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2012 (7) TMI 331 - AT - Income TaxComposite work contract - deduction of tax at source u/s 194C - assessee purchased machinery and the supplier was supposed to erect the machinery at the factory premises of the assessee after completing the civil work and erection work. The assessee has already deducted TDS on account of services rendered for civil work/electrical work and erection of the machinery - provisions of section 194C are not applicable on account of purchase of machinery - supplier of the machinery is a separate component and on account of services rendered for commissioning machinery after civil work and electrical work is separate on which TDS has already been declared - assessee has not committed any default in view of provisions of section 201(1) - In favour of the assessee Interest under section 201(1A) for non-deduction of tax on salary payment to Director of the assessee company Held that - Total salary paid to director was Rs. 1, 43, 539/- and after deduction under section 80C and 80D the net taxable salary comes to Rs. 91, 660/-. Since the salary was below Rs. 1, 00, 000/- therefore there was no liability to deduct tax on the amount of salary. The Assessing Officer has computed the total income which is other income i.e. interest etc. from bank. The company is liable to deduct tax on the amount of salary only which is less than Rs. 1, 00, 000/- and therefore there was no liability for deduction of tax - appeals of the assessee are allowed.
Issues Involved:
1. Whether the assessee's contract with Enercon (India) Ltd. for the supply of plant and machinery, civil/electrical works, and erection and commissioning of windmill is a composite work contract liable for deduction of tax at source under section 194C. 2. Whether the assessee is in default under section 201(1) for not deducting tax at source under section 194C on the payment made for the supply of plant and machinery. 3. The validity of the demand of Rs. 47,124/- raised under section 201(1A) for alleged non-deduction of tax at source on the supply value of plant and machinery. 4. The correctness of levying interest under section 201(1A) for Rs. 2,730/- for non-deduction of tax on salary payment to the director of the assessee company. Issue-wise Detailed Analysis: 1. Composite Work Contract and Section 194C Applicability: The primary issue was whether the contract between the assessee and Enercon (India) Ltd. for the supply of plant and machinery, along with civil/electrical works and erection and commissioning of the windmill, constituted a composite work contract liable for TDS under section 194C. The tribunal referred to a similar case, M/s. Vivek Pharmachem (India) Ltd., where it was determined that the contract should be bifurcated into two separate components: the supply of machinery and the cost of civil/electrical works and erection. The tribunal concluded that the supply of machinery was a separate transaction and not subject to TDS under section 194C. The tribunal noted that the assessee had already deducted TDS on the civil/electrical works and erection services, thus complying with the relevant provisions for those components. 2. Default under Section 201(1): The tribunal held that the assessee was not in default under section 201(1) for not deducting tax at source on the payment made for the supply of plant and machinery. It was established that the supply of machinery constituted a sale transaction, which did not attract the provisions of section 194C. The tribunal emphasized that the primary objective of the assessee was to purchase the plant, and the civil work, erection, and commissioning were incidental to this purchase. Therefore, the assessee had not committed any default in view of the provisions of section 201(1). 3. Demand under Section 201(1A): The tribunal also addressed the demand of Rs. 47,124/- raised under section 201(1A) for alleged non-deduction of tax at source on the supply value of plant and machinery. Since it was determined that the provisions of section 194C were not applicable to the supply of machinery, the tribunal held that the assessee was not liable for the demand raised under section 201(1A). Consequently, the interest charged under section 201(1A) was also not applicable. 4. Interest under Section 201(1A) for Salary Payment: For the assessment year 2006-07, the tribunal examined the issue of levying interest under section 201(1A) for Rs. 2,730/- for non-deduction of tax on salary payment to the director, Shri S.K. Mukim. The tribunal found that the total salary paid to the director was Rs. 1,43,539/-, and after deductions under sections 80C and 80D, the net taxable salary was Rs. 91,660/-, which was below the threshold of Rs. 1,00,000/-. Therefore, there was no liability to deduct tax on the salary paid to the director. The tribunal concluded that the assessee had not committed any default in not deducting TDS on the salary payment. Conclusion: The tribunal allowed the appeals of the assessee, holding that the provisions of section 194C were not applicable to the supply of plant and machinery, and the assessee was not in default under section 201(1). Consequently, the demand and interest under section 201(1A) were also not applicable. Additionally, the tribunal found no liability for TDS on the salary payment to the director, thus allowing the assessee's ground on this issue as well. The order was pronounced in the open court on 25.5.2012.
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