2016 (7) TMI 172 - AT - Income Tax

Tribunal upholds assessee's decision on tax deduction, disallows Revenue's appeal.

Income Tax Officer, Ward 14 (5), Hyderabad Versus M/s. Palavi-MRKV JV

The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision that the assessee was not obligated to deduct tax at source under section ... TDS u/s 194C - TDS liability - Joint Venture (JV) assessee has given the entire contract to its constituent member M/s. Pallavi Constructions. - Held that:- As per Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township P Ltd (2015 (9) TMI 79 - DELHI HIGH COURT ), once the payee had filed his return and offered the sum received to tax, no disallowance can be made u/s 40(a)(ia) and the assessee would not be treated as an assessee in default. Further the decision of in the case of KCEL-MEIL (JV) [2015 (1) TMI 744 - ITAT HYDERABAD] we observe that the provisions of section 194C(2) are not attracted in the case of payments made by the assessee to its constituent members, there was no question to treat the assessees in default u/s 201(1). Following above judicial pronouncements, we are of the view that the relief granted to the assessee by the order of the CIT (A) is just and proper and therefore shall be sustained - Decided in favour of assessee. Issues:1. Obligation to deduct tax at source under section 194C of the I.T. Act, 1961.2. Disallowance made u/s 40(a)(ia) on payments without deduction of tax at source.Analysis:Issue 1:The appeal revolved around whether the assessee was obligated to deduct tax at source under section 194C of the I.T. Act, 1961. The Revenue contended that the assessee was required to deduct tax at source, while the assessee argued that the provisions of section 194C were not applicable to their case. The Revenue claimed that the assessee had a direct relationship with the sub-contractor, falling under the ambit of section 194C. However, the assessee maintained that as an AOP, it only acted as a collective entity for its members, and there was no direct contract between the AOP and its JV Partners. The learned CIT (A) referred to various judicial pronouncements and held that there was no obligation on the assessee to deduct TDS on payments made to its constituents, thereby deleting the disallowance u/s 40(a)(ia).Issue 2:The second issue pertained to the disallowance made u/s 40(a)(ia) on amounts paid to constituents without deduction of tax at source. The Revenue appealed against the decision of the learned CIT (A) to delete the disallowance. During the appeal, the learned AR cited the decision of the Hon'ble Delhi High Court and a Coordinate Bench in Hyderabad, emphasizing that as long as the payee had filed its return of income and paid tax on the income received, no disallowance could be made u/s 40(a)(ia). The Tribunal, after considering the facts, submissions, and judicial decisions, upheld the relief granted by the CIT (A), stating that the case of the assessee was covered by the judicial pronouncements referred to, and hence, dismissed the appeal filed by the Revenue.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the decision of the CIT (A) regarding the obligation to deduct tax at source under section 194C and the disallowance u/s 40(a)(ia) on payments made without deduction of tax at source. The Tribunal's decision was based on the interpretation of relevant legal provisions and judicial precedents, ensuring that the assessee was not treated as in default under the Income Tax Act.