TaxTMI 
TaxTMI 
2001 (9) TMI 257
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....aid to be available to him (ITO-TDS) for this purpose, and on a due consideration of the overall scheme of levy and collection of taxes the ld. CIT(A). Kanpur, should have quashed the order as a whole, inter alia on this ground." 4. Since the common grounds have been taken in all these seven appeals and common issues are involved, for the sake of convenience, we proceed to decide these appeals by a common order. 5. Shri S.K. Garg, F.C.A., appeared on behalf of the assessee, whereas Shri D.K, Srivastava, ld. Sr. DR represented the Department. 6. Before taking up the main issue involved in the grounds of appeal (Ground Nos. 1 to 7), we consider it proper to narrate the relevant facts concerning this matter, which are as under: 6.1 The assessee-Corporation entered into a contract with the National Industrial Development Corporation Limited (for short - NIDC) for constructing its Head Office Complex Building at A-1/4, Lakhanpur, Kanpur. It may be pointed out that the assessee-Corporation, is an undertaking of the State of Uttar Pradesh and the NIDC is an undertaking of Government of India. 6.2 In the agreement dated 7-8-1989, the stipulations were incorporated specifying the dutie....
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.... Thereafter, lot of correspondence followed between the Income-tax Department and the assessee on this point. Since the Department was not convinced with the reply of the assessee and the stand taken by it, the ITO proceeded to pass the order under section 201/201(1A) of the Income-tax Act, 1961. 6.8 The assessee preferred separate appeals against the order of the Assessing Officer, which appeals were decided by a common order by the ld. CIT(A) by upholding his order and dismissing the appeals of the assessee. The order of the ld. First Appellate Authority has been challenged before us in these appeals. 7. In this factual background of the matter, we proceed to adjudicate the issue involved in these appeals. 8. To state the controversy in brief, the stand of the Department is that NIDC was entrusted with the entire construction work by the assessee and in terms of agreement, NIDC was to discharge its function as a Contractor and, therefore, the assessee was under a legal obligation to deduct TDS from the payments made to NIDC, whereas the stand of the assessee is that NIDC was simply a consultant for designing and supervising the construction work and it gave contracts to others....
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....ere given for carrying out the works were not sub-contractors. Had they been sub contractors, then the rate of TDS deducted from payments made to them would have been only 1 per cent. (vii) The NIDC was just looking after the work or supervising the work and not carrying out the contract. Thus, it functioned only as a consultant. (viii) The money was kept or deposited with the NIDC under trust. It was not a contract receipt for them. (ix) If the agreement is read as a whole, the only conclusion will be that the NIDC was rendering consultancy services, which were professional services and, which services were not subject to deduction of TDS under section 194C(1). 10. The ld. Sr. DR, on the other hand, invited our attention to the objects behind the scheme of TDS and the legislative intent behind section 194C. According to him, the provisions relating to deduction of TDS cost absolute liability on the assessee. According to him, these are very important provisions of the Income-tax Act and in case of breach, the penal consequences follow. The ld. Sr. DR submitted detailed argument in explaining the meaning of term "any work" appearing in section 194C and also to the term 'contrac....
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....he sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisations supply of labour under a contract from a contractor. 12. The ld. Sr. DR also submitted that the cases relied upon by the ld. counsel for the assessee were distinguishable on facts. The ld. Sr. DR also placed reliance on the decisions in Grindlays Bank Ltd. v. CIT [1992] 193 ITR 457 (Cal.), Bennet Coleman & Co. Ltd. v. V.P. Damle, Third ITO [1986] 157 ITR 812 (Bom.) and Associated Cement Co. Ltd.'s case. 13. In reply to the arguments of the ld. Sr. DR, the ld. counsel for the assessee submitted that the amendment and incorporation of section 194J sufficiently shows that prior to amendment the professionals and technical consultants were not covered with in the definition of 'anywork'. According to him, the Consultants and Engineers engaged in the profession and consultancy services in various fields including the Project Management came to be covered within the scheme of TDS by insertion of section 194J as inserted by the Finance Act, 1995. In this regard, he also made reference to Circular No. 17 dated 14-8-1995. According to the ld. counsel, th....
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....ons in support of our conclusions: A. The contract dated 7-8-1989 between the UPSIDC and NIDC cannot be treated to be a contract for carrying out contract work by a contractor and contractee. The intention of the parties is to be gathered from the relevant stipulations of the Deed, which are reproduced below: "Whereas UPSIDC intends to construct its Office Complex in Kanpur (hereinafter referred to as 'Project'): And whereas in this connection UPSIDC desires to engage the services of NIDC as the Consultants to the Project to perform the work hereinafter set forth; And whereas NIDC represents that it is ready, willing and able to provide such services;" "1.1 For the above objective, UPSIDC has appointed NIDC as the consultants for providing design, engineering, supervision and construction management services for the total implementation of the Project." "Article V: Remuneration 5.1 In consideration of the services to be rendered by the NIDC stipulated under Article II above, NIDCs fee shall be @ 11% (Eleven per cent) of the actual executed cost of the project if the same is within Rs.3.0 crores. In case the actual executed cost of the project goes beyond Rs.3.0 crores, fee s....
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....source under section 194(c) of the Income-tax Act, 1961, regarding construction of UPSIDC Head Office Complex building being done at A-1/4, Lakhanpur (Kanpur). In this connection, it is to inform you that the construction work of UPSIDC Head Office building at Lakhanpur, Kanpur, was entrusted to the National Industrial Development Corpn. Ltd. (NIDC), New Delhi as Consultants and all the contracts have been given and arranged by the NIDC, New Delhi. The tax at source from the contractors has also been deducted by NIDC. NIDC is a Government of India undertaking and their address is as below." Letter dated 22-7-1996: "2. Yeh ki iske Mukhalaya Hetu Ek Bhawan Nirman Rashtriya Audyogik Vikas Nigam, New Delhi, jo ki Kendriya Sarkar ka Upkram Hai, Ne banwaya. Humne nahin banwaya. Unhone hee humse samay samay par lagti Rs. lekar nirman Thekadaro ko anubandhit kiya aur bhugtan bhi kiya. Hamse nirman karne wale Thekedaron athwa labour adi se koi samvida ya sambandh nahin raha hai aur na hi hamne unhe koi bhugtan kiya hai. 3. "Yeh ki hame jankari hui hai ki unhone hi thekedaron se TDS katkar, New Delhi, main jama bhi kiya hai. unka pata nimna hai......" Letter dated 31-7-1996: (ii) That i....
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....ied that NIDC have already deposited the TDS deducted upto 31-2-1996 with the Central Government and annual return submitted to the Income-tax Authorities [ITO TDS Wd. 23(2) vide Diary No. 001952 dated 28-6-1996.]" It may further be pointed out that NIDC has further clarified the entire position by its letter dated 16-2-2000, copy placed at page 32 of the paper book (Volume II of the assessee). In this letter, the NIDC has certified that they undertook consultancy work of providing Engineering and Construction Management Services to the UPSIDC for their Complex at Kanpur vide agreement dated 7-8-1989 on a fee @ 10 per cent of the executed cost of the works as per the agreement executed with UPSIDC. In para 3 of the letter, it is specifically stated that NIDC as Consultant of UPSIDC as per agreement and awarded contracts on behalf of the UPSIDC. Paras 3, 4 and 5 are reproduced below: "3. That we as consultant of UPSIDC as per agreement, awarded contracts on behalf of the UPSIDC to following contractors: -------------------------------------------------------------------------- Name of the contractor &n....
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....ical services under section 194J of the Income-tax Act." D. It may be pointed out that despite the categoric version of the assessee and that of the NIDC regarding payment of TDS by NIDC on behalf of the assessee, the Deptt. did not prefer to verify the amount and rate of TDS deductions and the fact of deposit of the same by NIDC. However, since this aspect is not in dispute the uncontroverted version of the assessee and that of NIDC regarding deduction of TDS by NIDC and payment of the same by it has to be accepted. E. It may also be pointed out that the Department has not considered this plea of the assessee on this aspect of the matter. Had the NIDC been treated as a Contractor and other agencies as sub-contractor, then the rate of TDS would have been different. So far as such agencies are concerned and in that situation, whereas the TDS was demanded from the assessee, excess amount deducted by NIDC should have been refunded. F. As per the understanding between the assessee and the NIDC, NIDC was a Consultant and not contractor and, therefore, in view of the subsequent amendment for charging TDS on payments to professionals, the assessee deducted TDS from NIDC. The details of....
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..... The Board had earlier taken a different view about the applicability of section 194C while issuing directions in its two circulars dated May 29, 1972, and September 26, 1972, but, later on, giving an erroneous and misconceived interpretation to the observations of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435, the Board issued unsustainable and illegal directions (Circular No. 681 dated March 8, 1994). The intention of the Legislature, while enacting section 194C, is clear and unambiguous and it shall have to be seen in the background of subsequent legislative acts which have already been discussed earlier. Once a provision by way of enactment of section 194E was attempted to be made in the Act in the year 1987, and since that effort did not materialise, a new provision ultimately came to be inserted in section 194J in the year, 1995. The impugned Circular No. 681, dated March 8, 1994, is, therefore, quashed." Thus, the legal position is clear that the provisions of section 194C would not be applicable to the services rendered by the professionals. Hon'ble Delhi High Court has also adopted a similar approach in the case of S.R.E Finance Ltd. and has h....
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....ct, 1961, to demand further tax from the employer in respect of the tax alleged to have been short deducted at source in respect of the employee. In the case of CIT v. Life Insurance Corpn. [1987] 166 ITR 191 (Mad.), following its earlier decision, the Hon'ble M.P. High Court has held that where a regular assessment of an employee had been completed and the amount of tax was fully paid by him, the ITO, TDS, had no jurisdiction under section 201 of the Act to demand further tax from the employer in respect of the tax short deducted relating to such employee. Similar view was taken by the Hon'ble M.P. High Court in the case of CIT v. M.P. Agro Morarji Fertilizers Ltd. [1989] 176 ITR 282, wherein, following the decision in the case of Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (MP), it was held that if a regular assessment of an employee is completed, and amount of tax was fully paid by him, the ITO had no jurisdiction under section 201 of the Act to demand further tax from the employer. If we apply the principle laid down in the above cases to the present case, it will be found that the required amount of TDS was duly deducted by NIDC and also deposited by it and, theref....