2013 (2) TMI 232 - AT - Income Tax

Non deduction of TDS - printing of question papers from printers - Held that - The material used for printing the question papers in this case is procured by the printer himself as per the specifications laid down by the assessee. The purchase of pre-printed material from the printer therefore amounts to contract for sale and not work as defined in section 194C(1). As decided in C.I.T. vs. Dy. CAO, Markfed (2008 (2) TMI 260 - PUNJAB AND HARYANA HIGH COURT) held that purchase of particular printed packing material by the assessee was a contract for sale and outside the purview of section 194C. In the case of BDA Ltd. vs. C.I.T. 2004 (3) TMI 11 - BOMBAY HIGH COURT held that if a manufacturer purchases material on his own and manufactures a product as per the specific requirement of a customer, it is a case of sale and not a contract for carrying out any work. Thus no infirmity in the order of the CIT(A) wherein printing of question papers by the assessee from printers was treated as contract for sale and not work contract and therefore, outside the purview of section 194C - in favour of assessee.

Summary

Issues:
1. Whether the deletion of demand created for payments to paper setters and printing presses, treated as contractual payments liable to TDS u/s. 194C of the I.T. Act, 1961, was justified.

Analysis:
The case involved appeals by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) pertaining to financial years 2007-08, 2008-09, 2009-10 & 2010-11. The main contention raised was that the Ld. Commissioner erred in deleting the demand created for payments to paper setters and printing presses, treating them as contractual payments subject to TDS u/s. 194C of the Act and not as sales.

Upon conducting a survey/inspection, the Assessing Officer found that the assessee had not deducted TDS on payments made to printers/paper setters for job work, citing confidentiality reasons. The Assessing Officer calculated TDS and levied interest u/s. 201(1A) of the Act. The Ld. Commissioner of Income Tax (A) noted that the assessee conducts examinations for a large number of candidates and maintains confidentiality in setting question papers and printing them. The Ld. Commissioner referred to section 194C(1) and observed that the material used for printing question papers was procured by the printer, making it a contract for sale and not 'work' as defined in the Act.

The Ld. Commissioner cited relevant case laws and held that the printing of question papers by the assessee constituted a contract for sale and not a works contract, thus not liable for TDS. The demand raised by the Assessing Officer was deleted for all years. The Revenue appealed this decision.

After considering the contentions and precedents, the Tribunal found that the process followed by the assessee, similar to other examination bodies, aimed to maintain the secrecy and sanctity of question paper setting and printing. The Tribunal agreed that the purchase of printed material by the assessee constituted a contract for sale by the printer, falling outside the purview of section 194C. Referring to relevant case laws, the Tribunal upheld the Ld. Commissioner's order, dismissing all appeals filed by the Revenue.

In conclusion, the Tribunal upheld the decision that the payments made to printers for printing question papers were not subject to TDS under section 194C, considering the nature of the transactions as contracts for sale and not works contracts.