Even though contract is awarded to assessee, the income is assessable only in the hands of person which has executed work

CA Mayank Parekh

Facts:

The assessee, a joint venture company, was awarded a project work. However the assessee did not execute the contract and the said work was done by one of its constituents namely SMS Infrastructure Limited (‘SIL’). Accordingly, receipts from the said project work were reflected in the books of account and return of income of SIL and the same was also accepted by the Assessing Officer (‘AO’) in the assessment made under section 153A read with 143(3) of the Income-tax Act, 1961.

Further, the assesee had filed return of income of Rs 2,19,990/- and erroneously claimed full TDS of Rs 30,14,718/- pertaining to contract awarded to it and executed by SIL. During the assessment proceedings a query was raised by the AO for non-disclosure of receipts of the said project work and TDS claimed by the assessee.

The assessee submitted that due to oversight and inadvertently the credit of TDS was shown by it. It further requested and sought leave to withdraw the claim of TDS. However, the AO worked out income tax at 3% of the contract value in the hands of the assessee.

On appeal made by the assessee, the Commissioner of Income-tax (Appeals) [‘CIT(A)’] passed order in favor of the assessee. The department relying on the decision of the Apex court in the case of C. H. Achhaiya (218 ITR 239) and Madras High Court in the case of Murugesa Naicker Mansion (244 ITR 461) wherein it was held that, AO is not precluded from taxing the right person merely on the ground that a wrong person is taxable, filed an appeal before the Income-tax Appellate Tribunal (‘ITAT’). However, the ITAT upheld the order of the CIT(A).

Being aggrieved by the order of the ITAT the department filed an appeal before Hon’ble Bombay High Court (‘Bombay HC’).

Judgment:

After hearing both the sides the Hon’ble Bombay HC rejected the appeal based on following findings of the CIT(A) and ITAT:

1. If the TDS claim was not erroneous, the income could have been shown in the account of the assessee. If leave to withdraw was being sought with some ulterior motive, the income would have been reflected in the account of the assessee. The consideration either by the AO or appeal authorities does not show this position.

2. Further, guess work done by the AO in working out 3% tax of the contract value would not have been essential, had the assessee actually received the amounts and those amounts would have been reflected in the books of accounts.

3. The department would have procured some material to show receipts by the assessee towards contract. However, there is no finding of receipt of any income by joint venture assessee on account of said contract.