Rc/174/2000 Of The Commissioner Of Incometax.visakha v. The Municipal Corp.visakhapatnam

HON’BLESRIJUSTICE G. CHANDRAIAH & HON’BLESRIJUSTICE CHALLA KODANDA RAM RC No.174 OF 2000 JUDGMENT :: ( per Hon’ble Sri Justice Challa Kodanda Ram ) At the instance of the Revenue, below mentionedquestion of law has been referred to the opinion of this Court asarising from the orders of the Tribunal in ITA No.944/Hyd/93 forthe assessment year 1991-92. “ Whether, on the facts and in the circumstances of the case, theIncome-tax Appellate Tribunal was justified in cancelling the orderspassed under Section 201 and 201 (1A) of the IT Act, 1961 by holdingthat there was no legal obligation cast on the Municipal Corporation todeduct at source surcharge on Income-tax also in addition to tax at 2%on payment made to Contractors ? 2. Heard Sri SR Ashok, learned senior counsel appearingfor the Revenue. None appeared for the respondent-assessee. 3. The assessee is a local body constituted under theHyderabad Municipal Corporation Act. During the financial year1991-92 payments to the tune of Rs.6.92 crores were made tothe Contractors after deducting TDS as applicable at 2% on thepayments made to the Contractors and credited the same tothe account of the Central Government. The Income-tax Officer(TDS), Visakhapatnam, felt that the Municipal Corporation inaddition to tax deducted at source at the rate of 2%, should alsohave further deducted surcharge on the tax at 12% at sourceitself and should have credited the said surcharge also to the Central Government. Accordingly, surcharge amount wasworked out to Rs.2.08 lacs and treated the same as shortdeduction and passed orders dated 30-10-1992 under Section194C r/w. Section 201(1) of Income Tax Act, 1961, (for short,‘the Act’) directing the respondent-Municipal Corporation tomake good the short deduction of Rs.2.08 lacs representing thenon-deducted surcharge. Obviously, the Income-tax Officerpassed the said order treating the Municipal Corporation as anassessee in default under Section 201 of the Act. Further, anamount of Rs.13,028/- was levied towards interest on the shortdeduction of Rs.2.08 lacs under Section 201 (1A) of the Act andaccordingly raised a demand. 4. The respondent-assessee preferred appeal and the firstappellate authority on analysis of Section 194C of the Act asexisting at that point of time had come to the conclusion that theassessee could not be treated as in default for the reason theliability to deduct 12% at source as surcharge came to beintroduced by the Finance Act, 1991 only. The order of the firstappellate authority was also confirmed by the Tribunal. 5. Learned counsel for the Revenue would contend that the Tribunal had erred in concluding that there was no obligation onthe Municipal Corporation to deduct surcharge at source at therelevant point of time, inasmuch as Clause 5 (2) of the FinanceAct, 1991 had imposed a liability, which would apply to thepayment made during financial year 1990-91. 6. We have no hesitation to reject the contention of thelearned counsel for the Revenue for the reason Section 194C (1) & (2) of the Act as existed at the relevant point of time hadcast no obligation on the assessee-Municipal Corporation todeduct any surcharge during the relevant years whenpayments were made to the Contractors. Section 194C (1) & (2)of the Act as existed at that point of time may be noticed. Itreads as follows:- "194C. Payments to contractors and sub-contractors-(1)Any person responsible for paying any sum to any resident(hereafter in this section referred to as the contractor) for carryingout any work (including supply of labour for carrying out any work)in pursuance of a contract between the contractor and - (a) the Central Government or 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 (1) & (2) of the Act as existed at the relevant point of time hadcast no obligation on the assessee-Municipal Corporation todeduct any surcharge during the relevant years whenpayments were made to the Contractors. Section 194C (1) & (2)of the Act as existed at that point of time may be noticed. Itreads as follows:- "194C. Payments to contractors and sub-contractors-(1)Any person responsible for paying any sum to any resident(hereafter in this section referred to as the contractor) for carryingout any work (including supply of labour for carrying out any work)in pursuance of a contract between the contractor and - (a) the Central Government or 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, shall, at the time of credit of suchsum to the account of the contractor or at the time of paymentthereof in cash or by issue of a cheque or draft or by any othermode, whichever is earlier, deduct an amount equal to two percent of such sum as income-tax on income comprised therein. (2) Any person (being a contractor and not being anindividual or a Hindu undivided family) responsible for paying anysum to any resident (hereafter in this section referred to as the'sub-contractor') in pursuance of a contract with the sub-contractorfor carrying out, or for the supply of labour for carrying out, thewhole or any part of the work undertaken by the contractor or forsupplying whether wholly or partly any labour which the contractorhas undertaken to supply shall, at the time of credit of such sumto the account of the sub-contractor or at the time of paymentthereof in cash or by issue of a cheque or draft or by any othermode, whichever is earlier, deduct an amount equal to one percent of such sum as Income-tax on income comprised therein. Explanation:- For the purposes of this section, where anysum referred to in sub-section (1) or sub-section (2) is credited toany account, whether called 'suspense account' or by any othername, in the books of account of the person liable to pay suchincome, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of thissection shall apply accordingly. (3)……… (4)………. (omitted intentionally as they are not relevant for thepurpose of this case) 7. Questions before us are whether there is obligation tocollect surcharge on TDS from contractors for the relevantperiod on account of the obligation cast by Clause 5 of theFinance Act, 1991 which came into force from 1[st] April, 1991and whether Municipal Corporation was under any obligation topay any interest on surcharge under Section 201 r/w. Section201 (1A) of the Act. This Court in the case of SRIRAMREFREGERATION INDUSTRIES vs. INCOME TAX OFFICER(2014 361 ITR 119 (AP), dealing with Section 201 and 201 (1A)of the Act and considering the provisions as existing at thatpoint of time, by following the judgment in the case ofRAJAGOPAL (PV) vs. UNION OF INDIA (1998 233 ITR 678(AP) held that Section 201 (1A) of the Act has no application inthe case of short deduction. The ratio of the said judgmentwould squarely apply to the present case on hand evenassuming that there is short deduction. We make it clear thatwhen we say ‘even assuming’ it does not mean that at therelevant point of time there was any obligation on the Municipal Corporation to deduct surcharge as the very obligation tocollect surcharge was not in existence and the same came tobe introduced only with effect from 1[st] April, 1991 by Finance(No.2) Act, 1991. In the circumstances, we do not find any errorin the order passed by the Tribunal and in that view of thematter, the question of law is answered in favour of theassessee and against the Revenue. Miscellaneous petitions, ifany pending in this case shall stand closed. There shall be noorder as to costs. _________________________ G. CHANDRAIAH, J ____________________________ CHALLA KODANDA RAM,JDated: 04-03-2014Note: LR copy to be marked. Corporation to deduct surcharge as the very obligation tocollect surcharge was not in existence and the same came tobe introduced only with effect from 1[st] April, 1991 by Finance(No.2) Act, 1991. In the circumstances, we do not find any errorin the order passed by the Tribunal and in that view of thematter, the question of law is answered in favour of theassessee and against the Revenue. Miscellaneous petitions, ifany pending in this case shall stand closed. There shall be noorder as to costs. _________________________ G. CHANDRAIAH, J ____________________________ CHALLA KODANDA RAM,JDated: 04-03-2014Note: LR copy to be marked. (b/o) NRG HON’BLESRIJUSTICE G. CHANDRAIAH & HON’BLESRIJUSTICE CHALLA KODANDA RAM RC No.174 OF 2000 ( per CKR,J ) Dated: 04-03-2014 NRG Note : LR copy to be marked *HON’BLESRIJUSTICE G. CHANDRAIAH & HON’BLESRIJUSTICE CHALLA KODANDA RAM +RC No.174 OF 2000 % 04-03-2014 The Commissioner of Income-tax Visakhapatnam ….Applicant Vs. $ The Municipal Corporation, Visakhapatnam ….Respondent ! Counsel for the Applicant : Sri SR Ashok, learned Sr. Counsel^Counsel for the Respondent : None appeared <Gist : >Head Note: ? Cases referred: 1. 2014 361 ITR 119 (AP) 2. 1998 233 ITR 678 (AP)