With Contract agreements becoming more prominent and rampant in the country through not only the domestic contractors but also through their international counterparts, the applicability of sec. 194C demands lot more understanding and indulgent care wherever contract payments are remitted or received. At times the understandings of different sections are misinterpreted without taking into consideration different angles contained into other sections which are correlated to it. Now whether expenses of a contractor can be disallowed only on the basis of non-submission of Form No. 15J within prescribed time-limit is an issue before the contractors. This core problem was resolved in the case Valibhai Khanbhai Mankad VS. Deputy Commissioner of Income-tax (OSD), Circle-9, Ahmedabad.
The point to be noted here is that if during a financial year a contractor receives Form No. 15I from its sub-contractor, then mere non-submission of Form No. 15J under rule 29D to assessing officer within prescribed time-limit cannot pave way for disallowance of expenses under 40(a)(ia).
Case: Valibhai Khanbhai Mankad VS. Deputy Commissioner of Income-tax (OSD), Circle-9, Ahmedabad.
Citation: [2011] 12 taxmann.com 160 (AHD.) / [2011] 46 SOT 469 (AHD.)
One should know: Every contractor, other than an individual or a HUF, who is responsible for paying any sum to any sub-contractor (who is resident in India), in pursuance of a contract with such sub-contractor for carrying out or for the supply of labour for carrying out, wholly or in part, of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor had undertaken to supply, will be required to deduct income-tax at the rate of 1% of such sum.
Applicable section and rules in above case: Section 194(C)(3), 40(a)(ia) and Rule 29D.
Facts: The payment of Rs. 7, 93, 34,193 was made to sub-contractors by contractor on account of sub-contract for hiring and the Form 15-I were obtained from sub-contractors thereof and hence TDS was not deductible. The assessing officer disallowed the entire expenses to the tune of Rs. 7, 93, 34, 193 on the ground that the assessee instead of filing the Form no. 15J on or before 30th June, 2006, filed the same on 26.02.2009 after the assessment was completed.
The Assessing officer was of contention that since Forms 15-I were duly obtained from the transporters, the same were not furnished to the CIT in Form 15J as per Rule 29D of the IT Rules, 1962.
Requirement of rule no. 29D:
Ø The declaration by a sub-contractor shall be made in Form no. 15-I to contractor for non-deduction of tax at source before such sum is credited or paid to sub-contractor.
Ø The particulars referred under the third proviso to section 194C(3) shall be furnished in Form No. 15J to the commissioner of income –tax on or before 30th June following the financial year.
Therefore the assessing officer contended that held that once the assessee failed to furnish Form 15J enclosing therewith Form 15-I to the CIT before 30th June, 2006, he failed to fulfill the conditions laid down u/s. 194C(3)(ii). He accordingly added back the sum paid without TDS u/s 40(a)(ia).
Conclusion:
The requirement to file Form No. 15J by 30th June 2006 was though required as per income tax rules but was not mandatory. If the contractor has obtained Form No. 15-I before the payment is made in the year to sub-contractor and he has taken reasonable assurance that there are no undisputed contents in the particulars of form and its genuineness cannot be doubted in any manner, then there is no requirement to deduct tax at source. So assessee is not liable to deduct tax at source u/s 194C and additions u/s 40(a)(ia) cannot be approved only on ground that Form No. 15J has not been submitted in prescribed time. The submission of Form no. 15J is immaterial as far as additions u/s 40(a)(ia) is concerned as this is an event which is suppose to occur after the end of financial year. If any sub-contractors have furnished Form No. 15-I during the financial year then contractor cannot be made liable for deducting tax at source only because the said contractor do not furnishes Form No. 15J within 3 months from the end of financial year.
Case relied upon while arriving on judgement: ACIT vs. M/s Shree Pramukh Transport Co. Bhutadi, Baroda pronounced on 31.08.2010
“4. The learned CIT(A) considering the material on record noted that the
AO has not disputed that the assessee claimed that he had obtained
declaration in Form No.15-I from the payees. The learned CIT(A) noted
that ultimately Form No.15-I was filed with delay in the office of the
Commissioner, but the assessee in fact had obtained the declaration and
therefore, it cannot be said that the assessee had violated the mandate
given by the payees not to deduct tax. The addition was accordingly
deleted.
5. On consideration of the rival submissions, we are of the view that no
interference is called for in the matter. The learned DR submitted that
Rule 29 D of the IT Rules is procedural in nature. The submission of the
learned DR itself shows that since the compliance of the rule was
procedural only, therefore, when the assessee obtained requisite
declaration and filed the same with delay with the office of the
Commissioner and also filed the same before the AO at the assessment
stage, would prove that the addition is clearly unjustified in the matter.
According to section 194(C)(3) of the IT Act, the assessee complied with
the second proviso by obtaining declaration in the prescribed form.
Therefore, there was no liability for deduction of tax at source. The
genuineness of the certificate is not doubted by the authorities below.
Therefore, the assessee has substantially complied with the provisions of
law. In case of procedural irregularities, the assessee cannot be put to
unnecessary hardship in the matter and that too when certain exemption
has been given to the assessee in section proviso to section 194(c)(3) of
the IT Act. Since, there is sufficient compliance of the provisions of law,
therefore, the learned CIT(A) was justified in deleting the addition. We,
therefore, do not find any justification to interfere with the order of the
learned CIT (A). We confirm his findings and dismiss the appeal of the
revenue.”
AO has not disputed that the assessee claimed that he had obtained
declaration in Form No.15-I from the payees. The learned CIT(A) noted
that ultimately Form No.15-I was filed with delay in the office of the
Commissioner, but the assessee in fact had obtained the declaration and
therefore, it cannot be said that the assessee had violated the mandate
given by the payees not to deduct tax. The addition was accordingly
deleted.
5. On consideration of the rival submissions, we are of the view that no
interference is called for in the matter. The learned DR submitted that
Rule 29 D of the IT Rules is procedural in nature. The submission of the
learned DR itself shows that since the compliance of the rule was
procedural only, therefore, when the assessee obtained requisite
declaration and filed the same with delay with the office of the
Commissioner and also filed the same before the AO at the assessment
stage, would prove that the addition is clearly unjustified in the matter.
According to section 194(C)(3) of the IT Act, the assessee complied with
the second proviso by obtaining declaration in the prescribed form.
Therefore, there was no liability for deduction of tax at source. The
genuineness of the certificate is not doubted by the authorities below.
Therefore, the assessee has substantially complied with the provisions of
law. In case of procedural irregularities, the assessee cannot be put to
unnecessary hardship in the matter and that too when certain exemption
has been given to the assessee in section proviso to section 194(c)(3) of
the IT Act. Since, there is sufficient compliance of the provisions of law,
therefore, the learned CIT(A) was justified in deleting the addition. We,
therefore, do not find any justification to interfere with the order of the
learned CIT (A). We confirm his findings and dismiss the appeal of the
revenue.”
