2009 (4) TMI 536 - AT - Income Tax

Tribunal Partially Allows Appeal, Deletes Disallowances Under Sections 194C and 194J for Labour Charges and Accountant Salaries.

Samanwaya Versus Assistant Commissioner of Income-tax, Circle-2, Burdwan

Samanwaya Versus Assistant Commissioner of Income-tax, Circle-2, Burdwan - [2009] 34 SOT 332 (KOL.) Issues Involved:1. Applicability of Section 40(a)(ia) of the Income-tax Act, 1961.2. Disallowance of labour charges under Section 40(a)(ia) for failure to deduct tax at source under Section 194C.3. Disallowance of salary paid to accountants under Section 40(a)(ia) for failure to deduct tax at source under Section 194J.Detailed Analysis:1. Applicability of Section 40(a)(ia) of the Income-tax Act, 1961:The assessee argued that the provisions of Section 40(a)(ia) were misread by the CIT(A) and were not applicable for the assessment year in question. The assessee contended that the provision, introduced by the Finance Act No. 2 dated 10th September 2004, was effective from 1-4-2005 and relevant for the assessment year 2006-07. Therefore, it was not applicable for the assessment year 2005-06. The Tribunal, however, focused on the specific grounds of disallowance under Sections 194C and 194J rather than the general applicability of Section 40(a)(ia).2. Disallowance of Labour Charges under Section 40(a)(ia) for Failure to Deduct Tax at Source under Section 194C:The assessee contended that there was no contract between the assessee and the Labour Sardars, and thus, Section 194C was not applicable. The Labour Sardars were merely leaders chosen by the labourers for identification and payment purposes, and there was no contractual obligation. The Tribunal referred to the Supreme Court's decision in Birla Cement Works v. CBDT and other relevant case laws, concluding that the essential condition for Section 194C was the existence of a contract, which was absent in this case. Therefore, the disallowance of Rs. 74,33,210 for labour charges was deemed unlawful, and the Tribunal deleted this disallowance.3. Disallowance of Salary Paid to Accountants under Section 40(a)(ia) for Failure to Deduct Tax at Source under Section 194J:The assessee argued that the salary paid to accountants did not constitute professional fees for accountancy services as envisaged under Section 194J. The Tribunal agreed, noting that the payments were for accounting charges and not to a Chartered Accountant. Therefore, the provisions of Section 194J were not applicable. Consequently, the disallowance of Rs. 24,000 was deleted.Conclusion:The Tribunal allowed the appeal of the assessee in part, specifically deleting the disallowances made under Sections 194C and 194J, thereby providing relief on the grounds of labour charges and salary to accountants.