The present Appeal by the Revenue preferred under section 260-A of the Income Tax Act, 1961 is directed against the order dated 31.10.2011 of the Income Tax Appellate Tribunal, Ahmedabad Bench 'C' in ITA No. 1856 of 2009. 1.1 The appellant has raised the following question proposing it to be a substantial question of law :
“Whether the Appellate Tribunal has substantially erred in deleting the disallowance of Rs. 1,09,81,267/- on account of payment to sub- contractors u/s 40A(ia) without considering the amendments brought to section 194C(1), 194A, 194C, 194H, 194I and 194J w.e.f. 2002 and also the provisions of section 194C(2) applicable to the assessee?”
2. We heard Ms. M.M. Bhatt for the Appellant.
3. The facts in brief are that the assessing officer while considering the return of income of the respondent-assessee for the Assessment Year 2006-2007 made addition in the total income to the extent of Rs. 1,09,81,267/- by way of disallowance under section 40(A)(ia) of the Income Tax Act, 1961 (hereinafter referred to as ‘ the Act’ for sake of brevity) . The Assessing Officer was of the view that the assessee himself was a main contractor and he had made payments to seven different sub- contractors without deducting the tax at source required under section 194 C of the Act. The case of the assesse was that there was no sub contract and section 194 C was not attracted.
3.1 The Commissioner of Income Tax (A) allowed the appeal of the assesse by concluding that the assesse, who was an individual running a propriety concern, was not a main contractor, as contemplated under section 194C and it was one M/s. J. H. Vijapura & Co. who had sub- contracted the work to the respondent as per the agreement dated 11.11.2005 entered into between them. Another aspect of the matter mentioned by the CIT(A) in his order was that the liability of an individual person to pay tax at source arises by virtue of clause(k) of subsection (1) of section 194C, which was inserted w.e.f. 1.6.2007. Since the payments in question were made by the assessee during the accounting year 2005- 2006, even otherwise the provisions of section 194 C were not applicable.
3.2 The Revenue went in appeal before the Income Tax Appellate Tribunal. As the appeal was dismissed, the Department is before this Court by way of the present appeal.
4. While dismissing the appeal of the Department, the Tribunal observed inter-alia that the payment to seven parties was made as per the terms and conditions of the agreement. The Tribunal relied on its own decision in Prashant H. Shah v/s ACIT delivered in ITA No. 17/2001 on the basis that the facts of that case were akin to the case on hand. The Tribunal interpreted the term 'agreement' and held that it was not established that seven parties, who were the lorry owners, had undertaken any part of the sub-contract. The risk and responsibility remained with the respondent-assessee and it was observed that there was no transfer or pass-over of any contractual responsibility to those lorry owners/transporters.
5. The Tribunal concluded on the basis of facts and material available before it that the seven parties to whom the payment was made could not be treated as sub contractors and there was no such relationship emanating from the clauses of the contract. In judging whether relationship of contractor and sub- contractor existed, the important test was whether risk factor and the responsibility were passed on. That element was found to be absent.
6. In view of the above, the findings recorded by the Tribunal that the assessee was not responsible for deduction of tax at source under section 194 C of the Act and that the provisions of section 40(a)(ia) of the Act were wrongly invoked, was fully justified. In so recording, it interpreted the terms of agreement to conclude that there was no sub-contract with the persons named. On the basis of facts and material before it, the Tribunal reached at proper findings. No error was committed by the Tribunal in dismissing the Revenue’s appeal. No substantial question of law arises for consideration.
7. Accordingly, the appeal is dismissed.
[V.M.SAHAI, J.] [N.V.ANJARIA, J.] cmjoshi