2015 (9) TMI 76 - HC - Income Tax

Short deduction of TDS - whether the contract in question is a composite contract in the nature of a works contract to attract tds? - Held that - An agreement was entered into by the assessee for the purchase of certain items vide quotation No.210.62 dated 04/05/2006 a purchases made from M/s Marine Power International, Dubai so also various other purchase contract similar in nature. This was not a composite contract, it was a simple purchase contract for purchase of certain items, all these purchase agreements were made for unit No.1 and are beyond the purview of deductions contemplated under Section 195 (2), however, the assessee also has a separate unit known as unit No.2 which has a separate TAN and PAN and assessment for this unit is also done separately and for this unit a worthy contract was entered into with Koppern Germany for supply, purchase and installation of certain machinery i.e. a composite works contract. The Assessing Officer in his remand note has admitted this position and the order passed by the Commissioner Appeals these aspects have been taken note of and it is specifically held that the contract on the basis of which the AO made the addition by treating the appellant company in default is for unit No.2 and not for unit No.1. If that be the factual position, its clear that for unit No.1 the contract in question for which addition has been made was one for which the provision of Section 195(2), 201(1) and 201(1A) is not attract as the contract for the said unit was not a composite contract. Accordingly, if the principle laid down in the case of GE India Technology ( 2010 (9) TMI 7 - SUPREME COURT OF INDIA) are applied in the facts of the present case, no question of law arises for consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the respondent assessee should be treated as a defaulter under Section 201(1) of the Income Tax Act due to short deduction made on interest under Section 201(1A) in the matter of deduction of Tax at source and interest.
2. Whether the contract in question was a composite contract necessitating deduction under Section 201(1) and 201(1A) of the Income Tax Act.
3. Whether the appellate authorities erred in deleting the addition made on account of statutory violation.
4. Whether the purchase agreements made by the assessee were beyond the purview of deductions contemplated under Section 195(2) of the Income Tax Act.

Detailed Analysis:
1. The Assessing Officer issued a show cause notice to the respondent assessee under Section 201(1) for short deduction on interest under Section 201(1A) of the Income Tax Act. The respondent was found to have not deducted interest and TDS for various purchases. The Commissioner Income Tax Appeal concluded that the assessee was not liable to deduct TDS and deleted the addition. The revenue contended that the contract was a composite contract requiring deduction, but the appellate authorities disagreed based on the nature of the contract and the law laid down by the Supreme Court in a relevant case.

2. The High Court examined the agreements entered into by the assessee for the purchase of items and found that they were simple purchase contracts, not composite contracts necessitating deductions under Section 195(2). It was clarified that the contracts were for unit No.1, distinct from unit No.2, which had a composite works contract. The Assessing Officer admitted this distinction in his remand note, and the Commissioner Appeals also acknowledged the separate nature of the contracts for unit No.1 and unit No.2. Based on the factual position and the principles established in the Supreme Court case, the High Court found no error in the orders of the appellate authorities and dismissed the appeal.

3. In conclusion, the High Court upheld the decisions of the appellate authorities, emphasizing that the contracts for unit No.1 were not composite contracts necessitating deductions under the relevant sections of the Income Tax Act. The court found no legal question for consideration and dismissed the appeal filed by the revenue, affirming that the orders were in accordance with the law and factual circumstances presented.