2013 (10) TMI 376 - HC - Income Tax

TDS u/s 194C - Nature of the contact - sales of goods or works contract - Contractor undertakes to supply elevators, furnishing material, fire fighting and fire detection system, air conditioning, etc. during the execution of contract of construction - Circular No. 894 dated 08.03.1994 Deduction not allowed u/s 40(a)(ia) of the Income Tax Act Held that - Copies of the bills were produced before the Assessing Officer, during the assessment proceedings and the same were also placed before the CIT(A). The bills proved that the payments was pertaining to the supply of goods. The case of the assessee is covered by the Circular No. 894 dated 08.03.1994, issued by the CBDT - Further, payment is duly reflected in the ledger account under the head material purchased and the same was part of the sums aggregating payment, which was appearing distinctly in the Profit & Loss Account also. When it is so, then the purchase of the goods/equipments as per the Circular (supra), the provisions of Section 194(C) is not attracted and the case of the assessee is covered by the Circular issued by the CBDT Decided against the Revenue.

Summary

Issues:
1. Whether TDS is deductible on a turnkey contract involving specialized works?
2. Whether the CBDT Circular No. 681 dated 8.3.1994 is applicable to the case?

Analysis:
1. The appeal was filed by the Department under Section 260A of the Income-Tax Act, 1961 against the ITAT's order for the assessment year in question. The assessee, a contractor engaged in civil construction, had shown a TDS liability in the balance-sheet, which the Assessing Officer found not paid within the prescribed time limit. The AO made additions under Section 40(a)(ia) of the Income Tax Act, which were partially relieved by the CIT(A) but deleted by the Tribunal. The Department raised concerns regarding TDS deduction on a turnkey contract amount and justified the AO's order, emphasizing the nature of the contract and the payments made for material procurement.

2. The Department contended that TDS was deducted for various payments, including material procurement, and argued that the contract was awarded by a specific entity. On the other hand, the assessee relied on CBDT Circular No. 681 dated 08.03.1994, which clarified the applicability of Section 194(C) to service contracts. The assessee highlighted that the payments were for goods/equipment supplied and installed by various persons at the site, emphasizing the timely execution of the project and the nature of the supplies involved.

3. After considering the arguments and perusing the record, the court found that bills proving payments for the supply of goods were produced during assessment proceedings. The payments were reflected in the ledger account under "material purchased" and in the Profit & Loss Account. The court noted that the case of the assessee fell under Circular No. 894 dated 08.03.1994, defining a contract for sale. Consequently, the provisions of Section 194(C) were not applicable, and the court declined to interfere with the Tribunal's order, upholding it for the reasons stated therein. As the appeal was not admitted and no substantial question of law was framed, the Department's appeal was dismissed at the admission stage.