SRI SANTHALAKSHMI MILLS (P) LTD. v. INCOME TAX OFFICER
[Citation -2005-LL-1125-9]

Citation 2005-LL-1125-9
Appellant Name SRI SANTHALAKSHMI MILLS (P) LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 25/11/2005
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags non-deduction of tax • sub-contractor • tax at source • job work
Bot Summary: The only issue in the assessee s appeal is that the AO as well as the CIT(A) has erred in raising TDS demand under s. 201(1) of the IT Act, 1961, and consequential interest under s. 201(1A) of the Act in spite of certificate issued by the AO to the beneficiary GTV Spinners Ltd. under s. 194C(4) of the Act. These conversion charges were paid without deduction of tax between 1st July, 2000 to 31st March, 2001 only on the ground that the contract party, M/s GTV Spinners Ltd. had obtained a certificate for non- deduction of tax from the concerned AO. However, after going through the certificate, it is gathered that the certificate was issued on 25th April, 2001 and the relevant certificate reads as under : I hereby authorize you to pay the contract amount to M/s GTV Spinners Ltd., 245E. Pulankinar 642122, Udumalpet after deducting the income-tax as nil. 192, 193, 194, 194A, 194D, 194-I, 194K and 195 of the Act only other than s. 194C of the Act and the conclusion of the CIT(A) that the certificate issued by the Jt. CIT, Special Range-XI, Chennai, is not in accordance with the law is wrong. The learned counsel for the assessee further argued that the certificate issued by the AO is for a particular period, i.e., 1st July, 2000 to 31st March, 2001 and it is a valid certificate and the person responsible for paying and deducting tax at source under s. 194C(5) is bound to accept the certificate until and unless it is cancelled by the AO under s. 194C(5) of the Act. Whether a certificate issued by the AO to a payee-company, i.e., M/s GTV Spinners Ltd. can have retrospective effect not to deduct the tax at source by the assessee-company. Where any such certificate is given, the person responsible for paying the sum referred to in sub-s. or sub-s. shall, until such certificate is cancelled by the AO, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. The issue before us is as to whether the certificate issued by the ITO, TDS, can be operated with retrospective basis and whether the AO can issue a retrospective certificate which was not the issue before the Hon ble Court in the case law cited above.


MAHAVIR SINGH, J.M. This appeal of assessee is directed against order of CIT(A), Coimbatore, dt. 26th Feb., 2003. relevant assessment year involved in this appeal is 2001-02. 2 . only issue in assessee s appeal is that AO as well as CIT(A) has erred in raising TDS demand under s. 201(1) of IT Act, 1961, and consequential interest under s. 201(1A) of Act in spite of certificate issued by AO to beneficiary GTV Spinners Ltd. under s. 194C(4) of Act. briefly stated facts are that assessee-company paid charges for conversion of yarn to M/s GTV Spinners Ltd. from 1st July, 2000 to 31st March, 2001 amounting to Rs. 1,38,90,700. These conversion charges were paid without deduction of tax between 1st July, 2000 to 31st March, 2001 only on ground that contract party, M/s GTV Spinners Ltd. had obtained certificate for non- deduction of tax from concerned AO. However, after going through certificate, it is gathered that certificate was issued on 25th April, 2001 and relevant certificate reads as under : "I hereby authorize you to pay contract amount to M/s GTV Spinners Ltd., 245E. Pulankinar 642122, Udumalpet after deducting income-tax as nil. This certificate shall remain in force from 1st July, 2000 upto 31st March, 2001 unless it is cancelled by me." ITO, TDS, passed order raising demand of TDS at Rs. 3,13,929 under s. 201(1) of Act and levied consequential interest under s. 201(1A) of Act amounting to Rs. 1,19,777 on basis of non-deduction of tax issued after expiry of financial year 31st March, 2001. Aggrieved, assessee preferred appeal before CIT(A) who confirmed action of AO. Aggrieved, assessee is in second appeal before Tribunal. 3 . Before us, learned counsel for assessee argued that beneficiary company, M/s GTV Spinners Ltd. obtained certificate under s. 197(1) of Act from AO. CIT(A) has earnestly relied on Board s Circular No. 774, dt. 17th March, 1 99 9 which is clarificatory section (circular) which envisages that tax is deductible at source in terms of ss. 192, 193, 194, 194A, 194D, 194-I, 194K and 195 of Act only other than s. 194C of Act and conclusion of CIT(A) that certificate issued by Jt. CIT, Special Range-XI, Chennai, is not in accordance with law is wrong. learned counsel for assessee further argued that certificate issued by AO is for particular period, i.e., 1st July, 2000 to 31st March, 2001 and it is valid certificate and person responsible for paying and deducting tax at source under s. 194C(5) is bound to accept certificate until and unless it is cancelled by AO under s. 194C(5) of Act. On other hand, learned Departmental Representative relied on orders of lower authorities. 4. We have heard both sides and considered arguments. We have examined case record. above certificate issued by Jt. CIT, Special Range-II, Chennai, is dt. 25th April, 2001 and this is in favour of assessee- company. Authorizing not to deduct tax on contract amount paid to M/s GTV Spinners Ltd. This certificate was issued vide its application dt. 12th March, 2001 in which schedule of payment is attached which reads as under : Sums expected to be credited/paid in pursuance Full name Date of and address of by which contract Date Nature work on d u r i n g No. authority/person of of current with whom contract contract contract previous c o n t r c t was would be year and made completed each of three immediately succeeding years 1 2 3 4 5 6 Sri Santhalakshmi Mills (P) Ltd., Year 109, ended 31-3- Yarn Meenakarai 1-7- 31- 2001 1. conversion Road Zamin 2000 3-2001 job work Uthukuli Rs. Pollachi-642 04 1,21,50,234 Coimbatore District It is fact that this certificate authorizes assessee not to deduct tax from pre-dating. certificate dt. 25th April, 2001 will come into force from 1st July, 2002 (2001) to 31st March, 2002. CIT(A) has relied on circular issued by Board bearing No. 774, dt. 17th March, 1 99 9. No doubt that certificate was issued under s. 197 of Act. It states that certificate issued under s. 197(1) of Act is effective only prospectively and not retrospectively. Whether certificate issued by AO to payee-company, i.e., M/s GTV Spinners Ltd. can have retrospective effect not to deduct tax at source by assessee-company. 5. We have to go through provisions of s. 194C(4) and (5) of Act which reads as under: "194C(4) : Where AO is satisfied that total income of contractor or sub-contractor justifies deduction of income-tax at any lower rate or no deduction of income-tax, as case may be, AO shall, on application made by contractor or sub-contractor in this behalf, give to him such certificate as may be appropriate. (5) : Where any such certificate is given, person responsible for paying sum referred to in sub-s. (1) or sub-s. (2) shall, until such certificate is cancelled by AO, deduct income-tax at rates specified in such certificate or deduct no tax, as case may be." bare reading of these sections clarifies position that (once) such certificate is given then responsible person for paying sum referred to sub-ss. (1) and (2) shall, until such certificate is cancelled by AO, (not) deduct tax at rates specified or had been taxed as case may be. Sec. 194C casts legal duty on person responsible for paying any sum to another for carrying out any work in pursuance to contract to deduct amount as TDS from that person and out of that payment. In this case, at time of making such payment or crediting such payment, there was no certificate available. certificate came into force on 25th April, 2001 and payment relates to period from 1st July, 2000 to 31st March, 2001. It is to be seen that as to whether this certificate issued by AO to M/s GTV Spinners Ltd. is applicable to period from 1st July, 2000 to 31st March, 2001. assessee has stopped deduction of tax merely on intimation from M/s GTV Spinners Ltd. vide their letter dt. 16th July, 2000 wherein it was stated that it is moving petition to AO to obtain certificate not to deduct tax at source. We have gone through case law relied on by learned counsel for assessee in case ofITO vs. Jaipur Udyog Ltd. (1 99 6) 134 CTR (SC) 384 : (1 99 6) 217 ITR 190 (SC)and observed that issue decided by Hon ble apex Court is entirely different. facts in present case and before Hon ble apex Court are distinguishable. issue before us is as to whether certificate issued by ITO, TDS, can be operated with retrospective basis and whether AO can issue retrospective certificate which was not issue before Hon ble Court in case law cited above. In view of above facts as discussed above, we fairly feel that AO, TDS has no power to issue certificate which operated retrospectively. 6. In this case, AO has issued certificate on 25th April, 2001 which operates from 1st July, 2002 (2001) to 31st March, 2002 and for purpose of deduction of tax, relevant period involved under dispute is from 1st July, 2000 to 31st March, 2001 and conversion charges were paid only between 1st July, 2000 to 31st March, 2001 much before application made to AO for lower deduction of tax or issuance of certificate by AO. AO s certificate cannot operate as bar for deduction of tax and that certificate cannot be operated retrospectively. In view of these facts, we have no hesitation in upholding orders of lower authorities. 7. In result, appeal of assessee is dismissed. *** SRI SANTHALAKSHMI MILLS (P) LTD. v. INCOME TAX OFFICER
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