TaxTMI 
TaxTMI 
2011 (4) TMI 874
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....he tax on the basis that the assessee ought to have deducted the TDS in respect of payments made to the contractors towards supply of materials"; 2. that the CIT(A)-LTU had failed to appreciate that the assessee cannot be regarded as an 'assessee in default' u/s 201(1) as there was no obligation on the part of the assessee to deduct TDS under any of the provisions of the Act; 3. that the CIT(A)-LTU was not justified in sustaining the stand of the AO that the assessee ought to have deducted tax at source in respect of payment towards trees (being reimbursement of compensation for cutting of trees or crop losses to farmers or landlords); 4. The CIT(A)-LTU was not justified in not addressing the ground raised by the assessee relating to adoption of incorrect amount by the AO as Rs.40.06 crores in stead of Rs.17.08 lakhs:- - the CIT (A)-LTU had wrongly stated that the assessee had admitted its liability to deduct tax in respect of the survey work u/s 194J. He had misunderstood the statement of the assessee wherein the assessee only stated as 'how that Department is in the opinion that the survey work involves professional skills and knowledge. He....
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....al portion also, it was required to explain such inaction on the part of the assessee. 5.1. Brushing aside the assessee's contentions/explanation, the AO went ahead in concluding, after a detailed reasons recorded in his impugned order under challenge, that the assessee should have deducted tax at source on the supply portion also which it had failed to do so, the assessee was treated as 'assessee in default' and, accordingly computed the taxes u/s 201 as well as interest thereon u/s 201(1A) of the Act for the assessment years under dispute. 6. Aggrieved, the assessee took up the issues with the Ld. CIT (A)- LTU for solace. After due consideration of the lengthy contentions putforth by the assessee's A.R., perusing the observations made by the AO in his impugned order, analyzing the provisions of s.194C of the Act, extensively quoting the rulings in the cases of:- (i) Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC), (ii) Brij Bhushan Lal's case (1976) 115 ITR 524 (SC), (iii) State of Himachal Pradesh v. Associated Hotels of India Ltd. (1972) 29 STC 474 (SC), (iv) State of Gujarat (Commissioner of Sales tax, Ahmedabad) v....
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....pinion is that the contract was a contract for work and labour and not a contract for supply. I, therefore, do not find infirmities in the AO's findings and, therefore, the same is confirmed". 6.1. During the course of appellate proceedings, the assessee had also raised the following additional grounds before the Ld. CIT (A)-LTU:- (i) with regard to tree cutting compensation paid to the agriculturists/farmers that there was no obligation to deduct tax as the provisions of s.194C were not applicable; (ii) in respect of survey work that the survey work had nothing to do with the technical services and the assessee may or may not act upon the report of survey and, thus, there was no obligation on the part of the assessee to make TDS u/s 194J of the Act:- - without prejudice, the assessee had paid only Rs.17.08 lakhs and not Rs.40.06 crores under the head 'survey' as recorded in the order by the AO; The observations of the CIT (A) are extracted as under:- "5.2. I have examined the facts of the case and also gone through the details in respect of the transaction payments made to the contractors towards tree cutting. It is obser....
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....ce, income-tax will be deducted at source. In a case where, at the time when the contract was entered into, it was expected that the total payment for thereunder would not exceed Rs.20,000/- but later on it was found that the payment exceeds that amount, deduction of income-tax should be made in respect of earlier payments as well. 5.6. It is also contended that the contractor has been asked to make the payment to owners/farmers on behalf of KPTCL which amount is reimbursed by KPTCL to the contractors. The payment by way of reimbursement to the contractors cannot be said to be forming part of contractual payment to be made in pursuance of the turnkey contract. Here, it may be stated that payment to the owners/farmers were not made by the KPTCL directly but through the contractors only. The CBDT vide Circular No.715 dt.8.8.1995 in answer to question No: 30 clarified as under: "Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at sources." 5.7. In view of the Board's clarification, even the payment by way of reimbursement comes under the purview of section 194C of the ....
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.... assessee as well as the arguments put forth by the Ld. A R referred supra, we would like to point out that the following twin major issues, viz.,- (i) in treating the assessee 'as assessee in default' and demanding the tax u/s 201(1) of the Act on the basis that the assessee ought to have deducted TDS in respect of payments made to the contractors towards supply of materials; and (ii) in treating the assessee as 'assessee in default' and demanding interest on tax u/s 201 (1A) of the Act; raised in these appeals have since been raised in an identical fashion before this Bench by the assessee's counter-part - KPTCL BANGALORE DIVISION - in its appeals in ITA Nos.112 to 115 and 162 to 165/Bang/2010 dated 10.3.2011. 7.2. The above mentioned issues were elaborately discussed and submissions of both - the Ld. A.R as well as the Ld. D.R - also duly considered at length in those appeals by this Bench. After considering the rival submissions and also diligent perusal of materials on record, this Bench had resolved those issues in the following manner:- (Quote) "11.6. In taking into account the facts and circumstances of the issues which have been meti....
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....e of Hindustan Coca Cola Beverages P. Ltd. v. CIT reported in 293 ITR 226 (SC) had ruled that "It is not disputed that the circular No. 275/201/95-IT(B) dated January 29, 1997 issued by the Central Board of Direct Taxes declaring that "no demand visualized under section 201(1) of the Income-tax Act should be enforced after the tax deductor has satisfied the officer-incharge of TDS, that taxes due have been paid by the deductee-assessee"; When there was no obligation on the part of the assessee to deduct tax on supply portion, there was no question of charging of interest u/s 201(1A) of the Act; We have also duly perused the case laws on which the Ld. CIT (A) had placed strong reliance. However, we are of the considered view that those decisions were clearly distinguishable to the facts and circumstances of the issues under consideration. 11.7. In a nut-shell:- (i) when the assessee was under no obligation to deduct tax u/s 194C of the Act towards the payments made on supply portion, the assessee's case doesn't fall within the ambit of the provisions of s.201(1) of the Act and, thus, the assessee cannot be treated as an 'assessee in default'; ....
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.... rebutting the observations of the CIT (A) recorded at paras 5.6. and 5.7 of his order, a reference was made to Circular No. 715, specifically to question No. 30, which reads:- Q. 30:- Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses? A:- S. 194C and s.194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source. Thus, it was argued that the aforesaid Circular applies to the circumstance when contractee reimburses the costs incurred by the contractor or reimburses the costs of the contractor; that in the instant case the compensation paid by the contractors was not their costs. For convenience, the Appellant had asked the contractor to pay the compensation to the landlords for loss of the trees or crops. The sums paid were not the costs of the contractor. The contractor was only acting as a conduit to make payment to farmers or landlords on behalf of the Appellant and, thus, neither the Appellant nor the contractor was obliged to make T....
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.... due to JVCO's inability to pay the same before commencement of business. The amount received by the assessee was in the nature of reimbursement of actual payment made by the assessee on behalf of JVCO to Apex. There was no element of profit or income involved in such payment. Adequate taxes were deducted while making payment to the supplier Apex, evidencing the fact that the true recipient of income had been already subjected to tax. Such receipt, which was pure reimbursement of earlier disbursement made on behalf of JVCO, was not taxable in the hands of the assessee under the provisions of the Act.' (iv) In the case of Jaipur Vidyut Vitran Nigam Ltd. vs. DCIT [2009] 123 TTJ (JP) 888, the Hon'ble ITAT has observed that, we also find force in alternate argument of the ld A.R that the payment of transmission/wheeling/SLDC charges is reimbursement of the cost. Therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. (v) On actual reimbursement, provision of deduction of tax at source would not apply as held in case of ITO vs. Dr. Willmar Schwabe India (P) Ltd. [2005] 95....
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....nnai), the Tribunal held that where the payments were made for managing call sheets of the assessee, the same could not be regarded as professional services for the purposes of deduction of tax. The Tribunal observed that the expertise required for maintaining call sheets (giving dates) could not be considered to be of a level sufficient to be called as "professional services". Neither any professional qualification was required for giving such services, nor could the AO show that such services were rendered by any professionals. 8.1. On the other hand, the Ld. D.R supported the stand of the authorities below that:- (i) even the payment by way of reimbursement [being compensation for tree cuttings etc.,] comes under the purview of s. 194C of the Act and also, (ii) the short recovery of TDS in respect of survey work. It was, therefore, vehemently urged that the action of the AO as well as Ld. CIT (A) requires to be sustained. Compensation for removal of trees:- 8.2. We have carefully examined the rival submissions, diligently perused the relevant case records and also the judicial pronouncements on which the assessee's A.R ....
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....had neither in the course of proceedings before the AO nor before the first appellate authority came up with the details of compensation of amounts so paid to the farmers. Even at the time of hearing before this Bench, the assessee had not come up with any details and the quantum of compensation so paid to the farmers. 8.2.5. In view of the above and also in the interests of natural justice and fair-play, we are of the firm view that this issue should go back on the file of the AO for fresh consideration with specific directions to the effect that:- (i) in respect of compensation paid; two issues were interlinked, namely,- (a) compensation amounts for loss of trees/crops; and (b) removal of trees and allied works executed by the respective contractors. - as far as compensation amounts alleged to have been paid by the respective contractors on behalf of the assessee which, according to the assessee, were duly reimbursed by it. However, the compensation so paid on behalf of the assessee had not been quantified by the assessee as pointed out by us in the fore-going paragraph. This portion of compensation requires quantification which, ....
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....r." 8.3.1. Even though the Ld. CIT (A) had deliberated the issue at length (referred supra) and sustained the AO's stand in levying tax and charging of interest on this score, however, it was observed that the Ld. CIT (A) had left untouched the particular issue (of alleged adoption of inaccurate figure by the AO as raised by the assessee in its additional grounds of appeal at Gr.No.4) for adjudication, perhaps, by oversight. 8.3.2. On a quick look at Annexure C1 and C2 annexed to the impugned order of the AO, we find that the AO had worked out the total amount relating to survey work at Rs.20,56,74,783 + Rs.19,49,38,508 = Rs.40,06,13,291/- and on the basis of which, he had arrived at the interest payable by the assessee. 8.3.3. Before us, this has been hotly disputed by the assessee. However, the assessee's argument was not backed with any documentary evidence to suggest that it had, in fact, incurred an expenditure to the extent of Rs.17,08,766/- only. In lieu of the above, it is rather appropriate to remit back this issue on the file of the AO with a direction to address to the grievance of the assessee and to take corrective steps, if it so warrants....