2020 (3) TMI 958 - AT - Income Tax

Tribunal Reverses Default Status: Staff Payments Fall u/s 192, Not 194C; Penalties Annulled, Appeals Allowed.

The ITAT reversed the orders declaring the appellant as 'an assessee in default' under section 201(1) of the I.T. Act, 1961. The Tribunal found that ... TDS u/s 194C OR 192 - salary payment made to staff - amount is less than than taxable limit u/s 192 - demand of TDS u/s 194C - relationship between the management and teaching staff - CIT(A) has confirmed the action of the Assessing Officer in holding the deductor/appellant to be an assessee in default, for non-deduction of tax on salary payment to the teachers, as required u/s 194C - HELD THAT:- The issue of relationship of master and servant stands dealt with by the Hon'ble Supreme Court in ‘M/s Dharangadhra Chemical Works Ltd. vs. State of Saurashtra’ [1956 (11) TMI 33 - SUPREME COURT] wherein, it has been held that prima facie test for the determination of relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do, but also the manner in which he shall do his work; that the nature or extent of control which is requisite to establish the relationship of employer and employee must necessarily vary from business to business and is by its very nature, incapable of precise definition; that the correct method of approach, therefore, would be to consider whether having regard to the nature of the work there was due control and supervision by the employer; that a person can be a workman even though he is paid not per day, but by the job; that the fact that rules regarding hours of work, etc., applicable to other workmen may not be conveniently applied to them and the nature as well as the manner and method of their work would be such as cannot be regulated by any directions given by the Industrial Tribunal, is no deterrent against holding the persons to be workmen within the meaning of the definition if they fulfill its requirement. ‘M/s MCM D.A.V. College for Women’ [2014 (8) TMI 1186 - ITAT CHANDIGARH] has been followed by the Jaipur (SMC) Bench in ‘Principal Sri Sathya Sai College for Women, Jaipur vs. The ITO, Jaipur’ [2019 (9) TMI 41 - ITAT JAIPUR]. No decision contrary to ‘M/s MCM D.A.V. College for Women’ (supra) has been cited before us. We hold that the payment in question is not covered by the provisions of section 194C of the Act. Rather, it comes under section 192 of the Act, due to which, the authorities below have erred in holding the deductor/appellant to be an assessee in default. Issues:1. Joint show cause notice under section 201(1)/201(1A) read with section 194C of the I.T. Act, 19612. Declaration of appellant as 'an assessee in default' and imposition of penalty under section 201(1) of the I.T Act, 19613. Applicability of section 194C on payment made to staff not of contractual natureAnalysis:Issue 1: Joint show cause notice under section 201(1)/201(1A) read with section 194C of the I.T. Act, 1961The Assessing Officer found that the deductor/appellant had not deducted tax on payments to teachers/construction work, leading to a joint show cause notice under section 201(1)/201(1A) read with section 194C of the I.T. Act, 1961. The appellant contested this, arguing that the payment to staff was not of a contractual nature and should be liable to TDS under section 192, as the payments were below the taxable limits mentioned under section 192. The Tribunal considered precedents like 'ACIT(TDS), Chandigarh vs. M/s MCM D.A.V. College for Women, Chandigarh' and 'Principal Sri Sathya Sai College for Women, Jaipur vs. The ITO, Jaipur' to determine that the payments were not covered by section 194C but rather by section 192, leading to the reversal of the order holding the appellant in default.Issue 2: Declaration of appellant as 'an assessee in default' and imposition of penalty under section 201(1) of the I.T Act, 1961The Assessing Officer declared the appellant as 'an assessee in default' for non-deduction of tax on salary payments to teachers, invoking section 201(1) of the I.T Act, 1961. The appellant argued that penalty could only be levied under section 221 of the Act after establishing that the deductor failed to deduct tax without a valid reason. The Tribunal, referring to legal principles regarding the relationship between master and servant, found that the payments were not subject to section 194C but to section 192, leading to the acceptance of the appellant's grievance and reversal of the orders under appeal.Issue 3: Applicability of section 194C on payment made to staff not of contractual natureThe dispute arose from the nature of payments made to staff, with the appellant contending that section 194C did not apply as the payments were not of a contractual nature. The Tribunal, relying on legal precedents and the nature of the work relationship between the deductor and the staff, concluded that the payments fell under section 192 rather than section 194C. This determination led to the acceptance of the appellant's contention and the allowance of all appeals.In conclusion, the Tribunal's detailed analysis and reliance on legal precedents resulted in the reversal of the orders holding the appellant in default, emphasizing the importance of correctly applying the provisions of the Income Tax Act based on the nature of payments and the legal relationship between the parties involved.