Liability to TCS arises even in the absence of written contract

IN THE ITAT AGRA BENCH

Agra Development Authority

versus

Assistant Commissioner of Income-tax (TDS), Agra

IT Appeal Nos. 83 To 85 (Agra) of 2011

[Assessment years 2007-08 to 2009-10]

April 27, 2012

ORDER

Bhavnesh Saini, Judicial Member  

All the appeals by the assessee are directed against the common order of ld. CIT(A)-I, Agra dated 24.12.2010 for F.Y. 2006-07, 2007-08 and 2008-09 relevant to the assessment years 2007-08, 2008-09 and 2009-10 respectively passed u/s. 206C(6)/206C(7) of the I.T. Act.

2. We have heard the ld. representatives of both the parties, perused the findings of the authorities below and the material on record.

3. Briefly, the facts of the case are that a survey u/s. 133A of the IT Act was conducted on 29.02.2008 at the premises of the assessee to check the correct applicability of TDS/TCS provisions of the Income-tax Act. During the course of survey, it was noticed that the assessee/deductor has been allotting parking lots to different contractors and was not collecting taxes at source (TCS) from the contractors. Accordingly, summons u/s. 131 of the IT Act was issued to the assessee/deductor requiring to furnish the details of TCS pertaining to parking lots. The AO after considering the reply of the assessee and the details noted that the provisions of section 206C(1C) are applicable for the purpose of deduction of TCS in respect of parking lots because the person who is granting parking lots is responsible for collecting tax at source and in this case, the Financial Controller of Agra Development Authority (ADA) has defaulted by not collecting tax at source. The AO noted the details of defaulted amounts of TCS with interest at page 6 & 7 of the order dated 21.01.2009 passed for all the assessment years and raised total demand of Rs. 4,62,841/- against the assessee. The break up is noted therein that for F.Y. 2006-07 demand of Rs. 1,02,141/- (80640 TCS + 21502 interest) was raised and demand of Rs.2,88,337/- (251185 TCS + 37157 Interest) was raised for F.Y. 2007-08 and demand of Rs.72,362/- (67890 TCS + 4472 Interest) was raised for F.Y. 2008-09. The assessee challenged the combined order raising the above demands by the AO before the ld. CIT(A). The ld. CIT(A) considering the submissions of the assessee in detail confirmed the order of the AO and dismissed all the appeals of the assessee.

4. The assessee in the present appeals challenged the liability for making TCS and the interest u/s. 206 of the IT Act on the grounds mentioned in the appeals. After considering the submissions of both the parties and the material on record we decide the submissions raised before us as under :

4.1 The ld. counsel for the assessee submitted that there is no dispute that the assessee allotted parking lots to different contractors in all the assessment years under appeals. The assessee has also not disputed before the ld. CIT(A) regarding the applicability of the provisions of section 206 of the IT Act wherein a person is liable to make TCS from the persons with whom a contract has been entered into for parking lots. The ld. counsel for the assessee also did not dispute the charging of interest u/s. 206C (7) of the IT Act in case of default in not depositing TCS with the Government. The ld. counsel for the assessee submitted that the AO passed the order u/s. 206C read with section 201(1)/201(1A) of the IT Act and issue was raised before the ld. CIT(A) that the provisions of section 201(1) and (1A) of the IT Act are not attracted in this case and the ld. CIT(A) agreed to the submissions of the assessee that those provisions are not applicable. However, the ld. CIT(A) considered the issue relating to the matter of TCS, which is applicable to the present case. The ld. counsel for the assessee also did not dispute the figures of tax collected and interest thereon for all the three years, as noted by the AO in the impugned order. The ld. counsel for the assessee on different arguments challenged the order of the ld. CIT(A) in raising the demand against the assessee. Therefore, it is necessary to reproduce the relevant provisions of section 206C of the IT Act, which are applicable to the present case.

4.2 Section 206C(1C), (6), (6A) and (7) of the IT Act read as under :

“(1C). Every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as “licensee or lessee”) for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such licence, contract or lease of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:

TABLE

Explanation 1.- For the purposes of this sub-section, “mining and quarrying” shall not include mining and quarrying of mineral oil.

Explanation 2.- For the purposes of Explanation 1, “mineral oil” includes petroleum and natural gas.]

(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).

(6A) If any person responsible for collecting tax in accordance with the provisions of this section does not collect the whole or any part of the tax or after collecting, fails to pay the tax as required by or under this Act, he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax:

Provided that no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that the person has without good and sufficient reasons failed to collect and pay the tax.

(7) Without prejudice to the provisions of sub-section (6), if the person responsible for collecting tax] does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3).

The above provisions provide that every person, who grants a lease or license or enters into a contract or otherwise transfers any right or interest either in whole or part, in making parking lots to another person other than public sector company, for the use of such parking lots for the purpose of business, shall at the time of debiting of the amount payable by the licensee or lessee to their account in cash or by the issue of a cheque or draft or by any other mode , collect from the licensee or lessee the amount of tax mentioned in the above schedule. Sub-clause (6) provides the responsibility of person for collecting the tax, who fails to collect the taxes in accordance with the above provisions and according to sub-clause (7), such person shall be liable for interest at the specified date.

4.3 The assessee did not dispute the fact that the assessee auctioned for running of parking lots and actually allotted parking lots to different persons. The details of the same are noted in the impugned orders. The assessee also did not dispute before the ld. CIT(A) that the assessee was responsible for making TCS from the persons with whom a contract has been entered into for parking lots as was admitted in the written submissions dated 25.03.2010. The ld. counsel for the assessee, however, submitted that though auction was held of parking lots, but no contract was executed in terms of auction and the contractors did not sign any contract and continued to charge parking charges. Therefore, the provisions of section 206C(1C) would not apply to the case and further for applicability of these provisions, the contract should also be registered. He has further submitted that specimen copy of the auction has been filed in the paper book. Therefore, in absence of any contract executed between the assessee and the contractor, the demand should not have been raised against the assessee. We do not agree with the submissions of the ld. counsel for the assessee. It is admitted fact that the assessee auctioned parking lots to the contractors and consideration has been received as is mentioned in the impugned order for use of the parking lots. According to section 2(h) of the Indian Contract Act “an agreement enforceable by law is a contract”. According to section 10 of Indian Contract Act, “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”. The agreement could be oral also and no legal provision has been cited by the ld. counsel for the assessee through which it was mandatory that each and every agreement ultimately forming contract should be in writing. The assessee did not dispute applicability of provisions of section 206C(1C) of the IT Act in the matter. The above provision provides for grant of lease or license or enters into a contract or otherwise transfers any right or interest in any parking lot to another person for use of such parking lot for the purpose of business. In the present case, the assessee granted contract or otherwise transferred right or interest in the parking lots in favour of the contractors for use of the parking lots for the purpose of business against consideration. Therefore, the facts of the case and admission of the assessee before the ld. CIT(A) for applicability of above provisions of law would clearly prove that the provisions of section 206C(1C) are applicable in the case of the assessee.

4.4 The ld. counsel for the assessee further argued that the AO has wrongly mentioned provisions of section 206C(6A) in the impugned order, though the said provision was inserted in the Act by Finance Act, 2006 w.e.f. 01.04.2007. Therefore, it would not be applicable for the assessment year 2007-08. The ld. CIT(A), however, found that if by mistake wrong section is mentioned, it would not make the order invalid. We agree with the findings of the ld. CIT(A) that quoting of wrong provision of law would not be relevant for the purpose of deciding the issue in accordance with law. Since the assessee was responsible for collecting taxes and failed to do so in accordance with the provisions of law, therefore, for the failure of the assessee to collect the taxes, the assessee would be liable to pay tax to the credit of the Central Government in accordance with law.

4.5 The ld. counsel for the assessee further submitted that no proper notice has been issued before initiating the proceedings under the provision of Section 206C read with sub-section (1C), (6) and (7) of the IT Act. He has referred to the notice of the AO at pages 1 & 2 of the paper book to show that once no proper notice has been issued, the proceedings are liable to be cancelled. We do not agree with the submissions of the ld. counsel for the assessee because during the course of survey conducted in the case of assessee, specific instances were found to show that the assessee has allotted parking lots to different contractors and the assessee has not collected tax at source. The details were called for from the assessee, but the assessee instead of giving complete details filed an evasive reply and adopted delaying tactics. Thereafter, the AO issued letters to the assessee (PB-1 & 2) as referred to by the ld. counsel for the assessee in which the AO called for the specific details as per provisions of section 206C of the IT Act. It would mean that the AO initiated proceedings against the assessee u/s. 206C of the Act for taking action against the assessee. May be on the top of notices, the survey proceedings have been mentioned but the contents of the notice (PB-1 &2) clearly specified that the AO intended to proceed against the assessee u/s. 206C of the Act and for the same purpose the explanation of the assessee was called for. The purpose of issue of the notice for taking action against the concerned person are that the parties are put to notice that legal action would be taken against them and accordingly, explanation is called for. Notice would mean that the facts have been brought to the knowledge of the concerned party about the proposed action against them. In both the letters/notices referred to by the ld. counsel for the assessee, the AO proposed to take action against the assessee u/s. 206 C of the Act for not collecting the taxes as per the above provisions for the purpose of granting parking lots to various contractors. The assessee attended the proceedings before the AO and was aware of the proceedings u/s. 206C being taken against him. Therefore, quoting wrong provision in the notice would be of no consequences and such contentions of the ld. counsel for the assessee have no merits and are liable to be rejected.

4.6 The ld. counsel for the assessee further submitted that since the contractors are not traceable, therefore, the assessee cannot be held liable to pay the tax. We do not agree with the submissions of the ld. counsel for the assessee because this issue is irrelevant for the purpose of deciding these appeals. In the present appeals, the issue is whether the assessee is liable for failure to collect tax at source. Since the assessee failed to collect the taxes as per law, therefore, the assessee would be responsible to pay tax as per law along with interest. The contention of the ld. counsel for the assessee is, accordingly rejected

5. Considering the above discussion and the findings of the authorities below in the light of the submissions of the ld. counsel for the assessee, we do not find any justification to interfere with the order of the ld. CIT(A). We accordingly confirm his order in all the assessment years and dismiss all the appeals of the assessee.

6. In the result, all the appeals of the assessee are dismissed.