Van Samitis forest conservation payments not subject to TDS under Section 194C provisions

The ITAT Jaipur held that payments made to Eco Development Committees and Van Suraksha and Prabandhan Samiti for forest preservation/reforestation activities through self-help groups do not constitute contract payments under Section 194C. The tribunal found these Van Samitis were established per Rajasthan State Government notification for conservation programs involving local communities, not as contractors. Relying on CBDT Circular No. 502/1988, the tribunal concluded TDS provisions under Section 194C do not apply to such payments made for community-based forest conservation work. The assessee was not required to deduct TDS, and the appeal was decided against revenue.

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Issues Involved:
1. Condonation of Delay
2. Applicability of Section 194C on Payments to EDCs/VFPMCs
3. Reliance on CBDT Circular No. 502
4. Nature of Payments to EDCs/VFPMCs

Summary:

1. Condonation of Delay:
The revenue filed an appeal with a delay of 30 days, citing technical glitches as the reason. The assessee did not object, and the tribunal condoned the delay based on the Supreme Court's decision in the case of Collector, Land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC), admitting the appeal.

2. Applicability of Section 194C on Payments to EDCs/VFPMCs:
The revenue challenged the deletion of tax demand under Section 201(1)/201(1A) by the CIT(A), arguing that payments made to Eco Development Committees (EDCs) and Van Suraksha and Prabandhan Samitis (VFPMCs) should be considered contract payments under Section 194C of the Income Tax Act, 1961. The AO had determined that these payments required TDS deduction, as the EDCs/VFPMCs did not fall under the exemptions provided by Sections 10(20), 10(46), 11, 12, or 80P of the Act.

3. Reliance on CBDT Circular No. 502:
The CIT(A) allowed the assessee's appeal based on CBDT Circular No. 502 (F.No. 385/49/86-ITC dated 27.01.1988), which exempts payments under the National Rural Employment Programme (NREP) and Rural Landless Employment Guarantee Programme (RLEGP) from TDS provisions. The CIT(A) noted that these programs are executed with public participation and do not involve contractors, thus not constituting contract payments under Section 194C.

4. Nature of Payments to EDCs/VFPMCs:
The tribunal found that the payments made to EDCs/VFPMCs were for forest preservation and reforestation, executed by self-help groups under government schemes without involving contractors. These payments are not considered contract payments under Section 194C, aligning with the CBDT Circular No. 502. The tribunal also noted that the AO's reliance on statements from the accounting officer did not override the legal exemptions provided by the circular.

Conclusion:
The tribunal upheld the CIT(A)'s decision, stating that payments made to EDCs/VFPMCs are not subject to TDS under Section 194C, as they are not contract payments. The appeals filed by the revenue for the assessment years 2016-17 to 2018-19 were dismissed.

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