D.b. Income Tax Appeal v. Date Of Judgment:- May 23, 2013

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. J U D G M E N T 1)D.B. INCOME TAX APPEAL NO.52/2012.The Commissioner of Income Tax (T.D.S.) JaipurVs.M/s.Krishi Upaj Mandi Samiti (F&V), Muhana, Jaipur. 2)D.B. INCOME TAX APPEAL NO.51/2012.The Commissioner of Income Tax (T.D.S.) JaipurVs.M/s.Krishi Upaj Mandi Samiti, Jaipur3)D.B. INCOME TAX APPEAL NO.53/2012.The Commissioner of Income Tax (T.D.S.) JaipurVs.M/s.Krishi Upaj Mandi Samiti, Sikar4)D.B. INCOME TAX APPEAL NO.54/2012.The Commissioner of Income Tax (T.D.S.) JaipurVs.M/s.Krishi Upaj Mandi Samiti, Chomu5)D.B. INCOME TAX APPEAL NO.55/2012.The Commissioner of Income Tax (T.D.S.) JaipurVs.M/s.Krishi Upaj Mandi Samiti (F&V), Muhana, Jaipur. 6)D.B. INCOME TAX APPEAL NO.62/2012.The Commissioner of Income Tax (T.D.S.) JaipurVs.M/s.Krishi Upaj Mandi Samiti, Jaipur Date of Judgment:- May 23, 2013. HON'BLE MR.JUSTICE MOHAMMAD RAFIQHON'BLE DR.JUSTICE SMT.MEENA V.GOMBER Smt.Parinitoo Jain for the appellant-Revenue. ***** Reportable BY THE COURT:- (Per Mohammad Rafiq J.) 1) All these appeals raise identical questions of law and facts and, therefore, areheard together and are being decided by thiscommon judgment. 2)Respondents-Krishi Upaj Mandi Samitiestablish agriculture market yards to theagriculturists / farmers to sale / purchase andcarry out their business within the notifiedagriculture market yards. A TDS survey wasconducted in the office premises of therespondent-Krishi Upaj Mandi Samiti on 12/10/2009.During survey, it was revealed that Samiti madetransfer of certain money to Rajasthan StateAgriculture Marketing Board (for short, the“Board”) for construction of agriculture marketyards and roads. According to the revenue,transfer of such funds amounted to payment for thework done by the Agriculture Marketing Boardattracting Section 194C of the Income-tax Act,1961 (for short, the “Act of 1961”). The taxshould have been deducted at the time of suchpayment. Contribution made to the AgricultureMarketing Board and the funds for which thecontribution was also made were utilized forspecific purpose by the Board. Such contributionwas also covered within the ambit of Section 194Jas professional and technical services provided bythe Board. The respondent-Samiti was liable todeduct the TDS at the time of making / creditingthe payment of contribution. 3)A show cause notice was issued underSection 201(1),(1A) of the Act of 1961 to therespondent-Samiti on 29/1/2010 for not deducting TDS u/Ss.194C & 194J of the Act of 1961. Theassessing officer dealing with the contention ofthe Revenue held that the respondent-assessee wasin default in not deducting tax including interestand further held that the services provided by theBoard on contribution to the assessee clearlyproved that assessee was getting technical knowhow and professional expertise for the erection,upkeep and maintenance of infrastructure facility,which is in the nature of professional technicalservices covered within the ambit of Section 194Jof the Act of 1961. 4)The order of the assessing officer dated11/2/2010 was challenged before the Commissionerof Income Tax (Appeals) by the respondent-assessee, which was dismissed vide order dated24/11/2010. The respondent-assessee filed anappeal against the aforesaid two orders before theIncome Tax Appellate Tribunal. The Tribunal heldthat construction of the agriculture market yardsand roads and maintenance by the Board in themarket area and approach roads were executed andcarried out by the Board and not by the Committeeand the contribution made by the respondent-assessee to the Board was statutory contributionand did not amount payment of fee. Aggrievedthereby, the Revenue has filed this appeal againstthe aforesaid judgment of the Tribunal. 4)The order of the assessing officer dated11/2/2010 was challenged before the Commissionerof Income Tax (Appeals) by the respondent-assessee, which was dismissed vide order dated24/11/2010. The respondent-assessee filed anappeal against the aforesaid two orders before theIncome Tax Appellate Tribunal. The Tribunal heldthat construction of the agriculture market yardsand roads and maintenance by the Board in themarket area and approach roads were executed andcarried out by the Board and not by the Committeeand the contribution made by the respondent-assessee to the Board was statutory contributionand did not amount payment of fee. Aggrievedthereby, the Revenue has filed this appeal againstthe aforesaid judgment of the Tribunal. 5)Smt.Parinitoo Jain, learned counselappearing for the Revenue has argued that theTribunal has grossly erred in law in holding thatrespondent-assessee was not liable to deduct thetax at source u/S.194C of the Act of 1961 forpayment made by it to the Board. Such payment wasmade for construction and maintenance ofagriculture market yard. Since payments pertain toconstruction work undertaken by the Board onbehalf of the respondent-assessee, this would fallwithin the purview of Section 194C of the Act of1961 and thus was liable to deduction of tax andinterest at source. The order passed by theTribunal is therefore wholly perverse because itfailed to appreciate that the respondent-assesseehas no authority to carry out any constructionwork on its own. All the works will have to beundertaken by the Board after due approval fromthe Directorate of Agriculture Marketing Board,which has an Executive Engineer on deputation fromthe Public Works Department and the entireconstruction work are carried out in hissupervision. The respondent-assessee pays cost ofconstruction to the Board, which also payssupervision charges @10% and work charges @1.5% ofthe cost. 6)Learned counsel argued that Section 194Cof the Act of 1961 has to be interpretedpurposely. Word 'contractor' for the purpose of applicability would be any person who enters intoa contract with the Central or State Government,any local authority, any Corporation establishedby or under a Central, State provincial Act, anycompany or any cooperative society, for carryingout any work including the supply of labour forcarrying out any work. All these facts clearlyshow that there is an implied contractor-contractee relationship between the Board and therespondent-assessee. The Board having received thepayment from the Samiti, was burdened with anobligation to carry out the work. What is crucialtherefore is as to whether or not, work wascarried out under the direction or control by therespondent-assessee or any its representative. Itwas argued that even if the income of the Board isexempted from tax, it should have applied for acertificate for deduction at a lower rate orauthorization or non deduction at source u/S.197.Since the Board is charging from the respondent-assessee for construction activities undertaken byit, the assessee was under an obligation to deducttax on the payment Executive Engineer of the Boardand deposit the same with the Income TaxDepartment. 7)Smt.Parinitoo Jain, learned counsel forthe appellant further argued that as perprovisions of Sections 19 & 22J of the RajasthanKrishi Upaj Mandi Act, 1961, which provides for 7)Smt.Parinitoo Jain, learned counsel forthe appellant further argued that as perprovisions of Sections 19 & 22J of the RajasthanKrishi Upaj Mandi Act, 1961, which provides for purposes for which the funds shall be expanded,the assessing officer and the Commissioner ofIncome Tax (Appeals) were justified in holdingthat the TDS was required to be deducted in thepayment of professional services as per Section194J of the Income Tax Act, 1961. It was arguedthat judgment of this Court in Commissioner ofIncome Tax Vs. Krishi Upaj Mandi Samiti and Ors. :(2009) 227 CTR (Raj.) 79 has wrongly been appliedby the Tribunal to the facts of the present case,which in fact was to the effect whethercontribution made by the Samiti to the Board canbe considered as payment. That judgment wasrendered entirely on different facts situation andis not related to the question whether there wasrelationship of contractor and contractee betweenthe Board and the Samiti. 8)In the light of the aforesaid arguments,learned counsel for the appellant contend thatfollowing substantial questions of law do arisefor consideration of this Court:- (1)Whether in the facts and circumstances ofthe case, the Tribunal was justified in law inreversing the findings of the Commissioner ofIncome Tax (Appeals) and holding that provisionsof Section 194C of the Income Tax Act, 1961 werenot applicable in respect of payment made toRSAMB for construction/maintenance of the marketarea and approach roads? (2)Whether the Tribunal has acted perversely inholdingthatnocontractor-contracteerelationship existed between the assessee andRSAMB and not covered u/S.194C? (3)Whether in the facts and circumstances ofthe case, the Tribunal was justified in law inreversing the findings of the Commissioner of Income Tax (Appeals) and holding that provisionsof Section 194J of the Income Tax Act, 1961 werenot applicable in respect of the payments made bythe assessee to RSAMB on account of statutorycontribution against which professional andtechnical services were received by the assessee? (4)Whether Tribunal has acted perversely inholding the payments made as statutorycontribution was not fee and not coveredu/S.194J? (5)Whether the Tribunal was legally justifiedin reversing the findings of the Commissioner ofIncome Tax (Appeals) and holding that provisionsof Sections 194C and 194J of the Income Tax Act,1961 were not applicable on the payments made toRSAMB and also deleting the demand and interestu/S.201(1),(1A)? 9)We have given our anxious consideration to the rival submissions and also carefullystudied the Division Bench judgment of this Courtin Commissioner of Income Tax supra. 10)Section 194C of the Act of 1961 providesthat any person responsible for paying any sum toany resident for carrying out any work inpursuance of a contract between the contractor anda specified person shall, at the time of credit ofsuch sum to the account of the contractor or atthe time of payment thereof in cash or by issue ofa cheque or draft or by any other mode, whicheveris earlier, deduct the tax at source. 11)The Tribunal on careful consideration ofthe Division Bench judgment of this Court inCommissioner of Income Tax supraheld that Section194C of the Act of 1961 will not be applicable inthe case of the respondent-Samiti. It is not theSamiti but the Board execute and carry out theworks. This Court in the aforesaid judgment, on 10)Section 194C of the Act of 1961 providesthat any person responsible for paying any sum toany resident for carrying out any work inpursuance of a contract between the contractor anda specified person shall, at the time of credit ofsuch sum to the account of the contractor or atthe time of payment thereof in cash or by issue ofa cheque or draft or by any other mode, whicheveris earlier, deduct the tax at source. 11)The Tribunal on careful consideration ofthe Division Bench judgment of this Court inCommissioner of Income Tax supraheld that Section194C of the Act of 1961 will not be applicable inthe case of the respondent-Samiti. It is not theSamiti but the Board execute and carry out theworks. This Court in the aforesaid judgment, on analysis of the provisions of the RajasthanAgricultural Produce Markets Act, 1961 and theRules of 1963 framed thereunder to detail out thelegal character of the Rajasthan AgriculturalMarketing Board and the Krishi Upaj Mandi Samitiand their work pattern under the scheme. In paras9 to 14, the relevant discussion was made.Although it is true that the aforesaid judgmentwas rendered in slightly different context wherethe assessee-Samiti claimed realization of thefund by the Board, part of which was spent outsideits market area on construction and repair work ofbuildings, roads etc. Assessee claimed that thisshould be accepted to have been applied forcharitable purpose within India. Tribunal in thatcase held that contribution made by the assesseetowards charitable activities extended evenoutside its local jurisdiction but within India,shall be entitled for the benefit of exemptionunder Section 11(10)(a) of the Income Tax Act.What has to be considered in the present matter iswhether the relationship of contractor andcontractee can be assumed between the AgricultureMarketing Board and the Krishi Upaj Mandi Samitiand it is for that purpose that the Tribunal hasrelied on the Division Bench judgment of thisCourt in Commissioner of Income Tax supra. 12)In order to appreciate the scheme of theAct of 1961, it would be apposite to reproduce paras 12 to 14 of the aforesaid judgment, asunder:- “12. Section 9 of the Act of 1961 deals with thefunctions and duties of the market committee.Section 17 of the Act of 1961 authorises the levyof market fee by the market committees. The marketfees to be prescribed by the market committees issubject to a maximum to be prescribed by theGovernment under the rules and it has co-relationwith the services to be rendered for carrying outthe objects of the Act of 1961. Section 18provided that all money received by the marketcommittee shall be paid into a fund to be called“the market committee fund” and all expenditureincurred by the market committee under or for thepurposes of the Act shall be defrayed out of thesaid fund. Section 18A casts an obligation uponthe market committee to pay to the Board before15[th] of every month, such amount as may beprescribed but not exceeding 10 per cent of theincome derived by it from license fees, marketfees and fines imposed by the Court. Section 19provides for the purposes for which the marketcommittee fund shall be expanded which include themanagement of the market proper, the principalmarket yard, sub-market yards for which it isconstituted, control and regulation of the runningof the market in the interest of agriculturistsand traders operating in the market and thebehaviour of those who entered in the market fortransacting business, and for providing facilitiessuch as shelters, sheds, parking accommodations,water for persons, drought cattle, vehicles andpack animals coming or being brought to the marketand on construction and repair of approach roads,culverts and bridges in the market area and forsuch other purposes, as may be specified by theState Government. 13.The Board has been established by the StateGovernment under Section 22A of the Act of 1961 tocarry out the purposes specified in Section 22J ofthe Act of 1961 and to tender advise to theGovernment and the market committees in relationto agricultural marketing as and when referred to.Section 22H provides for creation of the marketingredevelopment fund to be administered by theBoard. Section 22J specifies the purposes forwhich the marketing development fund shall beutilized by the Board which inter alia includesconstruction of the market, roads and approachroads to the markets, construction of market yardsand sub-yards and leasing or transferring these tothe market committees. 14.For the purposes of carrying out theprovisions of the Act of 1961, in exercise ofpower conferred by Section 36 of the Act of 1961,the State Government has framed the rules namely,“The Rajasthan Agriculture Produce Market Rules, 1963” (in short “the rules of 1963” hereinafter).As per Rule 45 of the Rules of 1963, all moneyreceived by the market committee shall be creditedto the fund called the market committee fund. Rule52 provides that all works to be taken up by themarket committees shall be executed and carriedout by the Board in such manner as may be decidedby the Board from time to time. That apart, theBoard is empowered to specify the limits uptowhich the market committee may be allowed to carryout the construction works.” 13)Analysis of the Rajasthan AgriculturalProduce Markets Act, 1961 as made in theaforementioned judgment clearly shows that theAgriculture Marketing Board and the Krishi UpajMandi Samiti owe their existence to that enactment.Construction of the agriculture market yards androads and maintenance by the Board in the marketareas and approach roads, are executed and carriedout by the Board and not by the Committee. Themoney transferred by the respondent-assessee to theBoard was statutory contribution. It is by virtueof the Rajasthan Agricultural Produce Markets Act,1961 and Rajasthan Agriculture Produce MarketRules, 1963 framed thereunder that the Board hasbeen charged with the duty to carry out the worksof construction of agriculture market yards andmissing link roads in yard premises. The contentiontherefore that relationship of contractor andcontractee between the Board and the Samiti, whichis the pre-requisite condition for invocation ofSection 194C, should be assumed, cannot thereforebe countenanced in the facts of the case. For thesame reason also therefore it cannot be held that the Agriculture Marketing Board provides to theKrishi Upaj Mandi Samiti any kind of professionalor technical services in the meaning of Section194J of the Act. Mere fact that supervision charges@10% and work charges @1.5% of the cost are chargedby the Board does not bring the activities of theBoard within the sphere of “professional technicalservices” rendered by the Board to Krishi UpajMandi Samiti. It is only prescription of the ratesat which the deduction can be made by the Board inmeeting out its day to day expenses, out of thetotal cost of the construction of a particular workin the nature of agriculture market yard or roadsor otherwise. 14)In view of above discussion, we do notfind any infirmity in the approach taken by theTribunal and any merit in these appeals. Theappeals are therefore dismissed. (Dr.MEENA V.GOMBER), J. (MOHAMMAD RAFIQ), J. anil/175-180 All corrections made in the judgment/order have been incorporated in the judgment/order beinge-mailedAnil Kumar GoyalSr.P.A. Cum JW