Ita/1155/2009 Of The Commissioner Of Income Tax,Cochin v. Vellapally Brothers (Construction)P.ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN FRIDAY, THE 4TH JUNE 2010 / 14TH JYAISTHA 1932 ITA.No. 1155 of 2009() ---------------------- ITA.255/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT ------------------------ VELLAPALLY BROTHERS (CONSTRUCTIONS) PVT. LTD., KALAMASSERY. ADV. SRI.JOSEPH KODIANTHARA FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. --------------------------- I.T.Appeal No. 1155 OF 2009 -------------------------- Dated this the 4[th] day of June, 2010 J U D G M E N T Ramachandran Nair, J. Heard Sri. Jose Joseph, the learned standing counselappearing for the appellant and Sri. Joseph Kodianthara, thelearned senior counsel appearing for the respondent. 2. The only question raised in the departmental appeal iswhether the Tribunal was justified in allowing deductions of totalpayment of Rs.9,06,604/- made by the respondent to three subcontractors of which two of them are unrelated to the respondentand the other is a related firm. The Tribunal allowed the claim forthe reason that the contract provided for payment to sub contractorson receipt from the awarder namely, the Cochin Port Trust. Thelearned standing counsel appearing for the appellant raised thecontention that it was a voluntary payment without any legal liabilityand so much so, it is not entitled to be allowed. 3. We feel the crucial question that should have beenconsidered was whether the respondent has in fact made paymentsto sub contractors during the previous year relevant for theassessment year 1994-96 and recovered TDS on payments to sub contractors and whether the sub-contractors have accounted thetransactions and paid tax in their assessments. Even though learnedsenior counsel appearing for the respondent produced assessmentorder of the related assesee namely Vellapally Brothers(Constructions) Pvt. Ltd, in so far as payments to others areconcerned there is nothing to prove assessments of the sameamounts in the hands of the sub contractors. Since none of theauthorities have considered this and Tribunal has allowed the claimmerely based on the scheme of payment in the original contract, Wefeel the matter requires reexamination on these issues with regard tothe admission of income and payment of tax by sub contractors.Since there is no provision for the sub-contractors for sharing ofaward amount in arbitration proceeding between the respondent andawarder, we are not able to uphold the Tribunal's order allowing theclaim based on a provision in the contract providing for payment afterreceipt from the awarder. We therefore allow the appeal by reversing the order of theTribunal but remitting the matter to the assessing officer to verifywhether the respondent have deducted TDS and the sub contractors have offered the amount and paid tax. If this has happened, that is,recovery of TDS and assessments of the same amounts in thehands of the sub contractors, then we do not think department canapply another yard stick in the case of the respondent as above. Theassessing officer should verify the position as to whether therespondent has collected TDS on the amounts and the very sameamount is in the hands of contractors and if so to allow thedeductions or otherwise to disallow the claim. The appeal is allowed to the above extent and in the waystated above. C.N.RAMACHANDRAN NAIR (JUDGE ) vps P.S.GOPINATHAN (JUDGE )