Trichirapalli v. D. Rathinam

IN THE HIGH COURT OF JUDICATURE AT MADRAS Date:- 1.02.2011 Coram THE HONOURABLE MR. JUSTICE F.M. IBRAHIM KALIFULLAANDTHE HONOURABLE MR. JUSTICE N. KIRUBAKARAN Tax Case (Appeal) No.1282 of 2010 The Commissioner of Income Tax-ITrichirapalli. Trichirapalli.... Appellant ..vs..D. Rathinam...Respondent Tax Case Appeal against the order of the Income Tax AppellateTribunal "C" Bench, Chennai dated 18.6.2010 passed in I.T.A. No.1750/Mds/2008 for the assessment year 2005-06.and against the orderof the Commissioner of Income Tax (Appeals) Tiruchirappalli in ITANo.150/07-08 dated 23.6.2008 and against the assessment order of theDeputy Commissioner of Income Tax Circle-II, Tiruchirappalli dated26.11.2007 in PAN/GIR No. . For Petitioner : Mr. K.Subramaniam JUDGMENT (Judgement of the Court was delivered by F.M. IBRAHIM KALIFULLA, J.) The revenue seeks to challenge the order of the Tribunal dated18.6.2010 in I.T.A.No.1750 of 2008, in and by which, the Tribunal setaside the order of the Assessing Officer as well as that ofCommissioner of Income Tax (Appeals). The assessment year pertainsto 2005-2006. The revenue seeks to raise the following question assubstantial question of law. "Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in deleting disallowance ofRs.52,22,500/- made under Section 40(a)(ia) of theIncome Tax Act made on the ground that the assesseehad not deducted tax at source on the payments madeto the Miller charges and road Roller hire chargesas required under Section 194C of the Act." https://hcservices.ecourts.gov.in/hcservices/ 2. The issue relates to alleged default committed by therespondent-assessee in making the TDS in respect of the hire chargespaid by the respondent – assessee, for having hired Millers andRollers, for the purpose of carrying out his road contract works.According to the revenue, since in the case on hand, the hire chargesin respect of both the Millers and Rollers hired by the respondent-assessee contains a portion of labour charges incurred by therespective owners of the concerned vehicles/machineries towardsoperation of the respective vehicles/machineries, it was a compositecontract of hiring of vehicles/machineries along with labour andconsequently, the relevant provision applicable for effecting TDS wasSection 194-C and not 194-I of the Income Tax Act. It is on theabove said basis, the Assessing Officer as well as the Commissionerof Income Tax (Appeals) took the view that, out of the total hirecharges of Rs.52,22,500/-, if 10% is treated as charges paid towardslabour element involved and the TDS not having been deducted asrequired under Section 40(a)(ia) of the Income Tax Act, the whole ofthe sum of Rs.52,22,500/- was to be disallowed and consequentlytreated as income and liable to be taxed. 3. The Tribunal, on the other hand, found that the sum ofRs.52,22,500/- paid by the assessee was only by way of hire chargesfor the Millers and Rollers taken on hire by the respondent -assessee and therefore, the relevant TDS provision applicable wasonly Section 194-I and not 194-C of the Income Tax Act, that theassessment year being 2005-06 and Section 194-I providing for TDSeven in respect of machinery/equipment was brought into the StatuteBook with effect from 1.6.2007, there was no scope to hold that therespondent – assessee committed any violation of Section 40(a)(ia) ofthe Income Tax Act. 4. Having heard Mr.Subramaniam, learned Senior StandingCounsel for the appellant and having perused the order of theAssessing Officer, the Commissioner of Income Tax (Appeals) as wellas that of the Tribunal, we are convinced that the conclusion of theTribunal was well justified. 4. Having heard Mr.Subramaniam, learned Senior StandingCounsel for the appellant and having perused the order of theAssessing Officer, the Commissioner of Income Tax (Appeals) as wellas that of the Tribunal, we are convinced that the conclusion of theTribunal was well justified. 5. The learned Standing Counsel in his submissions contendedthat the conclusion of the Commissioner of Income Tax (Appeals) inhaving treated 10% of the total sum paid by way of hire chargestowards labour element and the consequential conclusion that the non-deduction as required under Section 194-C of the Income Tax Act wouldnecessarily result in addition of the entire sum of Rs.52,22,500/- byinvoking Section 40(a)(ia), cannot be found fault with. 6. When we perused the order of the Commissioner of Income Tax(Appeals), in paragraph 3 of its order dated 23.6.2008, theCommissioner of Income Tax (Appeals) has quoted, as a matter of fact,what was paid to the various individuals and who own the Millers andRollers taken on hire by the respondent-assessee, were the respective https://hcservices.ecourts.gov.in/hcservices/ hire charges. Neither the Assessing Authority nor the Commissionerof Income Tax (Appeals) could assert that there was any material tosuggest that there was any contract between the respondent-assesseeand those individuals, by way of a composite contract for labour aswell as hiring of the vehicles. Thus, it cannot be disputed that therespondent-assessee as a contractor for laying of the road engagedhis own men for that purpose. Hiring of the miller and roller as amachinery/equipment was apparently needed for the purpose of carryingout the contract of laying of the road. Both the equipments viz.,Millers and Rollers had to be necessarily operated by the owner ofthe respective machineries/equipments. Therefore, that by itselfcannot be a ground to state that it was a composite contract forsupply of labour in the course of hiring of machineries/equipments.Inasmuch as the Millers and rollers have to be necessarily operatedand maintained by the respective owners, the engagement of theservice of any person for operating those machineries/equipmentswould have been purely an incidental one. In fact, as stated by usearlier, there was no material evidence or statement of any one tosay in definite terms that the supply of such Millers and Rollerswere along with its respective operators. Therefore, in the absenceof any such acceptable material, the conclusion of the AssessingOfficer in treating the hiring of Millers and Rollers as one fallingunder the category of sub-contract for provision of Labour or theconclusion of the Commissioner of Income Tax (Appeals) that atleast10% of the total payment of Rs.52,22,500/- would have been incurredby way of labour charges by the respective owners, cannot beaccepted. 7. Viewed in that respect, the conclusion of the Tribunal, inhaving held that the relevant Section which was applicable to thecase on hand, in relation to the sum of Rs.52,22,500/- incurred bythe respondent – asseessee by way of hire charges, would fall underSection 194-I of the Income Tax Act, is unassailable. Therefore,when indisputably Section 194-I of the Income Tax Act came to providefor making the TDS in respect of machinery/ equipments only witheffect from 1.6.2007 and the relevant assessment year is 2005-06,there was no scope at all to find fault with the respondent –assessee for any violation of Section 40(a)(ia) of the Income TaxAct. 7. Viewed in that respect, the conclusion of the Tribunal, inhaving held that the relevant Section which was applicable to thecase on hand, in relation to the sum of Rs.52,22,500/- incurred bythe respondent – asseessee by way of hire charges, would fall underSection 194-I of the Income Tax Act, is unassailable. Therefore,when indisputably Section 194-I of the Income Tax Act came to providefor making the TDS in respect of machinery/ equipments only witheffect from 1.6.2007 and the relevant assessment year is 2005-06,there was no scope at all to find fault with the respondent –assessee for any violation of Section 40(a)(ia) of the Income TaxAct. 8. Apart from the above conclusion based on facts, theTribunal has also stated that when the basis for the assessment wasby way of applying the net profit rate on gross receipts, there wasno scope for making any other addition, in view of Section 44AD ofthe Income Tax Act, which was accepted by the department. In thisrespect, we find every justification in the grievance expressed bythe learned Standing Counsel that Section 44AD will not apply, ifthe total turnover or gross receipts in the previous year exceedsRs.40 lakhs. In the case on hand, the income of the assessee fromcontract business at the rate of 8% of the contract receipts, was determined at Rs.14,48,480/-. Therefore, the contract receipts wouldhave far exceeded Rs.40 lakhs and therefore, there was no scope tohold that Section 44AD shall have application to the case of therespondent – assessee. 9. Since on the main issue, the Tribunal has held thatSection 194-I was the relevant provision applicable to the case ofthe respondent – assessee, we have no hesitation to hold that theother reasoning of the Tribunal on Section 44AD should be ignored, inthe light of the statutory limitation noted by us as above.Therefore, we do not find any scope to entertain the question of law.The appeal, therefore, fails and the same is dismissed. Sd/-Asst. Registrar//true copy//Sub Asst.RegistrarTr/To1.The Assistant Registrar, Income Tax Appellate Tribunal, 'C' Bench, Rajaji Bhavan, III floor, Besant Nagar, Chennai-90.2.The Commissioner of Income Tax (Appeals) No.4, Williams Road, Contonment Trichirappalli-620 001.3. Deputy Commissioner of Income Tax Circle II, No.44, Williams Road, Tiruchirapalli.4. The Commissioner of Income Tax-I, Tiruchirapalli. 1 cc to Mr.K.Subramaniam, Advocate, Sr.No.7692 Tax Case (Appeal) No.1282 of 2010SGL {CO}TP/23.2.2011.