TMI Blog2001 (9) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... ime limit that could be said to be available to him (ITO-TDS) for this purpose, and on a due consideration of the overall scheme of levy and collection of taxes the ld. CIT(A). Kanpur, should have quashed the order as a whole, inter alia on this ground." 4. Since the common grounds have been taken in all these seven appeals and common issues are involved, for the sake of convenience, we proceed to decide these appeals by a common order. 5. Shri S.K. Garg, F.C.A., appeared on behalf of the assessee, whereas Shri D.K, Srivastava, ld. Sr. DR represented the Department. 6. Before taking up the main issue involved in the grounds of appeal (Ground Nos. 1 to 7), we consider it proper to narrate the relevant facts concerning this matter, which are as under: 6.1 The assessee-Corporation entered into a contract with the National Industrial Development Corporation Limited (for short - NIDC) for constructing its Head Office Complex Building at A-1/4, Lakhanpur, Kanpur. It may be pointed out that the assessee-Corporation, is an undertaking of the State of Uttar Pradesh and the NIDC is an undertaking of Government of India. 6.2 In the agreement dated 7-8-1989, the stipulations were inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply dated 22-7-1996 was also given. Thereafter, lot of correspondence followed between the Income-tax Department and the assessee on this point. Since the Department was not convinced with the reply of the assessee and the stand taken by it, the ITO proceeded to pass the order under section 201/201(1A) of the Income-tax Act, 1961. 6.8 The assessee preferred separate appeals against the order of the Assessing Officer, which appeals were decided by a common order by the ld. CIT(A) by upholding his order and dismissing the appeals of the assessee. The order of the ld. First Appellate Authority has been challenged before us in these appeals. 7. In this factual background of the matter, we proceed to adjudicate the issue involved in these appeals. 8. To state the controversy in brief, the stand of the Department is that NIDC was entrusted with the entire construction work by the assessee and in terms of agreement, NIDC was to discharge its function as a Contractor and, therefore, the assessee was under a legal obligation to deduct TDS from the payments made to NIDC, whereas the stand of the assessee is that NIDC was simply a consultant for designing and supervising the constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (vi) The Agencies to whom, the contracts were given for carrying out the works were not sub-contractors. Had they been sub contractors, then the rate of TDS deducted from payments made to them would have been only 1 per cent. (vii) The NIDC was just looking after the work or supervising the work and not carrying out the contract. Thus, it functioned only as a consultant. (viii) The money was kept or deposited with the NIDC under trust. It was not a contract receipt for them. (ix) If the agreement is read as a whole, the only conclusion will be that the NIDC was rendering consultancy services, which were professional services and, which services were not subject to deduction of TDS under section 194C(1). 10. The ld. Sr. DR, on the other hand, invited our attention to the objects behind the scheme of TDS and the legislative intent behind section 194C. According to him, the provisions relating to deduction of TDS cost absolute liability on the assessee. According to him, these are very important provisions of the Income-tax Act and in case of breach, the penal consequences follow. The ld. Sr. DR submitted detailed argument in explaining the meaning of term "any work" appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich one or the other of the organizations specified in the sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisations supply of labour under a contract from a contractor. 12. The ld. Sr. DR also submitted that the cases relied upon by the ld. counsel for the assessee were distinguishable on facts. The ld. Sr. DR also placed reliance on the decisions in Grindlays Bank Ltd. v. CIT [1992] 193 ITR 457 (Cal.), Bennet Coleman Co. Ltd. v. V.P. Damle, Third ITO [1986] 157 ITR 812 (Bom.) and Associated Cement Co. Ltd.'s case. 13. In reply to the arguments of the ld. Sr. DR, the ld. counsel for the assessee submitted that the amendment and incorporation of section 194J sufficiently shows that prior to amendment the professionals and technical consultants were not covered with in the definition of 'anywork'. According to him, the Consultants and Engineers engaged in the profession and consultancy services in various fields including the Project Management came to be covered within the scheme of TDS by insertion of section 194J as inserted by the Finance Act, 1995. In this regard, he also made reference to Circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 194C/201, is not legally justifiable. We assign the following reasons in support of our conclusions: A. The contract dated 7-8-1989 between the UPSIDC and NIDC cannot be treated to be a contract for carrying out contract work by a contractor and contractee. The intention of the parties is to be gathered from the relevant stipulations of the Deed, which are reproduced below: "Whereas UPSIDC intends to construct its Office Complex in Kanpur (hereinafter referred to as 'Project'): And whereas in this connection UPSIDC desires to engage the services of NIDC as the Consultants to the Project to perform the work hereinafter set forth; And whereas NIDC represents that it is ready, willing and able to provide such services;" "1.1 For the above objective, UPSIDC has appointed NIDC as the consultants for providing design, engineering, supervision and construction management services for the total implementation of the Project." "Article V: Remuneration 5.1 In consideration of the services to be rendered by the NIDC stipulated under Article II above, NIDCs fee shall be @ 11% (Eleven per cent) of the actual executed cost of the project if the same is within Rs.3.0 crores. In ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Letter dated 1-7-1996: "Kindly refer to your above letter for verification of tax at source under section 194(c) of the Income-tax Act, 1961, regarding construction of UPSIDC Head Office Complex building being done at A-1/4, Lakhanpur (Kanpur). In this connection, it is to inform you that the construction work of UPSIDC Head Office building at Lakhanpur, Kanpur, was entrusted to the National Industrial Development Corpn. Ltd. (NIDC), New Delhi as Consultants and all the contracts have been given and arranged by the NIDC, New Delhi. The tax at source from the contractors has also been deducted by NIDC. NIDC is a Government of India undertaking and their address is as below." Letter dated 22-7-1996: "2. Yeh ki iske Mukhalaya Hetu Ek Bhawan Nirman Rashtriya Audyogik Vikas Nigam, New Delhi, jo ki Kendriya Sarkar ka Upkram Hai, Ne banwaya. Humne nahin banwaya. Unhone hee humse samay samay par lagti Rs. lekar nirman Thekadaro ko anubandhit kiya aur bhugtan bhi kiya. Hamse nirman karne wale Thekedaron athwa labour adi se koi samvida ya sambandh nahin raha hai aur na hi hamne unhe koi bhugtan kiya hai. 3. "Yeh ki hame jankari hui hai ki unhone hi thekedaron se TDS katkar, New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the clients. TDS deductions are also made as per provisions of the Income-tax Act. It is further certified that NIDC have already deposited the TDS deducted upto 31-2-1996 with the Central Government and annual return submitted to the Income-tax Authorities [ITO TDS Wd. 23(2) vide Diary No. 001952 dated 28-6-1996.]" It may further be pointed out that NIDC has further clarified the entire position by its letter dated 16-2-2000, copy placed at page 32 of the paper book (Volume II of the assessee). In this letter, the NIDC has certified that they undertook consultancy work of providing Engineering and Construction Management Services to the UPSIDC for their Complex at Kanpur vide agreement dated 7-8-1989 on a fee @ 10 per cent of the executed cost of the works as per the agreement executed with UPSIDC. In para 3 of the letter, it is specifically stated that NIDC as Consultant of UPSIDC as per agreement and awarded contracts on behalf of the UPSIDC. Paras 3, 4 and 5 are reproduced below: "3. That we as consultant of UPSIDC as per agreement, awarded contracts on behalf of the UPSIDC to following contractors: ----------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whereas the TDS was demanded from the assessee, excess amount deducted by NIDC should have been refunded. F. As per the understanding between the assessee and the NIDC, NIDC was a Consultant and not contractor and, therefore, in view of the subsequent amendment for charging TDS on payments to professionals, the assessee deducted TDS from NIDC. The details of such payment have been given in Annexure 10 according to which a total sum of Rs.61,00,219 was deducted as income-tax and Rs.9,183 as surcharge. This also fortifies the stand of the assessee. Had the NIDC been taken as a contractor, the percent age of TDS would have been only 2 per cent and not 5 per cent, which was rate fixed for TDS so far as the professionals were concerned. Coming to the contentions of the ld. Sr. DR and particularly the argument that section 194C covers the activities of consultants and professionals, we may point out that this contention is not acceptable on the following reasons:- (a) The reliance placed by the Sr. DR on the decision of the Hon'ble Supreme Court in the case of Associated Cement Co. Ltd is misplaced. As explained by the Hon'ble Bombay High Court in the case of Chamber of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inserted in section 194J in the year, 1995. The impugned Circular No. 681, dated March 8, 1994, is, therefore, quashed." Thus, the legal position is clear that the provisions of section 194C would not be applicable to the services rendered by the professionals. Hon'ble Delhi High Court has also adopted a similar approach in the case of S.R.E Finance Ltd. and has held that vide Circular No. 666 dated 8-10-1993, and Circular No. 681 of 8-3-1993, CBDT has missed the real purport of the decision of the Supreme Court in the case of Associated Cement. According to the Court, section 194C of the Income-tax Act does not govern the deduction of tax at source from payments of the fees towards professional or technical services. The Hon'ble Court has also made following observations:- "The term 'any work' in section 194C is aimed at the type of work resulting in tangible material and by virtue of the special inclusion, supply of labour to carry out any work also is brought into the net of tax deduction at the source. This inclusive clause ropes in the consideration for the supply of labour. The word 'supply' connotes the meaning of 'procuring', 'securing' or 'bringing in', and not rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular assessment of an employee is completed, and amount of tax was fully paid by him, the ITO had no jurisdiction under section 201 of the Act to demand further tax from the employer. If we apply the principle laid down in the above cases to the present case, it will be found that the required amount of TDS was duly deducted by NIDC and also deposited by it and, therefore, if further TDS is demanded from the assessee, then it will amount to undue enrichment of the revenue. 17. On the basis of above reasons, we uphold the contentions of the ld. counsel for the assessee and hold that there was no relationship of contractor and contractee between the assessee and NIDC and, therefore, the assessee was not under any legal obligations to deduct TDS while placing funds at the disposal of NIDC for getting the works done through other agencies by NIDC and on behalf of the assessed and secondly, the required TDS was deducted on behalf of the assessee through NIDC and, therefore, the demand to charge tax from the assessee is not justified. 18. In view of the above, ground Nos. 1 to 7 are decided against the Department and in favour of the assessee. These are, therefore, allowed. Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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