2013 (10) TMI 1219 - HC - Income Tax

TDS under section 194C - supply of sachets of specification to the effect that the sachets should have emblem, logo, name, quantity and price, etc., printed on the sachets - works contract or sales contract Held that - As per KPTCL s case 2012 (6) TMI 204 - Karnataka High Court , the amendment to the definition of work under section 194C(7)(iv) of the Act is clarificatory in nature and retrospective. In the light of the said ratio, if the facts of this case are read, the assessee has not supplied any material. However, the tenderer has secured the material from other source and has supplied the same to the assessee. May be, in the instant case, some of the features of works contract may overlap, but, however, that should not have been taken as necessary criteria to determine the nature of work. The Explanation works contract has a definite legal connotation. What is stated in the section 194C (1) is for carrying out any works between the contractor and specified person. The work is also defined to exclude the situation where the material is not supplied by the assessee. In view of the specific definition of work, it is to be held that contract amounts to sale and not works contract. - Decided against the Revenue.

Summary

Issues:
1. Whether the supply of sachets by successful tenderers constitutes a "works contract" necessitating TDS deduction.
2. Interpretation of Circulars issued by the Central Board of Direct Taxes (CBDT) regarding the applicability of TDS under section 194C.
3. Analysis of the definition of "work" under section 194C(7)(iv) of the Income-tax Act.
4. Determining whether the contract in question amounts to a "works contract" or a "sale" based on legal provisions and precedents.

Issue 1:
The Assessing Officer contended that the supply of sachets by successful tenderers was a "works contract" requiring TDS deduction. However, the Appellate Tribunal disagreed, stating that it was not a "works contract" but a purchase of materials, hence TDS deduction was not necessary. The key argument was whether the customised product supplied by the tenderers, according to the specifications of the assessee, constituted a "works contract" or a sale.

Issue 2:
The appellant relied on Circular No. 715, which indicated that TDS should be deducted for the supply of printed material as per prescribed specifications. In contrast, the respondent referred to Circular No. 13 of 2006, emphasizing the need to determine if the contract is a "contract for work" or a "contract for sale" before applying TDS under section 194C.

Issue 3:
The definition of "work" under section 194C(7)(iv) of the Income-tax Act was analyzed. It was highlighted that TDS is mandatory for payments made for carrying out any works, but the liability is excluded when the work involves manufacturing and supplying goods where materials are not provided by the customer.

Issue 4:
The court considered the legal implications of the contract in question, focusing on whether it fell under a "works contract" or a sale. Referring to precedents and statutory provisions, it was concluded that the contract for the purchase of sachets, meeting specific specifications, was a sale and not a "works contract" as defined under section 194C(7)(iv). The retrospective nature of the amendment to the definition of "work" was emphasized, leading to the dismissal of the appeals filed by the Revenue.

In summary, the judgment addressed the classification of the contract for the supply of sachets as a "works contract" or a sale, examining relevant legal provisions, circulars, and precedents. The court determined that the contract was a sale and not subject to TDS deduction under section 194C, based on the specific definition of "work" and the retrospective nature of the clarificatory amendment. The appeals filed by the Revenue were dismissed based on these findings.