If a particular sum is not income, requirement of making TDS is non-existent

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IN THE ITAT HYDERABAD BENCH ‘A’

MEIL-SEW-MAYTAS-BHEL(JV) v. ITO

IT APPEAL NOS. 63 TO 76 (HYD.) OF 2012

[ASSESSMENT YEAR 2010-11]

MAY 30, 2012

Section 201(1) uses the expression ‘any person, who is required to deduct any sum in accordance with the provisions of the Act…..’. Assessee’s stand was that there was no such requirement. As per the provisions of section 194C, an amount has to be deducted out of the sum in pursuance to a contract, at the time of payment/credit towards income-tax on the income comprised therein in terms of section 194C. When a particular sum is not income at all for an assessee, the requirement of making TDS is non-existent. When certain payments are routed through the JVs, which are merely credited for obtaining the contract, it has to be examined, if such contract amount constitutes income at all and chargeable to tax or not in the hands of the said JV. This is also fact of the present cases where the contract amounts were received by the assessee-JVs, which were transferred to one of the respective constituents, who actually executed the contract and the income of the JV was treated as NIL. Therefore, question relating to the liability of the assessee to make TDS on the said contract amount was relevant issue. Perusal of the order of the CIT(A) revealed that the Commissioner (Appeals) opined the assessee as the one regularly making TDS on the said contract amount and in fact, fact of the matter in these cases was that the assessees made TDS under protest, which was completely ignored. Although the issue was raised by the assessee before the CIT(A), on the issue of the liability to make TDS, the Commissioner (Appeals) had not gone into the facts and circumstances under which the assessee-JV had to make TDS under protest subsequent to survey. The case of the assessees was that during the survey operations, the assessees were under duress to effect TDS on the said amount against their will, and it was done only in order to co-operate with the Department’s demand for making TDS and depositing with Government. Otherwise, it was not required and the assessee was not in default. Therefore, as per the assessee, such making of TDS was uncalled for. Further it was the argument of the assessee that there was no estoppel against law. The principles of waiver and acquiescence could not operate against the statute. It was also the argument of the assessee that the assessee could not be tied down to a wrong concession made during the survey operation. The TDS payments having been made subsequent to the survey on the advice of some people being experts in income-tax subject or belonging to the Department, on those amounts which were themselves unnecessary, assessee could not be asked to pay further interest thereon. The reasoning of the assessee that in such circumstances, where there was absence of liability to make TDS, no interest under section 201(1A) was leviable. These aspects of the arguments of the assessee were never adjudicated by the first appellate authority.

On perusal of the impugned order of the CIT(A), it was found that the CIT(A) merely dismissed the assessee’s grounds relying on the assessee’s compliance in effecting TDS. But CIT(A) did not discuss the fact that made assessee to effect TDS, i.e. events that occurred during the survey operations. In the process, the factors leading to such compliance, why assessee effected TDS and circumstances thereof were ignored. CIT(A) should have given attention to the grounds raised before him and gone to the root of the matter as to why the assessee was aggrieved on the issue of the requirement to deduct TDS and the liability on the assessee etc. It was a fact that the contract sums were taxed subsequently in the hands of one of the constituents of the assessee-consortiums and to avoid double tax, the said amounts were never taxed in the hands of the assessee-consortium. This was a relevant fact that the CIT(A) should have considered, while deciding as to why one must make TDS, when the JV-assessees were created to procure a contract and never to execute the same by themselves with the intention to earn income. Although assessee attempted to demonstrate that the CIT(A) had in fact touched upon the issue relating to his liability to make TDS, he could not reconcile the same with the issues raised in the grounds wherein it was contended that the CIT(A) failed to adjudicate upon the ground relating to the issue of assessee’s liability to make TDS. This diabolical approach could not be appreciated as it was against the spirit of the issues raised. Going by the issues raised and considering the paucity of elaborate discussion made out, the arguments of the assessee/grounds raised before the CIT(A), it was to be opined that the objection raised by the revenue about the requirement of fresh adjudication on the said issue relating to liability to make TDS under section 201(1) was required to be approved. It was not the case of the assessees that the assessees never protested against making the TDS on the contract amount. The CIT(A) should have examined the relevant facts and circumstances under which, after the survey action, the assessees had to make TDS on the impugned sum and should the same at all be subject to TDS in the hands of the assessee. Considering the issues raised in the grounds, which were not adjudicated properly by the first appellate authority, it was to be held that all the grounds should be remanded back to the files of the CIT(A) for fresh adjudication in accordance with the provisions of section 250(6), whereby the Commissioner (Appeals) would state the points for determination and then the decisions thereon, giving reasons for the same. The CIT(A) was to be directed to keep in mind the ratio of quoted decisions also, while re-examining these matters afresh. Accordingly, impugned orders of the CIT(A) were to be set aside and all these matters were to be restored to the file of the first appellate authority for fresh adjudication on all the issues involved in the appeals before him, in view of our above discussion and in accordance with law and after giving reasonable opportunity of hearing to the assessees.