2007 (8) TMI 489 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of demand u/s 201(1A) by CIT(A).
2. Consideration of goods manufactured to specifications.
3. Ignoring CBDT Circular No. 715.
4. Applicability of Supreme Court ruling in State of Tamil Nadu v. Anandam Viswanathan.
5. Additional grounds of appeal.

Summary:

1. Deletion of Demand u/s 201(1A):
The CIT(A) deleted the demand of Rs. 56,66,857 raised by the Assessing Officer (AO) u/s 201(1A) of the Income-tax Act, 1961. The AO had concluded that payments made for packaging material were in the nature of a work contract and not a sale, thus liable to TDS u/s 194C. The CIT(A) held that the transactions were on a principal-to-principal basis and not covered under section 194C.

2. Consideration of Goods Manufactured to Specifications:
The AO argued that goods manufactured to the assessee's specifications had no commercial value if not received by the deductor, implying a work contract. The CIT(A) disagreed, stating that adherence to specifications does not change the nature of the transaction from sale to work contract, citing the Supreme Court decision in Hindustan Shipyard Ltd. v. State of Andhra Pradesh.

3. Ignoring CBDT Circular No. 715:
The AO contended that the CIT(A) ignored CBDT Circular No. 715, which clarifies the applicability of TDS on work contracts. The CIT(A) maintained that the transactions were sales, not work contracts, and thus outside the purview of section 194C, supported by Circular No. 681.

4. Applicability of Supreme Court Ruling:
The AO referenced the Supreme Court ruling in State of Tamil Nadu v. Anandam Viswanathan, arguing that similar transactions were deemed work contracts. The CIT(A) and ITAT found this case distinguishable, as the primary object in the current case was the sale of packaging material, not a work contract.

5. Additional Grounds of Appeal:
The revenue sought to add, alter, or amend grounds of appeal, which was noted but not elaborated upon in the judgment.

Conclusion:
The ITAT upheld the CIT(A)'s decision, concluding that the transactions between the assessee and the packaging material manufacturers were sales on a principal-to-principal basis. The assessee was not liable to deduct tax u/s 194C, and thus not in default u/s 201 and 201(1A). The appeal of the revenue was dismissed.