Tax Act, mere PAYMENT does not mean CONTRACT rather it is government schemes which are executed to safeguard the funds to get the desired work done. 2. LEGAL ASPECTS:- (1) According to the provisions of section 194C, any person responsible for paying any sum to any contractor for carrying out any work in pursuance of a contract between the contractor and the agencies specified therein shall, at the time of credit of such sum to the amount of the contractor or payment thereof in cash, etc., deduct an amount equal to 2 per cent of such sum as income-tax on income comprised therein. (2) According to the NREP Scheme, at the district level the entire work relating to planning, co-ordination, supervision and monitoring of implementation of the programme will be the responsibility of the District Rural Agencies. In the implementation of the programme, the Panchayati Raj institutions are actively involved. Voluntary organizations are also involved in such implementation. The wages under this programme are paid partly in food grains and partly in cash. There is a specific ban on employment of contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has decided that State Government Forest Department is not an INDUSTRY but there act are UNIVERSAL . Few work order under NREGA (Mahatama Gandhi National Rural Employment Gurantee Assurance Programme) other government flagship schemes are also there to justify the facts non applicability of provisions of section 194C of Income Tax Act, 1961 circular No. 502 dated 27.01.1988 of Board is clearly applicable. (6) ALTERNATIVELY; in terms of section 206AA read with section 139A of Act and Article 14 of The Constitution of India 1950 the facts are to be examined that whether the DEDUCTION OF TAX AT SOURCE REQUIREMENT TO FURNISH PAN, is must (UNCONSTITUTIONAL) in view of statute in case of person whose income is below taxable limit. Refer High Court of Karnataka (2012) 208 Taxman 208 / 22 Taxmann.com 157 Karnatka in case of Smt. A Kowsalya Bai V/s Union of India where the Hon ble High Court has decided that section 139A which is introduced way back in April 1991 is in vogue this provision stands the scrutiny of Article 14 of the constitution for reasonableness. But, section 206AA which is contrary to section 139A appears to be discriminatory as it is overriding sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 / 143(2) / 142(1) of Act so far since no income taxable. Thus when there is no taxable income of any such institution (Samitis) than the provisions of section 201 and section 201(1A) are applicable ASSESSEE IS NOT IN DEFAULT . Section 4 of Income Tax Chapter II / States BASIS OF CHARGE Thus MUTUAL CONCERNS , where the members of the assesse association are contributors to a common fund and had the right to participate in surplus, the surplus would not be assessable as the assessee s income on the ground of mutuality CIT V/s Cement Allocation Co.-ordinating Org. (1999) 236 ITR 553 (Bom.) Section 4 of Act further defines what is CONSORTIUM MEMBER what is AOP features of consortium arrangement what is not AOP etc. (Refer circular no. 7/2016 dated 07.03.2016) copy as enclosed. (Page 1) Thus till it is not established that such VAN SURAKSHA AND PRABHANDAN SAMITI (VFPMC) are AOP or not or are only MUTUAL CONCERNS thus has basic charge to Income Tax u/sec. 4 of Act. The A.O. without verifying this test has straightway considered such VFPMC as AOP liable to tax thus instead considering such MUTUAL CONCERNS for no profit object has consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand, if the activities disclose profit earning motive and are tainted with commerciality and what is being offered are usual privileges, advantages and conveniences, that would attract the principle of mutuality. Such a finding and consequent applicability of the principle cannot be interfered with unless the revenue from the record points out that the findings are totally perverse CIT v. Willingdon Sports Club (2008) 302 ITR 279 (Bom). Thus from above facts discussions it is clear that such VFPMC are not AOP S (An independent entity for levy of tax, basis of charge section 4 of Income Tax Act, 1961) but are only MUTUAL CONCERNS thus no tax liability, existence (Separate) proved. Further as held at ITAT Mumbai Bench in case of ICICI Securities Ltd. V/s ITO International Taxation order dated 09.11.2022 it has been held that Liability to deduct TDS u/sec. 201 of Income Tax Act, is a VICARIOUS LIABILITY; which ends with discharge of principal liability of recipient of income. Thus when RECEIPIENT OF INCOME such society s VAN SURAKSHA AND PRABHANDAN SAMITI (VFPMC) are mutual concern of Rajasthan State Forest Department than there is no tax liability of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be no recovery of the tax alleged to be in default once again from the appellant considering that the payee had already paid taxes on the amount received from the appellant. The Tribunal had also held that the taxes once again could not be recovered from the deductor assessee since the taxes had already been paid by the receipient of income. The Hon ble Supreme Court further noted the contents of the Circular dated 29.01.1997 issued by CBDT and held that the deductor assessee was liable to pay interest under section 201(1A) of the Act till the date of payment of taxes by the deductee assessee, observing as under:- 10 Be that as it may, the Circular no. 275/201/95-IT(B), dated 29th Jan, 1997 issued by the CBDT, in our considered opinion, should put an end to the controversy. The circular declares no demand visualized under section 201(1) of the IT Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under section 201(1A) of the Act till the date of payment of taxes by the deductee assessee or the liability for penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has rightly been deleted by the ld. CIT(A). 12. In the rejoinder the ld. DR relied upon the finding of the lower authorities and vehemently argued that the subsequent action of the assessee taking PAN making compliance of TDS itself demonstrate that the assessee for the year under consideration is liable for TDS liability. Based on this aspect of the matter he supported the order of lower authority. 13. We have heard the rival contentions and perused the material placed on record. The brief facts of the case are that the appellant is an office of State Government of Rajasthan working on conservation and reforestation of forest area in the state of Rajasthan. ITO, TDS made a spot verification cum survey on the office premises of the assessee on 03.01.2019 u/s 133(2A) of the Act. During the spot verification the AO found that the assessee making payments of large sum to certain groups for executing the various work. The payments were made to Eco Development Committee (EDCs) and Van Suraksha and Prabandhan Samiti (VFPMC). These groups were constituted as Self Working Group jointly with the Government for preservation of forest and other such programme as a part of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supervision of the State Governments in conformity with the guidelines framed by the Central Government. There is no contract between the village committee/voluntary agencies and the State Governments, which is sine qua non for attracting the provisions of section 194C. Moreover, these schemes specifically ban the employment of contractors/middlemen for the execution of the work undertaken under these schemes. The Van Samitis are instituted as per Rajasthan State Government Notification S.No. F/7(39)/VAN/90 dated 17.08.1999 for various conservation / forestation programme consisting people of local / village area for their upliftment through employment. As per notification these Van Samitis are not in the category of 'thekedar' i.e. contractor. Thus, work was executed through participation of people and government as per notification framed by the State Government as per National Forest Policy (1988) of the Central Government. Therefore, conditions for exemption u/s 194C are satisfied in this case in view of the CBDT circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988), as these payments were not contract payments. The ld. AO merely based on the fact that these payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that TDS was not required to be deducted. 12. Ld. AR for the assessee contended that DTCP had issued a clarification dated 29.06.2018 to the effect that no TDS was/is required to be deducted in respect of payment of EDC and relied upon the order passed by the coordinate Bench of the Tribunal in case of RPS Infrastructure Ltd. vs. ACTI in ITA Nos.5805, 5806, 5349/Del/2019 order dated 23.07.2019 wherein it is held that, on the basis of letter supra issued by DTCP that the letter covers both past and future transactions and TDS was not required to be deducted. We have perused the order passed by the Tribunal in case of RPS Infrastructure Ltd. (supra) in which letter (supra) has been examined, it is clear that TDS was/is not required to be deducted in respect of deduction of EDC. So, in view of the matter, we are of the considered view that when DTCP, a Department of Government of Haryana, has itself clarified not to deduct the TDS, no penalty is leviable u/s 271C on the assessee. 13. Even otherwise, for argument sake, even if it is assumed that tax is required to be deducted on EDC but not deducted under bonafide belief that the provisions contained u/s 271C are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by returning following findings :- 31. We have carefully considered the rival contentions and perused the orders of the lower authorities. On looking to the facts of the case as discussed by us in appeal of the assessee and revenue in 201(1) and 201(1A) proceedings above, we find that the belief of the assessee is bonafide and failure to deduct tax at source u/s 194C of the Act is for a reasonable cause. The ld Assessing Officer could not show any contemptuous conduct on part of the assessee for non-deduction of tax at source. There could also not be any reason for non-deduction as assessee has made most of the payments to the public sector undertaking. The Hon'ble Supreme Court in the case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 has approved the decision of the Hon'ble Delhi High Court wherein, it has been held that it is necessary to establish 'contumacious conduct' on the part of the assessee for failure to deduct tax at source for levy of penalty u/s 271C of the act. In the present case, all the recipients have also furnished a certificate that they have received the payment. In view of this, we reverse the order of the ld CIT (A) confirming the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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