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TMI Blog2015 (8) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) ought have sustained the disal lowance u/s.40(a) ( ia) since the payment was towards commission on which the assessee failed to comply with the provisions of Sec.194H". 2. Briefly the facts relating to the aforesaid issue are, the assessee a partnership firm is engaged in the business of transport as well as civil contracts. For the A.Y. under consideration, the assessee filed return of income on 31-10-2006 Declaring total income of Rs. 21,39,370/-. During the assessment proceedings, the Assessing Officer while examining the P&L A/c of contract work noticed that assessee executed the work on sub-contract basis to the main contractors M/s.G.Venkata Reddy and Co., who had obtained the contract from Government. The Assessing Officer no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as no service was rendered by the main contractor to the assessee and there is no principal agent relationship between the parties, the provisions of sub-section 194H will not apply. The Assessing Officer, however, did not appreciate the explanation of the assessee and proceeded to hold that there being a principal agent relationship between the assessee and the main contractor and since the main contractor has deducted TDS @1% and the balance amount was deemed to have been paid to the assessee then the assessee should be deemed to have paid commission to the contractor. The Assessing Officer also observed that section 194H does not apply merely to an agent but also to payments received or receivable for any service in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the appel lant for the full consideration of Rs. 11,38,62,156/- . AS far as the commission payment is concerned, clause 5 of the subcontract agreement between eh appel lant and M/s.G.Venkata Reddy & Co., reads as fol lows: "The principal contractor will pay bills to the subcontractor after deducting royalty (commission) @ 4% on the gross bills payable to the subcontractor as consideration for this agreement". "6. It is, thus, clear from the terms of the agreement itself that the contract was awarded on a back-to-back basis with the principal contractor retaining 4% of the gross amount as its own margin. The commission referred to in the agreement was not for any services rendered by the principal contractor and the retention of the 4% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government directly and after retaining his margin of 4% the balance amount is remitted to the assessee. Therefore, the 4% margin retained by the main contractor cannot be said to be in the nature of commission but the margin/profit retained by the main contractor for having subcontracted work to the assessee. It is also established on record that the assessee never makes any payment to the main contractor. On the contrary, the main contractor makes the payment to the assessee after receiving the payments from the Government. Therefore, as there is no payment by the assessee to the main contractor, only because the assessee has debited the amount to its P&L A/c, it cannot be inferred that commission to that extent was paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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