TMI Blog2011 (10) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri S.N. Soparkar for the Appellant. Shri Vinod Tanwani for the Respondent. ORDER Bhavnesh Saini, Judicial Member - This appeal by the assessee is directed against the order of the learned CIT(A)-IV, Surat dated 28th July, 2009 for the assessment year 2006-07, challenging the order of the learned CIT(A) in confirming the addition of Rs. 33,27,188/- being the disallowance u/s 40(a) (ia) read with section 194C (2) of the IT Act. 2. The facts as noted in the impugned order are that the assessee in his a proprietary capacity of Balaji Cable Network made a contract with Devshree Network Pvt. Ltd. for Rs. 33,27,188/- for giving cable transmission. The modus operandi has been detailed by the AO in Para 5.2 of the assessment order. In nutshell the AO's argument is that Devshree Network is assessee's sub-contractor for supply of services of cable signals to subscribers for certain consideration and since a sum of Rs. 33,27,188/- was paid as contract charges to Devshree Network, TDS should have been deducted u/s 194 (2) of the IT Act. But since it was not done, the amount is required to be disallowed u/s 40(a) (ia) of the IT Act. The AO has further analyzed as to why the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors TDS had to be effected. The scheme of presumptive taxation presupposes an element of taxable profit in every payment. Therefore, to distinguish payable from paid would lead to very absurd situation. That means that taxability (as per TDS) is being fastened to the status of payment which is not correct. Therefore, agreeing with A. O., I see no merit in AR's arguments. That brings us to next question as who is the contractor and who is subcontractor. In the present case my own view is that subscribers will have to be kept out to ascertain the correct picture. The appellant is in business of cable services. But it does not have its own software to be broadcast and signal. Therefore Devshree Network who supplies him the same is contractor and the appellant is only a subcontractor. As a matter of fact even Devshree Network is a subcontractor of some bigger cable network like Star or Zee. Because the main software and signal for transmission is coming from them. So both the appellant and Devshree Network are subcontractors and therefore any payment made to them is liable to TDS. The last argument that 194 (c) has made individuals liable to TDS only from 01.06.2007 also has no meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 194 C of the IT Act through which the cases of individuals have been incorporated and these provisions are applicable from 01-06-2007. He has, therefore, submitted that as per the law applicable for assessment year under appeal, there was no liability of an individual to deduct tax. Later on, by the amendment an individual has also been made responsible for TDS if his total sales have exceeded the monetary limits prescribed u/s 44AB of the IT Act. He has submitted that though there was no formal contract between the assessee and M/s. Devshree Network Pvt. Ltd. for giving cable transmission but in terms of oral agreement the assessee paid the amount in question to M/s. Devshree Network Pvt. Ltd. He has submitted that the provisions of section 194 C (2) of the IT Act would not be applicable in the case of the assessee because the assessee is not a sub-contractor. In support of his contention he has relied upon the order of ITAT Ahmedabad Bench in the case of Prashant H. Shah v. Asstt. CIT [IT Appeal No. 17 (Ahd.) of 2011 dated 8-7-2011. 5. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that since the amount in question was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility. The essence of the contract is to obtain broadcasting and telecasting of TV channels and thereafter its distribution amongst ultimate customers through the cable network of the assessee. What the assessee subscriber is looking for is to obtain the telecast signals from the licensor, which is enough to deduce that the impugned contract involves broadcasting and telecasting of TV signals. Moreover, the licensor or the company, as is evident from the specimen agreement on record is, in the business of distribution of satellite based TV channels and has exclusive rights to market and distribute said services in India, the service that is referred to in the agreement is the broadcasting and telecasting of TV signals. For the reasons recorded above, the Tribunal was correct in holding that the assessee was required to deduct tax at source in terms of section 194C on payments made to the licensor for obtaining TV signals." 6. The learned Counsel for the assessee in the rejoinder submitted that in the case of Kurukshetra Darpans (P.) Ltd. (supra), the issue was with regard to the expression "work" as provided under Explanation III of the proviso to section 194C (2) of the IT Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-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 one per cent of such sum as income-tax on income comprised therein: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him 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 sub-contractor, shall be liable to deduct income-tax under this sub-section. Explanation I.- For the purposes of sub-section (2), the expression "contractor" shall also include a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. Explanation . - For the purposes of clause (i), "goods carriage" shall have the same meaning as in the Explanation to sub-section (7) of section 44AE. (4) [***] (5) [***]]" 8. In the case of the assessee, the status of the assessee is individual and he is proprietor of M/s. Balaji Cable Network and has made a contract with M/s. Devshree Network Pvt. Ltd. The amount in question was paid by the assessee to M/s. Devshree Network Pvt. Ltd. for giving cable transmission. The provisions of section 194C of the IT Act had undergone certain vital changes. The main purpose of introduction this section in the Act was to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in this case. Since the assessee has not acted as a contractor and no payment is made to the sub-contractor, therefore, the findings of the authorities below are based on wrong premise and assumption of certain facts which are not relevant to the matter in issue. ITAT Ahmedabad Bench in the case of Prashant H. Shah (supra) in Para 7 and 8 held as under: "7. We have heard both the sides at some length. We have also perused the material placed before us in the light of the provisions of the Act as also the case law cited. Before we proceed further, we may like to point out that the provisions of section 194C of the Act had undergone certain vital changes in the recent past. The main purpose of introduction of this section in the Act is to make provisions for deduction of tax at source from payments made to contractors and sub-contractors in certain cases. Income tax is deductible at source from income comprised in payments made by the persons specified in this section. As per the original section 194C(1) any person responsible for paying any sum to any contractor for carrying out any work in pursuance of a contract is required to deduct 2% TDS. However, as per section 194C(2), a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at on payment of "transport charges", the assessee being a sub-contractor was required to deduct the tax at source as prescribed under sub-section (2) of Section 194C of the Act. On the other hand, the assessee's contention is that although the assessee could be a sub-contractor M/s. A.N.S. Construction Ltd., but vis- -vis transporters the assessee has not acted as a sub-contractor but only as a contractor. As per assessee's contention it was a principal to principal arrangement of transportation of goods, so not covered by any of the said contracts. In support of this submission, the assessee has placed reliance on a Board's Circular No.715 dated 8/08/1995 [215 ITR (Statute 12)] wherein the changes introduced in the provisions regarding tax deduction at source have been clarified and therein one of the questions was about the payment to transports and the clarification was as under:- "Question 9: In case of payments to transports, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill. Answer: Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-contract. The catalog of criterion must include certain other clauses as well, yet in this case this criteria can be determinative considering the nature of work assigned by the assessee to transporters. It is not the case of the A.O. that he happened to be in possession of some material to allege that there existed a specific contract between the assessee and the transporters. Whether the goods were transported in pursuance of any sub-contract so as to apply the provisions of Sec.194C (2)? Nothing has been brought on record. So it was not established that the lorry owners have undertaken any part of the impugned sub-contract which was found to be risk associated videlicet this assessee. We, therefore, conclude that in the absence of transfer or pass-over of any contractual responsibility to transporters as a subcontractor, the assessee being an individual was not responsible for the deduction of tax at source as prescribed u/s.194C(2) of the IT Act. Consequence thereupon the provisions of Sec. 40(a)(ia) of the Act were incorrectly invoked, hence the view taken by the authorities below are hereby reversed. Ground is allowed." 9. Considering the above discussions, we are of t ..... 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