IN THE ITAT PUNE BENCH ‘A’
Gokuldas Virjibhai & Company
Income-tax Officer, Ward 1(2), Sangli
IT APPEAL NOS. 1062 & 1064 (PN) OF 2010
[ASSESSMENT YEAR 2007-08]
SEPTEMBER 12, 2012
R.S. Padvekar, Judicial Member
These two appeals are filed by two different assessees challenging the impugned orders of the Ld CIT(A), Kolhapur dated 31/05/2010 and 28/05/2010 respectively for the A.Y. 2007-08. As the facts as well as the issues are common, hence, both the appeals are disposed of by this consolidated order.
2. The common issue in controversy is whether the Ld CIT(A) is justified in confirming the disallowance made by the A.O u/s. 40(a)(ia) of the Act in respect of the payment made to the Mathadi Board.
3. We first take up the appeal of M/s. Gokuldas Virjibhai and Company, being ITA No. 1062/PN/2010. The assessee firm is a general merchant and Commission Agent having shop in the Market Yard, Sangli. It was noticed by the A.O that the assessee had paid the labour charges of Rs. 1,97,505/- to Sangli Miraj Kamgar Mathadi Board (in short Mathadi Board). In the opinion of the A.O, payment made to said Mathadi Board was covered u/s. 194C(1) of the Act and as the assessee has not deducted the tax at source (TDS), the same was disallowable u/s. 40(a)(ia) of the Act. After examining the scheme of Maharashtra Mathadi Hamal and other Workers (Regulation of Employment and Welfare) Act, 1969 as well as Mathadi Board constituted under the said Act, the A.O. came to the conclusion that the Mathadi Board is acting as a intermediary between the businessmen and registered workers and there is a contract between the Mathadi Board and assessee firm in respect of the supply of the labourers and hence, assessee should have deducted a tax from the payment made to the Mathadi Board, Sangli u/s. 194C(1) of the Act. The A.O also referred to the Exemption Certificate obtained by the Kolhapur District Mathadi and Labour Board u/s. 197 r.w.s. 194C of the Act and finally concluded that as the assessee failed to make TDS in respect of amount paid to Mathadi Board, the same was not allowable in view of u/s. 40(a)(ia) of the Act. The said assessee carried the issue before the Ld CIT(A) but without success, as the appeal was dismissed. Now the assessee is in appeal before us.
4. So far as another appellant-assessee M/s. Natwarlal Amritlal Parekh, being ITA No. 1064/PN/2010 is concerned, it was noticed by the A.O that the assessee has paid Rs. 3,35,149/- as labour charges to Sangli Miraj Kamgar Mathadi Board. In the opinion of the A.O, the said payment was covered within the provisions of Sec. 194C of the Act and hence the assessee should have deducted the tax at source. As assessee has not deducted the tax at source, he made disallowance by evoking the provision of Sec. 40(a)(ia) of the Act and made the addition to the income of the assessee. The reasons recorded by the A.O in this case for making the disallowance is identical as in the case of M/s. Gokuldas Virjibhai and Company. The said assessee also challenged disallowance made by the A.O. before the Ld CIT(A) but without success. It appears that without examining of the nature of the relationship of the assessee with the Mathadi Board, the A.O was much influenced by the fact that the Mathadi Board has obtained the Certificate u/s. 197 for no deduction of tax in the F.Y. 2008-09 and concluded that there is a contractual relationship between the assessee and Mathadi Board.
5. We have heard the rival submissions of the parties and perused the record. The short issue in controversy is whether the Mathadi Board is labour contractor of the assessee within the meaning of Sec. 194C(1) of the Act which reads as under :
“194C (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash
(a) the Central Government of any State Government; or
(b) any local authority, or
(c) any corporation established by or under a Central, State or Provincial Act, or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
(j) any firm, or
(k) any individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, other than those falling under any of the preceding clauses, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor,
shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to –
(i) One per cent in case of advertising
(ii) In any other case two per cent,
of such sum as income-tax on income comprised therein:”
6. The A.O has discussed provisions of the Maharashtra Mathadi Hamal and Other Mannual works (Regulation of Employment and Welfare) Act 1969, but the conclusion arrived at by the A.O that there is a contractual relationship between the Mathadi Board and the assessee is not correct. It is necessary to examine the Scheme of Maharashtra Mathadi and Hamal and Other manual workers (Regulation of Employment and Welfare) Act 1969 (In short Maharashtra Mathadi Act). From the preamble to the Maharashtra Mathadi Act, it is seen that the object for enactment of this Act is for regulating the employment of un-protected manual workers employed in scheduled employments in the State of Maharashtra and to make provision for their adequate supply and proper utilization in such employment. It is also mentioned in the preamble that the said Act is enacted to make better provision for their terms and conditions of employment, to prove for their welfare and for health and safety measures and to provide for establishment of Boards in the different areas of the State etc.,
7. Sec. 2 of the Act defines the different terms/phrases used in the said Act. To understand the scheme of the Act, Section 3 is useful which is as under:
“3. SCHEMES FOR ENSURING REGULAR EMPLOYMENT OF UNPROTECTED WORKERS. –
(1) For the purpose of ensuring an adequate supply and full and proper utilization of unprotected workers in scheduled employments, and generally for making better provision for the terms and conditions of employment of such workers the State Government mat be means of scheme provide for the registration of employers and unprotected workers in any scheduled employment or employments, and provide for the terms and conditions of work of registered unprotected workers, and make provision for the general welfare in such employments.
(2) In particular, a scheme may provide for all or any of the following matters that is to say –
(a) for the application of the scheme of such classes of registered unprotected workers and employers, as may be specified therein;
(b) for defining the obligations of registered unprotected workers and employers subject to the fulfillment of which the scheme may apply to them;
(c) for regulating the recruitment and entry into the scheme of unprotected workers, and the registration of unprotected workers and employers, including the maintenance of registers, removal, either temporarily or permanently, of names from the registers, and the imposition of fees for registration;
(d) for regulating the employment of registered unprotected workers, and the terms and conditions of such employment, including rates of wages, hours of work, maternity benefit, overtime payment, leave with wages, provision for gratuity and conditions as to weekly and other holidays and pay in respect thereof;
(d-i) for providing the time within which registered employers should remit to the Board the amount of wages payable to the registered workers for the work done by such workers; for requiring such employer who, in the opinion of the Board, make default in remitting the amount of wages in time as aforesaid, to deposit with the Board, an amount equal to the monthly average of the wages to be remitted as aforesaid; if at any time the amount of such deposit falls short of such average, for requiring the employer to make good the amount of such average, and for requiring such employers who persistently make default in making such remittance in time to pay also by way of penalty, a surcharge of such amount not exceeding 10 per cent of the amount to be remitted as the Board may determine;
(e) for securing that, in respect of period during which employment or full employment is not available to registered unprotected workers though they are available for work, such unprotected workers will, subject to the conditions of the scheme, receive a minimum wage;
(f) for prohibiting, restricting or otherwise controlling the employment of unprotected workers to whom the scheme does not apply, and the employment of unprotected workers by employers to whom the scheme does not apply.
(g) for the welfare of registered unprotected workers covered by the scheme in so far as satisfactory provision therefor, does not exist, apart from the scheme.
(h) for health and safety measures in places where the registered unprotected workers are engaged, in so far as satisfactory provision therefor, is required but does not exist, apart from the scheme;
(i) for the constitution of any fund or funds including provident fund for the benefit of registered unprotected workers, the vesting of such funds, the payment and contributions to be made to such funds, (provision for provident fund and rates of contribution being made after taking into consideration the provisions of the Employees’ Provident Funds Act, 1952, and the scheme framed thereunder with suitable modifications, where necessary, to suit the conditions of work of such registered unprotected works) and all matters relating thereto;
(j) for the manner in which, the day from which (either prospective or retrospective) and the persons by whom, the cost of operating the scheme is to be defrayed.
(k) for constituting the persons or authorities who are to be responsible for the administration of the scheme, and for the administration of funds constituted for the purposes aforesaid;
(k-i) for specifying the powers and duties which the persons or authorities referred to in clause (k) may exercise or perform, for providing appeals and revision applications against the decisions or orders of such persons and authorities; and for deciding such appeals and applications and for matters incidental thereto;
(l) for such incidental and supplementary matters, as may be necessary or expedient for giving effect to the purposes of a scheme.
(3) The scheme may further provide that a contravention of any provision thereof shall be punished with imprisonment for such term as may be specified (but in no case exceeding three months in respect of a first contravention or six months in respect of any subsequent contravention) or with fine which may extend to such amount as may be specified (but in no case exceeding five hundred rupees in respect of the first contravention, or one thousand rupees in respect of any subsequent contravention) or with both imprisonment and fine and if the contravention is continued after conviction, with a further fine which may extend to one hundred rupees for each day on which the contravention is so continued.”
As per Sec. 6 of the Act, the State Government may by notification in the official gazette establish a board to be known by such name as may be specified in the notification of any scheduled employment in any area. Sub-section (2) provide that the Board shall be a body corporate having perpetual succession and common seal with power to acquire, hold and dispose of property.
8. Section 4 of the Maharashtra Mathadi Act provide that after consultation of the Advisory Committee, State Government may make one or more Schemes for any scheduled employment or group of scheduled employment in one or more areas and the same may be published in official Gazette. Section 6 provides for constituting or establishing a Board by notification in the official gazette for any scheduled employment in any area. Sub-section 6(3) provides that the Government will nominate the Members of the Board from time to time representing the employers un-protected workers and State Government. Section 6(4) provides that there will be equal representation from the employers and un-protected workers and the Section 6(5) provides that Chairman of the Board shall be nominated by the State Government. Section 7 provides for the powers and duties of the Board and sub-section (1) to Sec. 7 provides that the Board shall be responsible for administering a Scheme and shall exercises such powers and perform such functions as may be confirmed by it by the Scheme. Section 13 provides for determination of the monies due from employers and workers. Sec. 14 of the Act provides for constitution of Advisory Committee to advise upon such matters arising out of the administration of the Mathadi Act or any Scheme made under the said Act or relating to application of provisions of said Act to any particular class of un-protected workers and employers etc. Sec. 17 provides that every offence punishable by or under the said Act (including any offence made punishable by a Scheme made under the said Act) shall be tried by the Labour Court. Sec. 17B provides for cognizance of the offence under the Act by the Labour Court. Sec. 18 and 19 of the Maharashtra Mathadi Act make applicable the provisions of Workmen Compensation Act 1923 and the Payment of Wages Act 1936 to the registered un-protected workers employed in any scheduled employment. Sec. 2(11) defines the term unprotected worker means a manual worker who is engaged or to be engaged in any scheduled employment. The definition of employer is given in Sec.2(3) of the Act. In sum and substance, the Maharashtra Mathadi Act is a labour welfare Legislation for protecting the interest of the un-protected & unorganised manual workers such as Mathadi hamals etc., and for the purpose of regulating the terms and conditions of their employment, State Government has to make a Scheme considering the welfare, health and safety measures and for assuring the regular employment to the unprotected workers in the scheduled employment. At the end of the Act, schedule is appended in which the class or category of the employment are mentioned to which the provisions of the Maharashtra Mathadi Act is applicable vis-à-vis, also the scheme framed by the Government u/s 4 of the Act. We need not go into entire scheme of the Maharashtra Mathadi Act as the only limited issue before us is when the labours or workers are employed by these assessees through the Mathadi Board constituted under the Maharashtra Mathadi Act, can it be said that there is a relationship of the Principal and contractor between the assessee and the Mathadi Board within the meaning of Sec. 194C of the Act ?
9. The Government of Maharashtra has notified the Scheme dated 13.7.1984 which is published in the Government Notification of the same date as provided under section 4(1) of the Act. As per notified Scheme, same is applicable to the employment in the grocery market or shops, or market established under the Maharashtra Agricultural Produce Marketing (Regulation) Act 1963 and more particularly, to the manual workers engaged in loading, unloading, sacking, carrying, weighing, measuring, filling, stitching etc., is applicable. In the Scheme, other classes of the employment also mentioned, to which, the scheme will be applicable. In the scheme, there is provision for appointment of the Secretary and Personnel Officer. Clause 14 of the Scheme which is very important which reads as under :
“14. Registration of employers.- Every employer including a Mukadam, commission agent, clearing agent, purchaser, importer, exporter, engaged in selling, purchasing or trading or acting as agent in grocery markets or shops and agricultural produce markets or subsidiary markets in areas to which this Scheme applies shall registered with the Board by applying in Form ‘A’ appended to the Scheme wit fifteen days from the date of coming into force of this clause. Provided, however, that an employer of any establishment coming into existence after the commencement of the Scheme shall apply for a registration simultaneously on the commencement of his business.”
10. As per clause 14 of the scheme, it is a mandatory for every employer in the scheduled employment, who get registered with the Mathadi Board. Rule 29 of the Scheme make it obligatory on the registered employers to employ a worker, who is a registered worker and who is allotted to him by the Secretary of the Board in accordance with clause 9(e) of the Scheme. Clause 29(5)(i) provides that a registered employer shall provide to the Board within five days of every fortnight or such shorter periods as may be specified, the gross wages due to registered works for the work done by such registered workers during the fortnight and other amount due to daily registered workers. Clause 33 of the Scheme provides that the Board may permit any registered employer to pay wages and other allowances to the registered monthly workers employed by them directly. The said clause also provides that in respect of the registered workers other than registered monthly workers, the employer shall remit the wages and other allowances by cheque to the Secretary of the Board every fortnight and Secretary shall arrange to disburse the wages and other dues to the registered works on a specified day every month. Clause 14 provides for penalty, more particularly, for contravention of clauses 14, 29 and 30 of the Scheme. Clause 14 is in respect of the registration of the employers and clause 29 is in respect of prohibition on the registered employer to employ manual workers in the scheduled employment other than the registered workers who are allotted to him by the Secretary in accordance with the provisions of Clause 9(e) of the Scheme. The penalty include the imprisonment for the term which may extent to six months or with fine which may extend to Rs. 1000/- or with both.
11. In sum and substance, the person who is carrying on his business in the notified area and also carrying on the scheduled employment, it is mandatory for him to get registered under the Maharashtra Mathadi Scheme and also to employ only the registered workers allotted by the Board. Severe penalties are provided for contravention for not complying with the Scheme. The Board is not the labour supplier but a body corporate for implementing the Scheme framed by the Government under the Maharashtra Mathadi Act. The assessee is registered under the Maharashtra Mathadi Act as per provisions of the scheme framed and both the assessees are under obligation to engage the labourers or workers for carrying out work in their business through the Board only, which they are legally bound to do.
12. The mandate of Sec. 194C is that the relationship of the person paying any sum to the person carrying out any work including the supply of labour should be in he nature of the principal to contractor. After anxiously examining the provisions of Maharashtra Mathadi Act and Scheme framed under it, we are of the opinion that there is no contractual relationship as a principal and contractor between these assessees and Mathadi Board, but, in fact, in pursuance of the provisions of the Act as well as the scheme, both these assessees are bound to engage the labourers or the workers through the Mathadi Board. In our opinion, the interpretation given by both the authorities below to the provisions of the Maharashtra Mathadi Act is totally misplaced as Sec. 194C has no application when these assessees remits the payment in respect of the wages payable to the workers or labourers engaged through the Mathadi Board. We, therefore, hold that the disallowance made by the A.O. evoking the provisions of Sec. 40(a)(ia) of the Act is not justified. We, accordingly, delete the same in both the cases and the respective grounds taken by both the assessees are allowed.
13. There is one more issue in the case of M/s. Natwarlal Amritlal Parekh, ITA No. 1064/PN/2010 i.e. the disallowance of Rs. 1,02,609/- for non-deduction of tax as provided u/s. 194A of the Act. It was noticed by the A.O that the assessee has paid interest of Rs. 1,02,609/- on borrowed funds to Neminath Nagari Sahkari Pat Sanstha. In the opinion of the A.O, the assessee should have deducted the tax at source as per provisions of Sec. 194A. The A.O, therefore, evoked the provisions of Sec. 40(a)(ia) of the Act and disallowed the entire interest claimed by the assessee of Rs. 1,02,609/- for failure on the part of the assessee to deduct the tax at source. The assessee pleaded that the assessee has received Form No. 15G and even if there is a default in submitting Form No. 15G, Sec. 40(a)(ia) cannot be evoked. The A.O has observed that in respect of the interest paid to Neminath Nagari Sahkari Pat Sanstha, declaration u/s. 197A(1)(ia) in Form No. 15G was given by the payee to the assessee on 10.2.2007. As observed by the A.O, the assessee did not submit the said Form to the CIT–I, Kolhapur within the stipulated time. The A.O, therefore, rejected the contention of the assessee that as Form No. 15G was not filed with the CIT, Kolhapur, and hence, it is a procedural lapse and no disallowance u/s. 40(a)(ia) can be made. The assessee challenged the said addition before the Ld CIT(A), but, without success.
14. We have heard the parties and perused the record. In this case,, there is no dispute about the fact that the assessee has obtained the Form No. 15G as provided u/s. 197A(1)(ia) of the Act, but the assessee did not furnish the said Form to the CIT, Kolhapur. In our opinion, it is only the procedural lapse. Once the assessee has obtained the Form No. 15G from the payee assessee, has no legal obligation to deduct the tax on the payment made to payee. We find no justification in order to sustaining the said addition. Accordingly, the same is deleted.
15. In result, both the appeals are allowed.