The Petitioner Submits That This Court Inaspinwall And Company v. The Commissioner Ofincome Tax (W.p.(C)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE N.NAGARESH FRIDAY, THE 05TH DAY OF JULY 2019 / 14TH ASHADHA, 1941 WP(C).No.32433 of 2018 PETITIONER: T.P. ASSOCIATESCHULLIYOD ROAD, GANDHI JUNCTION, SULTHAN BATHERY 673 592, REPRESENTED BY ITS MANAGING PARTNER C.ASHRAF, AGED 52 YEARS, S/O C MUHAMMED, CHINGLI HOUSE, KALLUVAYAL, SULTHAN BATHERY 673 592 BY ADVS.SRI.A.JAYASANKARSRI.ASHWIN SETHUMADHAVANSRI.MANU GOVINDSRI.S.SABARINADH RESPONDENTS: 1THE KERALA HEAD LOAD WORKERS WELFARE FUND BOARDREPRESENTED BY CHIEF EXECUTIVE OFFICER, SRM ROAD, ERNAKULAM, KOCHI-682018. 2THE KERALA HEAD LOAD WORKERS WELFARE FUND BOARD,WAYANAD DISTRICT COMMITTEE, REPRESENTED BY ITS CHAIRMAN, SULTHAN BATHERY SUB OFFICE, AK TOWER, ASSUMPTION JUNCTION, SULTHAN BATHERY-673592. 3INCOME TAX OFFICER (TDS)CALICUT, WARD TDS, AAYAKAR BHAVAN, 3RD FLOOR, NORTH BLOCK, CALICUT-673001. BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENTSRI.THOMAS ABRAHAM, SC, KHWWBSRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENTGOVT. PLEADER SRI. RENIL ANTO KANDAMKULATHY THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 05.07.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: J U D G M E N T~ ~ ~ ~ ~ ~ ~ ~ ~ The petitioner, who is the Managing Partner of a partnership firm carrying on the business in wholesale andretail of sanitary tiles and hardware materials, raises agrievance that he is put to 'double jeopardy' by the IncomeTax authorities and the Kerala Head Load Workers WelfareFund Board, in the matter of Tax Deduction at Source. 2.It is stated that the petitioner firm has noregistered head load workers. Head load work is done bypool workers of the 2[nd] respondent - Kerala Head LoadWorkers Welfare Fund Board ('the Board', for short).Payment towards wages are made to the Board regularly.The petitioner has deducted income tax by way of TDSunder Section 194C of the Income Tax Act, 1961.Remittances were made to the Board after making such deductions. 3. The 2[nd] respondent - Board made objection to such deductions and classified the petitioner as defaulter forshort payment made to it. The petitioner was threatenedthat unless the said amount is paid to the Board forthwith,further services would stand terminated. Subsequently, theBoard issued Ext.P3 demand for ₹5,41,117.70 towardsunpaid wages. The petitioner states that this amount is theamount covered by Ext.P1 as TDS. A further demand wasmade by the Board as per Ext.P3 for ₹1,35,279/-. The 2[nd]respondent has issued Ext.P4 statement dated 28.05.2018which is the break up of the amounts covered by Ext.P3.On the threat of termination of service by the 2[nd] respondent- Board, the petitioner has remitted the amounts demanded.The petitioner was also made to pay damages to the Boardfor the alleged short payment. 4.The petitioner submits that this Court inAspinwall and Company v. The Commissioner ofIncome Tax (W.P.(C) No.5227/2010) has held that deduction under 194C shall be made and payment shall be made to the Income Tax authorities as deduction of tax atsource. In the said judgment, the Board was given liberty tomove for exemption from payment of tax, contends thepetitioner. The Board has issued Ext.P6 letter stating thatits Chartered Accountant has opined that no TDS is liable tobe deducted under Section 194C for the payments towardswages and levy made to the Board. 5. The grievance of the petitioner is that on the one 4.The petitioner submits that this Court inAspinwall and Company v. The Commissioner ofIncome Tax (W.P.(C) No.5227/2010) has held that deduction under 194C shall be made and payment shall be made to the Income Tax authorities as deduction of tax atsource. In the said judgment, the Board was given liberty tomove for exemption from payment of tax, contends thepetitioner. The Board has issued Ext.P6 letter stating thatits Chartered Accountant has opined that no TDS is liable tobe deducted under Section 194C for the payments towardswages and levy made to the Board. 5. The grievance of the petitioner is that on the one hand he is made to deduct TDS and remit it to theDepartment of Income Tax and on the other hand, the Boardis recovering the same amount from the petitioner as shortpayment and imposing damages also. The petitioner furthersubmits that the Central Board of Direct Taxes has issuedExt.P10 Notification No.63/2016 dated 26.07.2016invoking Section 10(46) of the Income Tax Act, 1961 andnotified the Board in respect of specified income arising tothe Board by way of levy collected under the Kerala HeadLoad Workers Act, 1978 as also sums received as wages from the employers as per paragraphs 24A and 24B of the Kerala Head Load Workers (Regulation of Employment andwelfare) Scheme, 1983 ('the Scheme', for short). Thepetitioner therefore prays to declare that it is not liable todeduct taxes under Section 194C of the Income Tax Act onamounts payable to the Board. The petitioner has alsosought to declare that the Board is liable to refund theamounts paid by the petitioner as per Exts.P3, P4 and P6 toP8. 6.Respondents 1 and 2 - Board authorities havefiled a statement opposing the writ petition. The Boardstated that the petitioner is not liable to deduct taxes underSection 194C on amounts payable to them. The Board isone statutorily constituted to implement the provisions of theKerala Head Load Workers Act, 1978. The Central Board ofDirect Taxes ('the CBDT', for short) has taken a stand thatthough the Board has an exemption under Section 10(46) ofthe Income Tax Act, the same is only a conditionalexemption. When Ext.P10 exemption notification specifically includes income received as levy and sums received as wages, the Income Tax authorities cannotdemand deduction of tax at source from persons who arepaying the said amounts to the Board. In view of the illegalstand of the Department of Income Tax, the Board hassubmitted Annexure-R1(a) representation to the CBDTseeking to examine the matter. The Board is awaiting aresponse to Annexure-R1(a). The 3[[rd]] respondent - Income Tax Officer (TDS) 7.The 3[[rd]] respondent - Income Tax Officer (TDS)filed a counter affidavit. According to the 3[rd] respondent, theexemption given to the Board is a conditional one and theBoard is liable to file returns of income. Ext.P10 notificationissued under Section 10(46) does not exempt the Boardfrom the liability of TDS from its receipts. The CBDT hasissued a Circular No.18/2017 listing the entities who areexempted from TDS and the Board is not one among thoseentities. For being exempted from TDS, an entity should beunconditionally exempted from income tax liability. Theexemption granted to the Board is not unconditional. The Board has filed returns of income and claimed refunds amounting to ₹2.84 Crores, ₹3.20 Crores and ₹2.70 Croresfor the Assessment Years 2015-16 to 2017-18. Therefore,there is no justification on the part of the Board for notaccepting the TDS made by the petitioner. The writ petitionis therefore liable to be dismissed, contended the 3[rd]respondent. 8.Heard learned counsel for the petitioner and forthe respondents. The question to be decided is whether thepetitioner is liable to deduct TDS under Section 194C of theIncome Tax Act, 1961 and whether the Board is justified ininsisting that their dues have to be paid without deduction ofTDS. Board has filed returns of income and claimed refunds amounting to ₹2.84 Crores, ₹3.20 Crores and ₹2.70 Croresfor the Assessment Years 2015-16 to 2017-18. Therefore,there is no justification on the part of the Board for notaccepting the TDS made by the petitioner. The writ petitionis therefore liable to be dismissed, contended the 3[rd]respondent. 8.Heard learned counsel for the petitioner and forthe respondents. The question to be decided is whether thepetitioner is liable to deduct TDS under Section 194C of theIncome Tax Act, 1961 and whether the Board is justified ininsisting that their dues have to be paid without deduction ofTDS. 9.Section 194C of the Income Tax Act, 1961 reads as follows:- “ (1) Any person responsible for payingany sum to any resident (hereafter in thissection referred to as the contractor) forcarrying out any work (including supply oflabour for carrying out any work) in pursuanceany sum to any resident (hereafter in thissection referred to as the contractor) forcarrying out any work (including supply oflabour for carrying out any work) in pursuance of a contract between the contractor and aspecified 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 issueof a cheque or draft or by any other mode,whichever is earlier, deduct an amount equalto-- (i) one per cent where the payment is beingmade or credit is being given to an individual ora Hindu undivided family; (ii) two per cent where the payment is beingmade or credit is being given to a person otherthan an individual or a Hindu undivided family, of such sum as income-tax on incomecomprised therein.” Liability to deduct TDS therefore arises only if the payment is made by the petitioner in pursuance of a contract betweenthe Board and the petitioner. Admittedly, there is no oral orwritten contract between the Board and the petitioner toavail services of the head load workers. The status of the Board has to be considered to see whether Board can be termed as a Contractor. 10.The Board has been constituted by theGovernment statutorily under Section 14 of the Kerala HeadLoad Workers Act, 1978 ('the Act, 1978', for short). The Act,1978 has been enacted to regulate the employment of headload workers in the State of Kerala. In exercise of thepowers conferred under Section 13 of the Act, 1978, theGovernment has made the Kerala Head Load Workers(Regulation of Employment and Welfare) Scheme, 1983.Under the Scheme, no head load worker, who is not aregistered head load worker, shall be allowed or required towork in any area to which the Scheme applies. Thepetitioner has no registered head load workers on its rolls.Therefore, the petitioner has no option than to avail theservices of the Board who regulates its own pool of headload workers. Under Clause 10 of the Scheme, every headload worker shall be deemed to be employed by theCommittee constituted by the Board. The said Committee is The Board has been constituted by the responsible for the welfare of the head load workers. As per Clause 19, the Committee shall determine the number ofhead load workers needed for their area and may increaseor decrease the number of registered head load workers.The wage amounts payable to the workers are paid onlythrough the Committee. The disciplinary powers over theworkers are vested with the Chairman of the Committee.Thus, the petitioner has no control whatsoever over theworkers who do the loading and unloading work. The Board has been constituted by the responsible for the welfare of the head load workers. As per Clause 19, the Committee shall determine the number ofhead load workers needed for their area and may increaseor decrease the number of registered head load workers.The wage amounts payable to the workers are paid onlythrough the Committee. The disciplinary powers over theworkers are vested with the Chairman of the Committee.Thus, the petitioner has no control whatsoever over theworkers who do the loading and unloading work. 11.The Board and the Committees constituted underit being creature of statutes created for the welfare of headload workers and not being commercial entities, cannot betreated as a contractor for the purpose of Section 194C ofthe Income Tax Act. When there is no contract between thepetitioner and the Board for availing the services of the headload workers and since the petitioner is availing the serviceof the Board on statutory compulsions, it cannot be said thatthe services are rendered under any contract. Therefore,Section 194C of the Income Tax Act cannot be applied to the petitioner in the matter of payments made by the petitioner to the Board. Going through the judgment of thisCourt in Aspinwall and Company v. The Commissionerof Income Tax (W.P.(C) No.5227/2010), I find that thisCourt in the said judgment has not specifically decidedwhether Section 194C would apply to the payments made tothe Board. 12.Assuming that there is a statutory contractbetween the petitioner and the Board in their transactions,even then the Board is not a commercial entity makingprofits out of rendering head load workers service and thepayments made by the petitioner to the Board wereintended to be paid to the head load workers. The saidpayments cannot be said to be contractual payments. Thepayments are in the nature of payment of salary/wages. Forthat reason also, Section 194C cannot be pressed intoservice. 13.Further more, it has to be noted that the Boardhas been notified under Section 10(46) of the Income Tax Act as per Ext.P10. Ext.P10 shows that levy collected bythe Board and sums received as wages from employers asper the Scheme, 1983 are exempted from computing thetotal income of the Board. In the light of the Apex Courtdecision in Associated Cement Company Ltd. v. TheCommissioner of Income Tax[(1993) 201 ITR 435], theCBDT has issued guidelines under Circular No.681 dated08.03.1994. Clause (xii) of the Circular states that whereany contractor is the recipient of any amount under acontract, but the income of the recipient is not subject toincome tax, the said contractor may obtain a certificate fromhis Assessing Officer under Section 194C(4) for receivingpayment without deduction of tax at source. Therefore,even assuming that the Board is a contractor, it can verywell obtain a certificate from the Department of Income Taxto exclude its receipts from the petitioner from paymentwithout deduction of tax at source. If the Board has notobtained such certificate, the petitioner need not beburdened with the TDS, especially when the Board has informed the petitioner that it should not to deduct any TDS from the payments made to the Board. 14.Yet another relevant factor is that the petitionerhas deducted TDS from the payments made to the Boardand remitted the same to the income tax authorities. Theincome tax authorities have stated in their counter affidavitthat the Board has been enjoying the benefit of refunds forthe last few years. It is, therefore, very likely that the Boardhas received the credit for TDS paid by the petitioner. It isbeyond comprehension that when the amount paid by thepetitioner to the Board is exempted from tax, the Board is inreceipt of TDS credits for the remittances made by thepetitioner to the Income Tax Department. It is astonishingthat while the facts being so, the Board has realised thesame amount from the petitioner also. from the payments made to the Board. 14.Yet another relevant factor is that the petitionerhas deducted TDS from the payments made to the Boardand remitted the same to the income tax authorities. Theincome tax authorities have stated in their counter affidavitthat the Board has been enjoying the benefit of refunds forthe last few years. It is, therefore, very likely that the Boardhas received the credit for TDS paid by the petitioner. It isbeyond comprehension that when the amount paid by thepetitioner to the Board is exempted from tax, the Board is inreceipt of TDS credits for the remittances made by thepetitioner to the Income Tax Department. It is astonishingthat while the facts being so, the Board has realised thesame amount from the petitioner also. In the facts of the case, reliefs need to be grantedto the petitioner in this writ petition. Such reliefs arerequired to be granted in the facts of the case and in theinterest of justice, even though the petitioner has not sought relief of refund as against the 3[rd] respondent. Accordingly, it is declared that the petitioner is not liable to deduct TDSunder Section 194C of the Income Tax Act for amountspayable to respondents 1 and 2. Consequently, if thepetitioner makes appropriate application before the 3[rd]respondent for refund of TDS remitted by it in respect ofpayments made to respondents 1 and 2, the 3[rd] respondentshall consider the application treating that Section 194C didnot apply to the transactions and refund the amount within aperiod of two months from the date of receipt of suchapplication from the petitioner. Needless to say, the 3[rd]respondent will be at liberty to recover the TDS amount fromrespondents 1 and 2 if credit is given to them in respect ofthe TDS remitted by the petitioner. The writ petition is disposed of with the above directions. aks/06.07.2019 Sd/-N. NAGARESH, JUDGE APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1EXHIBIT P2 A DETAILED STATEMENT SHOWINGREMITTANCE PARTICULARS MADE BYTHE PETITIONER AS TDS. EXHIBIT P8 EXHIBIT P9 EXHIBIT P10 EXHIBIT P11 RESPONDENT'S EXHIBIT: R3(A) R1(A) COPY OF ORDER DATED 12.9.2012 OFINCOME TAX APPELLATE TRIBUNAL,PUNE IN ITS 1062 AND 1064 OF2010. COPYOFCOMMUNICATIONNO.TDS/CLT/KERALAHEADLOADWELFARE BOARD/194C/2018-19/K-84DATED 23.7.2018 BY THE 3RDRESPONDENT. COPY OF NOTIFICATION NO.63/2016DATED 26.7.2016 BY MINISTRY OFFINANCE. COPY OF THE COMMUNICATION DATED9.8.2018 ISSUED BY THE PETITIONERTO THE 2ND RESPONDENT. TRUE COPY OF CIRCULAR NO.18/2017OF THE CBDT. TRUE COPY OF THE REPRESENTATIONSUBMITTED BY THE BOARD BEFORECBDT.