2011 (3) TMI 1618 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of tax and interest u/s 201(1) and 201(1A).
2. Deduction of tax at source u/s 194C on the value of materials supplied to contractors.
3. Obligation to pay tax u/s 201(1) when the recipient has already paid the tax.

Summary:

Issue 1: Applicability of tax and interest u/s 201(1) and 201(1A)
The Appellate Tribunal held that the assessee was not a defaulter and the provisions of s.201(1) and 201(1A) of the Act were not applicable. The Tribunal noted that the assessee was under no obligation to deduct tax at source for the supply portion of the contract, as the materials were purchased by the assessee and given to the contractor for carrying out the work. The Tribunal emphasized that the contract between the assessee and the contractor was a "contract for supply" and not a "contract of work."

Issue 2: Deduction of tax at source u/s 194C on the value of materials supplied to contractors
The Tribunal concluded that the CIT (A) erred in treating the agreement for supply of goods as part of a composite contract. The Tribunal found that there were three separate contracts for supply of goods, erection works, and civil engineering works, and the transaction for supply of materials was essentially a sale of goods. Therefore, the provisions of s.194C of the Act did not apply to the supply portion, and the assessee was not required to deduct tax at source on these payments.

Issue 3: Obligation to pay tax u/s 201(1) when the recipient has already paid the tax
The Tribunal noted that the CIT (A) dismissed the assessee's contention that the recipient had paid the tax on the amount received due to lack of evidence. However, the Tribunal referred to the Supreme Court ruling in Hindustan Coco Cola Beverage P. Ltd. v. CIT, which states that if the payee has already paid the tax on the income, recovery of tax cannot be made again from the tax deductor. The Tribunal found that the assessee was under the bona fide belief that there was no liability to deduct tax on the supply portion and had deducted tax at source for other contracts, thus, there was reasonable cause for non-deduction of tax on the supply portion.

Conclusion:
The Tribunal allowed the assessee's appeals for the assessment years 2005-06 to 2009-10, holding that the assessee was not an "assessee in default" u/s 201(1) and was not liable for interest u/s 201(1A) of the Act. The Tribunal's decision was consistent with its earlier ruling in the case of KPTCL, Bangalore Division.