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2017 (4) TMI 778 - SIKKIM HIGH COURT

2017 (4) TMI 778 - SIKKIM HIGH COURT - TMI - Cancellation of work contract awarded to the petitioner - Nature of contract - consultancy contract or works contract - TDS on consultancy services provided - whether deduction of TDS 194C of the Income Tax Act, would help to determine the nature of contract - Held that:- The response of the Income Tax Officer indicates that as the assessee filed its return of income for the annual year 2010-11 on 24.09.2010 showing taxable income of ₹ 99,210/- .....

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t justifying the above deduction of tax @ of 1% by stating that it had come to his knowledge that the department itself and more particularly BRPD-II, Chungthang, had been deducting Income Tax under Section 194C i.e. @ 2% for consultancy works, similar to the work for which NIT No.01 had been issued and not under Section 194J @ 10%. This statement however is a bald, statement not buttressed by any document and is therefore, not acceptable before any Court of law. - Thus, what transpires from .....

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t works and not for consultancy services. - Apart from the Agreement documents between M/s Vraj and Vaj Constructions and the Certificate issued by the said Company, no other documents have been furnished to establish that the Petitioner offers consultancy services. In such a situation, it has to be stated that obviously tax would be deducted on the basis of the Income and if the income of the Petitioner was only as a contractor then deductions so made would be for contract works and not for .....

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as in the capacity of contractor and not consultant. - Merely because three weeks time was allowed to file response does not mean that even after response is filed Respondents are obliged to wait further. That apart, consideration is to be taken of the fact that the impugned letter was only issued on 8.12.2016, much after 01.12.2016, hence the allegations that the order of this Court was flouted has no legs to stand, nor can it be said that the Respondents had a predetermined mind to cancel .....

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issuing Show Cause bearing No. 54 (II) BRPD-II/2016/229, dated 06.10.2016, and cancelling the work awarded to the Petitioner, being NIT No. 01/CE/IBBZ-II-SLG/2016/17 (hereinafter NIT 01 ) namely consultancy services for preparation of Detailed Project Report (DPR) for additional High altitude roads under Phase-II in the State of Sikkim, using satellite imagery, vide its impugned letter bearing no. 54(11)/EE/BRPD-II/2016/282 dated 08.12.2016, the Petitioner seeks issuance of a Writ, in the natur .....

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mental Organizations. The Petitioner being eligible, having executed four works of similar class during the required period, participated in the NIT 01 floated by the Respondent no. 4, for online percentage bids on two bid system, for the aforesaid work of Consultancy Services. The last time and date for submission of bid was 3.00 P.M on 21.06.2016. 3. After considering his bids, the Respondents found the Petitioner competent to execute the work and accordingly, issued letter dated 27.07.2016 in .....

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Contractors, @ 1% only, while Tax Deduction for Consultancy services is 10%. That, as the present bid of the Petitioner had been approved on the basis of the said Consultancy works, he was requested to submit proof of balance tax deposited in the Income Tax Department during the final settlement of Tax liabilities. This was followed by letter dated 05.08.2016 calling upon the Petitioner to submit such proof within five days i.e. by 10.08.2016, failing which action would be initiated against him .....

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he Petitioner sought to clarify vide his response dated 08.08.2016 to the Respondent No. 4, that it does not have any say under which section of the Act payment is deducted by the payer at the end of every financial year, nevertheless the actual Tax payable by the payee, (i.e. the Petitioner) on the Income of the entire year is paid after taking into account TDS deducted by the respective payers. It was further averred that notwithstanding the rate at which TDS was deducted by M/s Vraj and Vaj c .....

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I of the work and the reconnaissance survey, for approval of the Respondents on 26.09.2016, along with the first running bill, both are however pending. Subsequent thereto, correspondence ensued between the parties from 12.09.2016 to 27.09.2016 with regard to the work in question. 6. While awaiting the approval, the Petitioner was served with the impugned Show Cause dated 06.10.2016 by Respondent No. 4 to the effect that a communication was received from the office of the Income Tax officer, (IT .....

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s firm if their business was of a Contractor as reported by the ITO. The Petitioner was directed to show cause within 10 days of the notice as to why action should not be initiated against him. As per the Petitioner, Copy of the Report of the I.T.O was allegedly deliberately withheld from him by the Respondent No. 4 preventing him from preparing an effective reply, consequently the petitioner vide, letter dated 10.10.2016, requested for it. In the interim fearing adverse action, for non filing o .....

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he Petitioner, duly affording the Petitioner three weeks time to file reply to the Show Cause. On the same day the letter of the I.T.O was furnished to the Petitioner but on 19.11.2016, Respondent no. 4 issued a letter alleging commission of breach by the Petitioner in the execution of the work, to which, response was filed by the Petitioner on 23.11.2016 and thereafter correspondence was exchanged on this point between the Respondent No. 4 and the Petitioner vide communication dated 03.12.2016 .....

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is wholly perverse and contrary to the provisions of law and that the impugned NIT No. 01/CE/IBBZ/II/SLG/2016-17 (recall) issued by the Executive Engineer, Border Road, Project Division, Chungthang, North Sikkim is bad in law, hence the above prayers. 9. Along with the writ petition an application was also filed to stay the operation of the impugned cancellation letter dated 08.12.2016 and to restrain the Respondent Authorities from opening/ awarding the work being NIT NO. 01/CE/IBBZ/II/SLG/201 .....

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in the interim a complaint dated 30.07.2016 was received from one Ramesh Pandey RTI activist from Jaipur, interalia alleging that the Firm M/s Vraj and Vaj Constructions was a very small firm carrying out constructions as a contractor. The Respondent No. 4 issued a letter on 01.08.2016, to the Petitioner requesting him to submit proof of balance tax deposited to the Income Tax department along with reminder on 05.08.2016. In the meanwhile, the Respondents issued three letters to the Income Tax a .....

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e and considering that at the time of bidding he had undertaken that the information furnished by him was found incorrect his Company would be debarred and enlistment cancelled. 11. The Income Tax officer, Ahmedabad Gujarat responded vide a letter dated 29.09.2016 indicating therein that the Petitioner had shown himself as a Contractor under Section 194 C of the Income Tax Act while executing the aforesaid works with M/s Vraj and Vaj Constructions for the assessment year 2010-2011 and the TDS wa .....

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ction made. The Respondent No. 4 considering the replies to the show cause filed by the petitioner and having deliberated the matter with the Superintending Engineer and Chief Engineer wrote to them about the final decision for cancellation of the Contract and thereafter issued the impugned letter dated 08.12.2016. Consequently, on 19.12.2016 the Respondent recalled and floated a fresh NIT being NIT No. 1/CE/IBBZ-II/SLG/2016-17 in the CPWD Website with the same terms and conditions duly publishi .....

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from debarring him from participating in further tender process. That, the work awarded to him had no clause to the effect that it was subject to verification of allegations, which would have cautioned him to await completion of any enquiry made by the Respondents. That, although this Court vide, its order dated 09.11.2016, in W.P (C) No. 51 of 2016 had afforded three weeks time to the petitioner to file the response which would have been on 01.12.2016, but before the expiry of the said period, .....

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r was offering consultancy services and, if so, was the Respondent No.4 justified in issuing the impugned show cause dated 06.10.2016 and impugned letter dated 08.12.2016, followed by a fresh NIT for the same works, on 19.12.2016. 15. The constant refrain of the Petitioner is that he had provided consultancy services to M/s Vraj & Vaj Constructions and mere deduction of tax under Section 194C of the Income Tax Act, 1961, instead of Section 194J of the Income Tax Act, 1961 would not change th .....

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DS was deducted by M/s Vraj & Vaj Constructions, the full tax liability for the year was paid by the Petitioner. 16. In this context before embarking on examining the contents of the letter issued by the Income Tax Officer dated 29.09.2016, addressed to the Respondent, it may be recapitulated here that the Respondent No.4 canvassed before this Court that the Consultancy works being NIT No. 01 was awarded to the Petitioner based on the certificate issued by M/s Vraj & Vaj Constructions (A .....

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s put forth in the letters by stating, inter alia, as follows; ……………… Section 194C of the I T Act 1961, says that Any person responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) under a contract in pursuance of a contract between contractor and person specified shall deduct in context at the time of such payment thereof in cash or by issue of a check or draft or by any .....

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ther. Further, as per records of A Y 2010-11, it is reveals that the scrutiny assessment has not been made in this year.. Further you have not provided complete details of work/contract agreement; hence, the nature of business is not verifiable. However, the TDS matter is dealt with the TDS section of Dept. and you may pursue for further details/inquiry. Questions answer (ii) The final tax payment settlement is depending on gross taxable income and the rate prevailing for the concerned A Ys and .....

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sessee had shown the nature of business code 0505 Contractor [other] and not as Consultancy. 18. The argument on this aspect forwarded by the Petitioner was that the letter dated 29.09.2016 reveals that the Respondent No.4 had not provided the concerned officers with complete details of the work agreement. Be that as it may, pursuant to the above information from the Income Tax Officer, Show Cause was issued to the Petitioner dated 06.10.2016 (Annexure P-23), informing therein that the Petitione .....

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r consultancy, ……..Then how shortfall of such tax over and above TDS is to be paid by your firm if your nature of business is contractor as reported by Income Tax Department. Therefore, I hereby give you notice to show within 10 days of the receipt of this notice to may satisfaction why action should not be initiated for the above noted work as per the terms and conditions of the Agreement…… The Petitioner, it appears, failed to submit any proof on this count, viz; to .....

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of the return of income shown by the assessee, as a Contractor, but the Petitioner also failed to substantiate his argument that the full tax liability for the year i.e. for Consultancy services, was made good by him, by filing any document in this regard to fortify his claim. In fact, the Petitioner made a feeble attempt at justifying the above deduction of tax @ of 1% by stating that it had come to his knowledge that the department itself and more particularly BRPD-II, Chungthang, had been ded .....

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the Petitioner had indeed provided consultancy works in view of the letter of the ITO informing to the contrary, as no other documents were forthcoming from the Petitioner, the Respondent No.4 had to fall back on the income tax deducted at source. The correspondence discussed hereinabove clarifies that the TDS was for contract works and not for consultancy services. 21. I also find that apart from the Agreement documents between M/s Vraj and Vaj Constructions and the Certificate issued by the sa .....

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fact, in as much it has been stated therein that in this case the assessee filed its return of income for A.Y. 2010-11 on 24.09.2010 showing income of ₹ 99,210/- and total tax paid ₹ 30,656/- and no any (sic) other tax remain payable. This fortifies that the services provided by the Petitioner to M/s Vraj & Vaj Constructions was in the capacity of contractor and not consultant. In view of the discussions above, I am of the considered opinion that the conclusion of the Respondent .....

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and thereafter appropriate action be taken in accordance with law. It is not disputed that the Petitioner was furnished with the letter sought by him on 09.11.2016 itself. The three weeks time for filing of response was to expire on 01.12.2016. Before 01.12.2016 the Petitioner submitted his additional response on 28.11.2016 to the above Show Cause, inter alia, as follows; ………………………………………&hell .....

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