Case Law Details
Facts of the Case
The Assessee had paid a sum of Rs.9,22,160/- on account of Sewing and Processing Charges without deducting TDS on the same. The AO invoked the provisions of Section 40(a)(ia) of the Act and disallowed the entire amount paid on account of Sewing and Processing Charges. Aggrieved assesse filed an appeal before the Ld. CIT(A) who deleted the disallowance made by the AO on the ground that the payments were not made under any Agreement of Contract to the Contractors or the Sub-contractors. Aggrieved by the order of CIT(A) the AO filed an second appeal.
Contention of the Assessee
The Assessee contended that since there was no Agreement of Contract made with the contractors or sub-contractors to whom the payments were made of account of Sewing and Processing charges and so, no TDS u/s 194C of the Act was deducted.
Contention of the Revenue
The Ld. DR of Department relied on the order of the AO wherein AO has made the disallowance of sewing and processing charges as the assessee failed to deduct TDS on a sum of ₹9,22,160/- thereby invoked the provision of Sec. 40(a)(ia) of the Act for making this disallowance.
Held by CIT(A)
Ld. CIT(A) deleted the disallowance made by the AO. The relevant para of the Ld. CIT(A)’s order is reproduced herewith –
“I have perused the material placed on record. The Assessing Officer has not brought on record any material to show that the payments have been made under any agreement of contract to any contractors or subcontractors. The nature of payments, in my opinion, did not warrant either deduction of tax at source or the consequential disallowance under sec. 40(a)(ia) or any other provisions of the Act. The addition of Rs.9,22,160/- by way of disallowance is hereby deleted.”
Held by ITAT
ITAT held that that CIT(A) has simply considered the submission of assessee that there is no agreement or contract. The Honble’ ITAT found that once the labour payments are made there is a clear-cut contract exist between the parties. The Hon’ble ITAT mentioned in its order that this issue has been considered by the co-ordinate bench in the case of DCIT Vs. Kamal Mukherjee & Co. (Shipping) (P) Ltd. ITA No. 199/Kol/2010 and reproduced the relevant paras of the same which are as follows :-
““…….Undoubtedly, these decisions do indicate that there is a workman employer relationship between the dock workers and the stevedores like assessee when they employ those workers, but be that as it may, the fact remains that the assessee has made payments to the CDLB for supply of labour, even when this labour may be treated as employed by the assessee for all practical purposes, the provisions of section 194C are clearly attracted. In such a situation, i.e. when labour hired by the assessee through CDLB is considered to be in assessee’s employment, the payments made to CDLB cannot be treated as payments for any work, but nevertheless these payments could still be covered by the provisions of section 194C because these are payments made for supply of labour which are specifically covered by section 194C(1). CDLB is an agent of the stevedores like the assessee in the sense that the labour is recruited by the assessee through CDLB, but when this fact does not affect the nature of payment by the assessee to the CDLB which is admittedly in the nature of payment for supply of labour. The reasoning adopted by the Commissioner (Appeals), though somewhat impressive at first glance, is fallacious. There is no cause and effect relationship between workers assigned by the CDLB having employer workman relationship with the assessee, and the payments being made by the assessee to CDLB being not in the nature of ‘payment for supply of labour’”.
4. Since the facts and circumstances are exactly identical, what was before us in Kamal Mukhjerjee & Co. (Shipping) (P.) Ltd.(supra) and also that in the case of Smt. J. Rama of Hon’ble Karnataka High Court (supra), respectfully following the same, we are of the view that even oral contract is sufficient and admittedly the assessee has taken the dumpers on hire and he has paid charges for the same. Respectfully following the same, we confirm the disallowance made by the Assessing Officer and reverse the order of CIT(Appeal)”.
Thus, the Hon’ble Kolkata ITAT concluded that that the issue is squarely covered against the assessee and in favour of Revenue by the co-ordinate Bench decision in the case of Kamal Mukherjee & Co. (Shipping) (P) Ltd. (supra). Respectfully following the same, the Hon’ble ITAT reversed the order of CIT(A) and deletion made by him is restored back.
