Case Law Details

Case Name : Assistant Commissioner of Income Tax Vs Dilip Saha (ITAT Kolkata)
Appeal Number : I.T.A. No. 582/Kol/2014
Date of Judgement/Order : 05/05/2017
Related Assessment Year : 2010- 11
Courts : All ITAT (5321) ITAT Kolkata (418)

The labour sardars are employed/deployed by the labour union to collect the money in bulk and distribute the same amongst the labourers, who are ultimate beneficiaries and not the labour sardars i.e in question. These labour sardars are remunerated by the union only for the job done. The collected money distributed amongst the labours/ labourers by the labour sardars on behalf of assessee and as such deducting of TDS from the said payment amount does not arise at all.

RELEVANT EXTRACT OF ITAT JUDGMENT

4. The brie facts of the case are that the assessee being an individual filed his e-return on 27-09-2010 disclosing total income of Rs. 21,29,065/- and that the assessee is engaged in contractual work. Statutory notices u/s. 143(2)/142(1) of the Act were issued. Against which, the ld. AR of assessee time to time appeared and furnished documents and explanations in support of assessee’s filing of said return. During the assessment proceedings the AO found that the assessee made payment to the labour sardars/ labour contractors without deduction of TDS, which is mandatory as per provisions of section 194C of the Act. The assessee claimed such expenditure of Rs.1,26,52,944/- in his return. The assessee submitted before him that the labour sardars are neither the contractors nor the sub-contractors. The labour sardars are employed/deployed by the labour union to collect the money in bulk and distribute the same amongst the labourers, who are ultimate beneficiaries and not the labour sardars i.e in question. These labour sardars are remunerated by the union only for the job done. The collected money distributed amongst the labours/ labourers by the labour sardars on behalf of assessee and as such deducting of TDS from the said payment amount does not arise at all. The AO was not satisfied with such explanation of the assessee and as such the provision of Section 194C is attracted. Accordingly, he proceeded to make an addition of Rs. 1,26,52,944/- u/s. 40(a)(ia) of the Act and added the same to the total income of the assessee.

5. The assessee challenged the same before the CIT-A. Before him the assessee reiterated the same submissions as made before the AO and in support of his contentions filed the following details:-

a) Certificate of Railway Contractors Labour Union (W.B), Katwa Branch

b) Disbursement register, and

c) Certain case decision in favour of assessee

6. Considering the submissions of assessee, the CIT-A directed the Assessing Officer to delete the addition of Rs. 1,26,52,944/- by stating as under:-

23. Before me the same argument as made before Assessing Officer was repeated. In summary the same is as under:-

a. The payment to alleged labour leaders are not to them but intended to labourers.

b. As per prevailing practice and business control, payment was made through Trade Union (CITU) leaders who disburses to actual labourers.

c. The contract the appellant is executing is an integrated one for railways and not labour contract exclusively. The work was executed by appellant himself with help of labourers. The ‘labour sardars’ are not suppliers of labourers but facilitators for payment of wages.

d. That the alleged labour leaders are by themselves labours as visible in labour register.

e. The sum was debited in Profit and Loss Account as ‘wages’ and not payment to contractors.

In support evidence relied upon are:-

a. Certificate of Railway Contractors Labour Union (W.B.) Katwa Branch.

b. Disbursement register where payment to labours were made at RS. 130/- per day.

c. Certain case decision in favour of assessee.

24. The matter is examined. In this case the alleged labour contractor is undoubtedly a labourer himself. He gets the same sum as any other labourer i.e. at Rs. 130/- per day. The entire affair is managed through Trade Union. Further contract is executed by him and he has not subcontracted any part of work to execute the contract. The fact is that the so called ‘labour sardars ‘are not suppliers of labourers but facilitators for payment of wages.

25. Considering all aspects the case as discussed above, I hold that the payments to labour sardars are not the ones falling in ambit of section 194C. Accordingly I direct Assessing Officer to delete the addition of Rs. 1,26,52,944/-. Ground 6 is accordingly allowed.”

7. Before us the ld.DR fairly conceded and submits that it is a case where the Kolkata Tribunal passed various orders on this issue in favour of assessee, wherein the Tribunal held that the labour sardars/labour contractors neither beneficiaries nor the contractors/suppliers of labours.

8. Heard ld.DR and perused material available on record. We find that the Coordinate Bench of Kolkata Tribunal in the case of M/s. Kwality Construction by an order date 14.10.2016 I.T.A No. 18/Kol/2014 Assessment Year: 2009- 10. Relevant portion of findings are reproduced herein below for better realisation:-

7.1. We find that the ld CITA had deleted the dis allowance on the ground that there is no contract entered into by the assessee and the labour sardars. We find that the impugned issue is covered by the decision of the Honourable Calcutta High Court in the case of CIT Vs Stumm India in ITA No. 127 of 2009 dated 16.8.2010 , wherein it was held that :-

“The court: This appeal is sought to be preferred against the judgement and order of the Ld. Tribunal in relation to the assessment year 2005-06, dated October 24, 2008, being aggrieved by a portion of the same.

It is urged before us that the learned Tribunal ought not to have accepted the judgement and order of the CIT (Appeal) who has quashed the dis allowance of deduction of Rs. 41,33,710/- and on account of tax deduction at source. The learned Tribunal has recorded the fact that the department has not been able to bring any material on record to show that the assessee has made the payment to the transporters in pursuance of contract for carriage of goods of the assessee and the question of deduction at source under section 194C does not and cannot arise. In the absence of evidence of payment made by the assessee to the transporters, the assessee cannot be saddled with the liability of deducting tax at source. Before us no other point has been urged not it is said that the aforesaid fact finding is truthful without any basis whatsoever.” 

7.2. We find that the decision of this tribunal in the case of Samanwaya vs ACIT reported in 34 SOT 332 in ITA No. 484 (Kol) of 2008 dated 23.4.2009 directly supports the case of the assessee wherein it was held that :-

“We find that in this case, admittedly, the labour sardars in the present case has no locus standi as labour contractor as a labour sardar and a labour contractor are as different as chalk and cheese. We find that there was no contract between the assessee and the labour sardars for supply of labourers and without which there cannot be any application of section 194C and as such the invocation of provision of section 40(a)(ia)is outside the scope and ambit of such enactment. In view of the matter, we are of the considered opinion that section 194C(2) being not applicable in this case, the dis allowance of Rs. 74,33,210/- made by the Assessing Officer by invoking section 40(a)(ia) of the Income Tax Act, 1961 and sustained by the ld CIT(A) is hereby deleted. This ground of the assessee is allowed.”

7.3. We also find that the decision of this tribunal in the case of ACIT vs Supreme Construction in ITA No. 1252/Kol/2013 dated 7.9.2016 had held as under:-

“9. We have heard rival contentions of both the parties and perused the materials available on record. At the outset, we find that AO has called the labour contractors by issuing summons u/s. 131 of the Act and their statements were duly recorded. The AO failed to bring anything on record that the labour charges were paid in pursuance of contract either in writing or the oral with the labour sardar. The AO has held that the assessee has not complied the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act on the presumption and surmise. There is no evidence that the payments have been made to the contractors. We do not find any merit in the arguments placed by Ld. DR in this connection. The AO has given the clear finding in his order which is as follows :

“In my opinion, all these labourers who are treated as Labour Sardars are enjoying some privileged position in the eyes of assessee because the assessee collects other ITA No. 18/Kol/2014 M/s. Kwality Construction, AY 2009-10 labourers through them, make payments to the other labourers in their presence, though there is no written contract. In the absence of any documentary evidence, I can’t call them as Labour Sardars but they are enjoying some special status before the assessee. All the payments were made through them as per Books of Accounts whereas the assessee produced the Muster Roll establishing through it that payments were made to the other co-labourers in their presence for the sake of convenience and the amounts were debited in their names only because the assessee can not keep track of all the labourers without the help of these labourers. Though the assessee claims them to be it’s labour and these persons have deposed that they are the labourers, yet, I am not fully convinced with their plea that these persons are simply labourers and nothing more than that. From their appearance, dress, behavior and confidence, I am confident that they are the labour sardars, though they are denying this fact. Whether you admit or not but it can not be denied that these persons enjoy some privileged positions in comparison to other labourers.”

From the above it is amply clear that the AO himself is not sure and forming the opinion on his own surmise and conjecture. In our considered view the ld. DR has not brought anything contrary to the findings of ld. CIT(A). In this connection we rely on the decision of ACIT Vs. Kalindi Agro Biotech Ltd. (2012) 20 taxmann.com 339 where it was held that the provisions of Sec. 194C of the Act are applicable if the payment has been made to a contractor for the year exceeding Rs. 20,000/-. Similarly the jurisdictional ITAT, Kolkata in the case of Samanwaya Vs. ACIT 34 SOT 332 has held as under : 

“Business expenditure- Dis allowance under s. 40(a)(ia)–Need for TDS under s. 194Crelating to payments made for disbursement of labour charges to labour Sardars–Assessee had specifically stated before the lower authorities that there is no contract between the assessee and the labour Sardars–Revenue authorities could not controvert the submission of the assessee in this respect– Even before the Tribunal, the Department could not bring out any evidence by producing cogent material in respect of any contract between the assessee and the labour Sardars to contradict the submission of the assessee that there was no contract between the assessee and the labour Sardar–A contractor or a sub-contractor is engaged on the basis of a contract which is the most important essence of a contract job and is a primary requirement for the application of s. 194C– Labour Sardars in the present case has no locus standi as labour contractor as a labour Sardar and a labour contractor are as different as chalk and cheese–There was no contract between the assessee and the labour Sardars for supply of labourers and without which there cannot be any application of s. 194C and as such the invocation of provision of s. 40(a)(ia) is outside the scope and ambit of such enactment”

Relying in the aforesaid decisions we find that there is nothing on record to suggest that the payment to labourers were paid to the contractors. On the contrary, assessee has made payment to labourers directly and in support of its claim, Ld. AR of assessee has produced the muster roll. In this regard, Ld. DR failed to bring any defect / information from the muster roll which suggested that the labour charges paid by assessee are subject to TDS. Since no cogent material has been brought on record, in our considered opinion, AO was not justified in invoking the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act. In the background of the above discussions and precedent we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. In the circumstances, this issue of Revenue’s appeal is dismissed.”

ITA No. 18/Kol/2014 M/s. Kwality Construction, AY 2009-10 7.4. Respectfully following the judicial precedents relied upon herein above, we do not find any reason to interfere with the order of the ld CITA and accordingly dismiss the ground of the revenue.

9. Respectfully following the above, we are of the opinion that the CIT-A was justified in accepting the plea of assessee being the labour sardars are not suppliers of labours and as such he rightly deleted the impugned addition made u/s. 40(a)(ia) of the Act. We uphold the impugned order of the CIT-A. Therefore, the grounds raised by the revenue are liable to be dismissed.

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Category : Income Tax (27912)
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Tags : ITAT Judgments (5503) Section 194C (148) TDS (1074)

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