TMI Blog2009 (4) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... of any work, (iii) the work is to be carried through the contractor, (iv) the consideration for the contract should exceed Rs. 10,000, i.e., the amount fixed by section 194C and ( v ) that the payment is made to the contractor for the work carried out by him. We therefore find that section 40(a)( ia) cannot be read in isolation or to the exclusion of section 194C. We, find force in the argument of the ld. Counsel of the assessee that the Labour Sardars in the instant case cannot be said to be Labour Contractors within the meaning of the provision of section 194C(2). In the circumstances, there is no requirement in law to deduct tax at source by the assessee under the provisions of section 194C(2). This view of ours is also supported by the decision of the Punjab Haryana High Court in Ess Kay Construction Co. s case [ 2003 (8) TMI 22 - PUNJAB AND HARYANA HIGH COURT] wherein it was held that once a finding has been recorded that there was no sub-contract of work, there could not be any applicability of section 194C(2). Therefore the ratio laid down in the aforesaid judgment is squarely applicable to the facts of this case. We further find that the assessee has made payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking the provisions of section 40( a )( ia ) of the Income-tax Act, 1961 for the alleged failure to deduct tax at source as required under the provision of section 194C of the Income-tax Act, 1961 and his purported findings on that behalf are wholly arbitrary, unwarranted and perverse. 3. For that the ld. CIT(A), Asansol erred in upholding the decision of the ld. ACIT, Circle-2, Burdwan in making an ad hoc addition of Rs. 10,825 by disallowing the carriage expenses including in speculation, surmise, suspicion and conjecture and his purported finding on that behalf is highly unfair, unreasonable and unwarranted. 4. For that the ld. CIT(A), Asansol erred in upholding the disallowance of Rs. 1,000 on account of Donation to a political party without any rhyme or reason and his purported finding is altogether wrong, flawed and unsustainable in law or on facts. 5. For that the ld. CIT(A), Asansol erred in upholding the impugned disallowance made by ld. ACIT, Circle-2, Burdwan in the sum of Rs. 24,000 being the salary paid to the Accountant invoking the provisions of section 40( a )( ia ) of the Income-tax Act, 1961 for the alleged failure to deduct tax at source as required un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there must be a contract between the person responsible for making payment and the contractor. He further submitted that the provision of section 40( a )( ia ) of the Income-tax Act, 1961 cannot be read in isolation or to the exclusion of section 194C of the Act in the instant case and to understand the intention of the Legislature as well as the scope and ambit of such provision, the meaning of the term "contractor" and "sub-contractor" employed in section 194C of the Act has to be ascertained. In this regard, he relied on ITO v. Rama Nand Co. [1987] 163 ITR 702 (HP) wherein it was held that a "contractor" for the purpose of these provisions would be any person who enters into a contract with the Central or any State Government, or any local authority, any corporation established by or under a Central, State or Provincial Act, any company or any co-operative society for carrying on any work including supply of labour for carrying out any work and a "sub-contractor" would mean any person who enters into a contract with the contractor for carrying out, or for the supply of labour for carrying out, the whole or the part of the work undertaken by the contractor under a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nlawful as the provision of section 194C of the Income-tax Act has no application in the case and hence, the impugned disallowance made on this behalf is beyond the scope and ambit of the provisions of section 40( a )( ia ) of the Income-tax Act and as such, the action of the ld. CIT(A) in upholding the disallowance of the labour payment is not sustainable and the disallowance made on this account be deleted. He also submitted that the amendment made in section 40( a )( ia ) by the Finance Act No. 2 dated 10th September, 2004, the payments to contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work) will be deductible only if tax is deducted therefrom, at source under Chapter XVII-B and such tax has been paid during the previous year or in the subsequent year before expiry of the time prescribed under section 200 of the Act. The provision was made effective from 1-4-2005 by the provision of section 11 of the Finance (No. 2) Act, 2004 which is relevant to assessment year 2006-07. But in the instant case, the assessment year under dispute is 2005-06 and the relevant previous year is 1-4-2004 to 31-3-2005 and during this year, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceed the monetary limits specified under clause ( a ) or clause ( b ) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ( i )one per cent in case of advertising, ( ii )in any other case two per cent, of such sum as income-tax on income comprised therein." We find that the Hon ble Supreme Court in Birla Cement Works case ( supra ) had laid down the conditions precedent for attracting the provision of section 194C of the Income-tax Act, 1961; namely, ( i ) there must be a contract between the person responsible for making payment to contractor, ( ii ) the contract must be for carrying out of any work, ( iii ) the work is to be carried through the contractor, ( iv ) the consideration for the contract should exceed Rs. 10,000, i.e., the amount fixed by section 194C and ( v ) that the payment is made to the contractor for the work carried out by him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Ess Kay Construction Co. s case ( supra ) wherein it was held that once a finding has been recorded that there was no sub-contract of work, there could not be any applicability of section 194C(2) of the Income-tax Act, 1961. Therefore the ratio laid down in the aforesaid judgment is squarely applicable to the facts of this case. We further find that the assessee has made payments to individual labourers, which is evident from the muster-roll enclosed in the paper book page 21. We also find from the muster roll that the person signing as Labour Sardar is also included in the serial of the labourers. We find that in this case, admittedly, the Labour Sardars in the present case has no locus standi as Labour Contractor as a Labour Sardar and a Labour Contractor are as different as chalk and cheese. We find that there was no contract between the assessee and the Labour Sardars for supply of labourers and without which there cannot be any application of section 194C and as such the invocation of provision of section 40( a )( ia ) is outside the scope and ambit of such enactment. In view of the matter, we are of the considered opinion that section 194C(2) being not applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer without understanding the parameter of the provision of section 194J of the Income-tax Act made the impugned disallowance which was upheld by the ld. CIT(A) on a wrong premise, be deleted. 8. On the other hand, the ld. D.R. relied on the order of the ld. CIT(A) and urged before the Bench to confirm the same. 9. We have heard both the parties, perused the material available on record and the orders of the lower authorities. We find that the assessee had paid a sum of Rs. 24,000 to the accountants by debit voucher as accounting charges, which are placed in the paper book pages 25 to 36. The Assessing Officer made the disallowance by invoking the provisions of section 40( a )( ia ) of the Act for failure to deduct tax at source as required under section 194J of the Act by construing the same as payment of professional fees for carrying on the profession of accountancy upon which tax is liable to be deducted at source as required under section 194J of the Income-tax Act. But in the instant case, we find that the assessee had paid the said sum to the accountants for accounting charges and not to a Chartered Accountant. In view of the above, we are of the considered op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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