2017 (5) TMI 1265 - AT - Income Tax

TDS u/s 194C - non-deduction of tax on the payment of supply of printed packing material - whether the fixed contract with the vendor in this case is a contract for work and not a contract for sale as envisioned u/s.194C? - Held that - It is undisputed fact in the instant case that the supply of printed packing material is the responsibility and the supplier without involving any cross-supply of raw-material from the assessee. Such phraseology employed in the provision of the statue to include supply as per specification by using the material supplied by the assessee gives a resounding impression that supply of packing material albeit as per the requirement and specification of the customer but without seeking supply material from the customers stands excluded from the scope of expression work as provided in the aforesaid provision. Circular No.715 dated 08/08/1995 held that where a person had provided only specification for supply of printed material without supply of material do not fall within the ambit of section 194C. See Punjab Tractors Ltd. Versus Income-tax Officer (TDS-II), Chandigarh 2012 (10) TMI 287 - ITAT CHANDIGARH We also simultaneously note from the invoices raised by the supplier that the printed packing material so supplied to the assessee are subjected to various taxes viz. excise duty, VAT, and CST on the sale price. Ostensibly, it is the ownership of the printed packing material which is passed on to the assessee on delivery of the goods by the vendor by a sale contract. Thus, in the totality of the circumstances, we find it manifest that the transaction on account of supply of printed packing material to the assessee was in pursuance of a contract for a sale and not a contract for work as alleged. Consequently, provisions of section 194C do not get triggered in the facts of the case. Hence, section 40(a)(ia) has no application in the given facts. The disallowance made by the AO were thus unwarranted - Decided in favour of assessee.

Summary

Issues:
- Applicability of section 194C of the Income Tax Act on expenditure towards printed packing material
- Determination of whether the transaction was a 'contract for sale' or a 'contract for work' as per section 194C
- Disallowance of expenditure by the Assessing Officer for non-deduction of TDS

Analysis:

Issue 1: Applicability of section 194C
The Assessing Officer (AO) disputed the order of the Commissioner of Income Tax(Appeals) (CIT(A)) regarding the non-deduction of tax on the payment towards supply of printed packing material. The AO contended that the transaction falls under section 194C of the Income Tax Act, 1961, and thus, the expenditure incurred is subject to TDS obligations. The CIT(A) disagreed and ruled that section 194C was not applicable to the sale transactions of printed packing material.

Issue 2: 'Contract for Sale' vs. 'Contract for Work'
The core contention revolved around whether the transaction was a 'contract for sale' or a 'contract for work' as per section 194C. The AO argued that the fixed contract with the vendor was a 'contract for work,' necessitating TDS deduction. However, the CIT(A) analyzed the facts and legal position extensively, concluding that the transaction was a 'contract for sale,' exempting it from section 194C obligations.

Issue 3: Disallowance of Expenditure
The AO disallowed the expenditure incurred on printed packing material for non-deduction of TDS under section 194C, invoking section 40(a)(ia) of the Act. The CIT(A reversed this action, deeming it unsustainable in law. The Tribunal affirmed the CIT(A)'s decision, emphasizing that the transaction was a 'contract for sale,' not 'work,' and hence, the disallowance was unwarranted.

In the comprehensive analysis, it was established that the transaction involving the supply of printed packing material was in pursuance of a 'contract for sale,' exempt from TDS obligations under section 194C. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision. The judgment highlighted the distinction between 'work' and 'sale' contracts, emphasizing the specific requirements and implications under the Income Tax Act.