TMI Blog2014 (12) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the assessee in turn, gives the contract to other labour contractors to carry out part of the job - Ultimately the assessee is liable for the work carried out by them - This is evident from the purchase order from Jinabakul Forge Pvt. Ltd. for whom the assessee do the job work, wherein it is clearly mentioned that rejection upto 1% is allowed and rejection more than 1% would be to the assessee's account - the labour contract given by the assessee is in the nature of separate contract of work and assessee was not liable to deduct TDS under the provisions of section 194C. The assessee has engaged various labour contractors for which, the assessee himself was responsible for executing the contract and the labour contractors had no privacy of contract with Principal customer - For a contract to qualify as a subcontractor, the subcontractor should spend their time and energy and also undertake the risk attached with the main contract - As the element of risk taking was missing, the contract could not be held as subcontract – thus, the payments made to the labour contractors are not in the nature of sub-contracts and there was no obligation on the assessee to deduct TDS on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above grounds, the assessee submits the following grounds - 4] The learned CIT(A) ought to have appreciated that the disallowance u/s 40(a)(ia) can be made only in respect of the amount payable as at the year end and hence, even if, any disallowance is to be made, the same may be restricted to ₹ 20,52,720/- i.e. the amount payable as on 31.03.2007. 5] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 2. The assessee is engaged in the business of Machining of Automobile parts, wherein he carried out the work of roughing and finishing of raw material on CNC machines part of which is done through job work. 3. The first issues pertains to disallowance of 1,46,95,052/- u/s.40(a)(ia) of the Act. The Assessing Officer has noticed that in the Audit Report there was mention of non-deduction of TDS on payment of 1,46,95,052/- being labour charges. Accordingly, the Assessing Officer confronted the assessee on this issue. However, no reply was filed by the assessee. Accordingly, the Assessing Officer has disallowed the same u/s.40(a)(ia) of the Act. 3.1 The matter was carried before first appellate authority, wherein the vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the labour charges paid of 1,46,95,052/-. He further submitted that the CIT(A) was justified in holding that the payment of labour charges by the assessee were in the nature of sub contract payments and hence, the assessee ought to have deducted TDS on the said payments under the provisions of section 194C(2) of the Act. 3.2 After going through the rival submissions and material on record, we find that the assessee is an individual carrying out job work business. Regarding the disallowance of 1,46,95,052/- u/s. 40(a)(ia) of the Act, the stand of the assessee has been that in the year under consideration, the assessee had paid labour charges. The Assessing Officer has noted that in the tax audit report, the auditor had mentioned that an amount of l,46,95,052/- is not admissible u/s 40(a)(ia) of the Act. The Assessing Officer has relied upon the said remark of the auditor while making the disallowance u/s 40(a)(ia) of the Act. In this regard, the stand of the assessee has been that the disallowance made u/s.40(a)(ia) of the Act is not justified. The assessee is engaged in the business of machining of automobile parts with respect to job work on CNC machines. The assessee receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, that the labour contract given by the assessee is in the nature of separate contract of work and therefore, assessee was not liable to deduct TDS under the provisions of section 194C. 3.4 The assessee is fully responsible for executing the main contract and the labour contractor has no relation with the principal Jinabakul Forge Pvt. Ltd. One of the main features for a contract to qualify as a subcontract is that the subcontractor should be eligible not just for the rewards but also risk associated with the execution of the main contract of the principal. The main element of risk of the alleged subcontract is missing in assessee's case and therefore, the payments made by the assessee to various labour contractors for above mentioned works could not said to be as payment to subcontractor. The provisions of section 194C(2) deals with payments to contractors. Accordingly, in case any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and specified person 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side parties in various works. To be precise, the assessee engaged the services of outside parties for centring, tiling and fabrication work and tiling works, for which payments exceeded ₹ 50,000 in each case. The assessee is carrying on civil work in individual capacity. 5.1. The provisions of section 194C(2), deals with payments to contractors . Accordingly, in case any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and specified person 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 tax at source as stipulated under the provisions of section 194(2) of the Act. The provisions of section 40(a)(ia) deals with the deductibility of amount deductible and relevant clause reads as under: Notwithstanding 5.2. The issue before us is whether payment has been made for centring, tiling and fabrication work amounts to payment to contractor or sub-contractor so as to invoke provisions of section 194C (2) for the purpose of TDS and allowabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O and therefore, it cannot be held to be a contract. We are aware of the fact that the agreement can be oral but the essence of contract lies on the fact whether assessee had the control of the work i.e. the manner in which the work has to be done. In case it lies with the assessee then it is not the subcontract so as to attract the provisions of section 194C(2) of the Act and subsequently the rigour of section 40(a)(ia) would not come into play for executing centring, tiling and fabrication through different persons. In instant case, the control lies with the assessee and the alleged subcontractor are merely executing the work of centring and fabrication under the full control of the assessee itself. Even nomenclature used by parties as subcontract does not change the real spirit of contract. Under facts and circumstances, revenue authorities were not justified in making disallowance by invoking provisions of section 40(a)(ia) of the Act. Same is directed to be deleted. Similar disallowance has been made in the year 2006-07. Facts being similar so following same reasoning, disallowance in question are directed to be deleted. In view of above discussion, we find that in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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