2013 (6) TMI 99 - HC - Income Tax

TDS u/s 194C - repairing of transformers - CBDT Circular no. 715 - one consolidated contract or two separate and district contract for repair and supply of material - held that - the view taken by the Tribunal is perfect and justified. The Tribunal has recorded a finding that TDS was rightly deducted only with reference to the labour charges involved and there was no short deduction. It is found that the contract in question was divided into 4 components on supply of leg coil, transformer oil, various supply items and labour charges which negated the claim of the department on the ground that no fee was charged by the contractors.

Summary

Issues:
Interpretation of Income Tax Act provisions regarding TDS deduction on repairing contracts; Application of CBDT Circular no. 715 dated 08-08-95; Applicability of sub-section 194-C of the Finance Act (No.2), 2009 on contracts for repairing of transformer.

Analysis:
The case involved an appeal under section 260-A of the Income Tax Act against an order passed by the Income Tax Appellate Tribunal related to the assessment years 2009-10 and 2010-11. The dispute arose from a survey conducted by the Income Tax department at the premises of the respondent, a government undertaking, which revealed discrepancies in tax deductions. The respondent contended that tax had been deducted on labor charges, excluding the materials cost by the contractor. This led to a demand of Rs.1,21,21,201/- by the Income Tax Officer (TDS), Meerut, which was later set aside by the Commissioner of Income Tax (Appeals), Meerut, but challenged by the department before the Tribunal.

The substantial questions of law framed in the memo of appeal included issues related to the interpretation of TDS deductions on repairing contracts, misinterpretation of CBDT Circular no. 715 dated 08-08-95, and the application of sub-section 194-C of the Finance Act (No.2), 2009 on contracts for repairing transformers. The Tribunal upheld that TDS was correctly deducted only based on labor charges and not on the total contract value, as the contract was segmented into components like supply of materials and labor charges. The Tribunal found that the provisions of section 194A were not applicable to the case, leading to the dismissal of the appeal.

In the judgment, the Court, after hearing arguments from both parties, affirmed the Tribunal's decision, stating that the view taken was justified. The Court concurred with the Tribunal's finding that TDS deduction was appropriate based on labor charges and that there was no shortfall in deduction. The Court noted that the contract components supported the deduction method adopted and that the respondent being a State undertaking further influenced their decision not to interfere in the matter. Consequently, the appeal was summarily dismissed.