Summary: The Bombay High Court decided that the National Co-operative Consumer’s Federation of India Limited (Federation) must pay Mirah Dekor Pvt. Ltd. a sum of Rs. 1.36 crores plus interest. The court found that the Federation wrongly held back payments due to tax deductions at source (TDS).
The Federation, a group of consumer co-operatives, had a deal with Mirah Dekor to supply groceries to the Tribal Development Department (TDD) in Nashik. Mirah delivered the supplies, and TDD paid the Federation, which took a cut before paying Mirah. Problems came up over TDS deductions made by TDD on Mirah’s bills.
Mirah argued that TDS deductions made by TDD should not affect their payments. The Federation had deducted TDS amounts from Mirah’s bills, saying these were necessary under the Income-Tax Act. Mirah claimed that these deductions should have been given back to them, as they were made to the Federation’s account.
"The Federation confirmed to Mirah by a letter dated June 2, 2011, that it would pay an amount of Rs. ~1.36 crores once its tax assessments were completed."
The disagreement led to arbitration. The Arbitral Tribunal found that the Federation admitted it owed the money but delayed payment because of pending tax assessments. The Tribunal decided that the Federation should have finished its tax assessments and paid Mirah, as the TDS amounts were credited to the Federation’s account.
Judge Somasekhar Sundaresan supported the Tribunal’s decision, stating that the Federation must pay Mirah the awarded sum with interest. The court noted that the Federation’s excuse about pending tax assessments was not a good reason to delay payment.
"The Arbitral Tribunal held that it was necessary for the Federation to complete its tax assessments and if they were not completed, that could mean that Mirah would never be paid its rightful dues."
The court rejected the Federation’s claim that the case was too old to be considered, as the arbitration was started within the allowed time. The court found the Tribunal's understanding of the agreement and tax rules to be correct.
The court ordered the Federation to pay the awarded amounts directly to the Income-Tax Authorities for Mirah’s credit, ensuring they follow the tax notice from the Joint Commissioner.
"Therefore, the Petition is dismissed. The ‘Notice of Motion’ too is accordingly disposed of."
