No disallowance us 40(a)(ia) as labour charges paid were salary when PF-ES deducted regularly. Salary us 17(1) includes wages and TDS 194C not required-ITAT
ABCAUS Case Law Citation:
1047 (2016) (10) ITAT
The Assessing Officer (AO) was aggrieved by the order of the CIT(A) in deleting the addition made u/s 194C read with section (r.w.s.) 40(a)(ia) for non deduction of tax at source (TDS).
Brief Facts of the Case:
The respondent assessee was an individual engaged in business of contracting. The assessee for the year under consideration had filed her return of income disclosing income under the head “business and profession”. Subsequently the case was selected for income escaping assessment u/s 147 of the Income Tax Act, 1961.
During the course of assessment proceedings, the AO observed that assessee had paid labour charges without deducting TDS. Therefore, the AO invoking the provisions of section 40(a)(ia) disallowed the expenses on labour charges and added to the total income of assessee.
Aggrieved, the assessee preferred an appeal before CIT(A) and submitted that labourers to whom the wages were paid were the employees. There was no relationship of contractor and contractee between the assessee and the labourers, therefore the provision of Section 194C r.w.s. 40(a)(ia) were not attracted. The assessee submitted that the payment was made to the employees after deducting PF and ESI in respect of all the labourers.
The CIT(A) noted that the labourers were the appellant’s employees from whom deductions of PF & ES had been made in regular course which had been cross verified with PF authorities, there was no relationship of contractor and contractee to attract provisions of sec. 40(a)(ia) and thus the CIT(A) deleted the addition made by the AO.
Being aggrieved by the order of the First Appellate Authority (FAA) i.e CIT(A) the Revenue was in appeal before the Tribunal.
Contentions of the Revenue:
The Revenue submitted that labourers were not employees of assessee and in none of the case, employment letters have been issued to those labourers.
Observations made by the ITAT:
The Tribunal noted that as per the provisions of section 17(1), salary includes wages and therefore conceptually there is no difference between salary & wages. Wages are treated just like salary and are taxable on same basis.
The Tribunal observed that the employment relationship can be complex and there are no quick and easy formulae to use which will provide an instant solution. The general principles of contract law govern the formation of the contract of employment. A contract of employment is a contract by which a person, the employee, undertakes for a limited or indeterminate period of time to do work for remuneration according to the instructions and under the direction or control of another person, i.e the employer. Within the framework of a contract of employment, a person carries out the service of work, receives remuneration and the work is carried out according to the direction and control of the employer. The terms of the contract may be either in writing or given orally, but both are equally binding and enforceable. When a person is hired to be an employee, the person enters into a contract of service, which is an employer/employee relationship.
The Tribunal further observed that there can be another type of contract between two parties that is an independent contractor or a contract for service. This type of contract may be defined as a contract by which a person, contractor or service provider makes a commitment to another person, the client, to carry out material or intellectual work or to provide a service for a price or fee. The characteristics of a contract for service are that the contractor is free to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance.
The Tribunal in view of the fact that the Revenue could not controvert the findings given by CIT(A), dismissed the appeal filed by the Revenue.