2015 (4) TMI 629 - HC - Income Tax

TDS u/s 194C - nature of contract - works contract or sale purchase contract - purchase of footwear with logo from the job worker - Tribunal disagreeing with the findings of the First Adjudicating authority that the transaction between the assessee and its supplier was in the nature of work done by the supplier on behalf of the assessee i.e. outsourcing and holding that the said transaction was a sale - Held that - As regards the purchase of footwear without any specified logo i.e. ₹ 38.39 crores (Rs.46.29-Rs.7.90), it is observed that the same was purchase simplicitor i.e. without any logo, label or identity mark. In view of this purchase of footwear worth ₹ 38.29 crore cannot be equated to any work so as to fall within the purview of Section 194C. For the balance purchase for a sum of ₹ 7.90 crores the reasoning advanced by the CIT for the purpose of holding that the purchase amounted to awarding a specific job work to the vendors is neither supported by law nor is factually a correct finding. Goods can be sold either by sample or by description or manufactured as per requirement of the buyer. The assessee has purchased the goods and has admittedly paid sales tax, central excise duty and has in its turn availed the benefit of cenvat credit which is inconsistent with a job contract contemplated by section 194C of the Income Tax Act. Section 194C contemplates payment to a contractor for carrying out any work including supply of labour or carrying out any work. It was not the case of the revenue that the vendor of the assessee carried out any work of or for the assessee. The CIT could not dispute the fact that it was purchase of shoes from 10 manufacturers only which were labeled and marked with the logo khadim . Section 194C contemplates a transaction between a principal and an agent. Whereas a transaction in the nature of sell and purchase is on principal to principal basis. The fact that goods for ₹ 7.90 crores were purchased by the assessee has been accepted by the CIT (A). In spite thereof insistence upon bringing the case within Section 194C was an improper exercise of power. - Decied in favour of assessee.

Summary

Issues: Interpretation of section 194C of the Income Tax Act regarding purchase transactions and applicability of tax deduction at source.

Analysis:
The appeal before the Calcutta High Court involved a challenge to a judgment by the Income Tax Appellate Tribunal concerning the assessment year 2004-2005. The primary issue was whether the purchase transactions made by the assessee, a footwear merchant, amounting to approximately Rs. 46.30 crores, should have been treated as outsourcing, requiring tax deduction at source under section 194C. The assessing officer contended that the purchases were outsourcing and held the assessee liable for payment of around Rs. 1.06 crores under relevant sections. However, the appellate authority disagreed, stating that the purchases of Rs. 38.39 crores without any specified logo did not fall within the purview of section 194C as they were simple purchases without any specific work element involved.

The appellate authority further noted that purchases amounting to Rs. 7.90 crores, bearing a specific logo, could be considered as falling under section 194C as there was an element of specific job work involved in enhancing the goods before sale. The authority emphasized that providing extra improvements, labels, marks, and identity on the goods made them unique and distinct, thereby constituting a specific job work awarded to the vendors. The assessee's argument that goods were purchased based on samples was accepted, and it was highlighted that the purchases were made from manufacturers labeled with a specific logo.

The Calcutta High Court observed that the reasoning put forth by the CIT to classify the Rs. 7.90 crores purchases as job work was not legally supported. The Court emphasized that the assessee had paid sales tax, central excise duty, and availed cenvat credit, which aligns with a purchase transaction rather than a job contract under section 194C. It was noted that section 194C pertains to payments for carrying out work, which was not the case here as the vendors did not perform any work for the assessee. The Court highlighted that the purchases were made on a principal-to-principal basis, not as a principal-agent transaction as contemplated under section 194C.

Ultimately, the High Court upheld the decision of the Tribunal, which had set aside the order of the CIT(A) and dismissed the appeal. The Court found that the Tribunal had taken a justifiable view in favor of the assessee, emphasizing that the insistence on bringing the case under section 194C was unwarranted given the nature of the purchase transactions. The appeal was dismissed with costs assessed at Rs. 10,000.