1977 (9) TMI 52 - AT - Income Tax

Summary

Issues Involved:
1. Nature of the contract: Whether the disputed turnover relates to 'works contracts' or sales of chattels.
2. Assessment of turnover: Correctness of the assessable turnover determined by the Assessing Officer and the Appellate Assistant Commissioner (AAC).
3. Applicability of tax rates: Correct tax rates applicable to the disputed turnover.

Issue-Wise Detailed Analysis:

1. Nature of the Contract:
The primary issue was whether the disputed turnover of Rs. 11,98,890 should be treated as 'works contracts' or sales of chattels. The appellants argued that the contracts involved were for complete designing, fabrication, collection at site, progressive erection, commissioning, and handling over of a conveyor system, thus qualifying as 'works contracts'. The authorities, however, treated them as first sales of machinery assessable at 5% under Entry 81 of the 1st Schedule read with Section 3(2) of TNGST.

The Tribunal considered various contractual terms, correspondences, bills, and other supporting documents. The analysis included the detailed scope of work, technical specifications, and the execution process involving fabrication, delivery, erection, and commissioning of the conveyor systems for both the Port Trust and Aurofood Private Limited. The Tribunal found that the contracts were indivisible and involved significant elements of work and labor, such as the preparation of detailed drawings, procurement of materials, fabrication, site erection, and integration with existing structures.

The Tribunal referred to several legal precedents to distinguish between a contract of sale and a contract for work and labor. It concluded that the predominant intention of the parties was to execute a contract of work, not to sell chattels. The property in the materials passed to the contractee through the process of accretion during the execution of the work, not as a sale of goods.

2. Assessment of Turnover:
The Assessing Officer initially determined the assessable turnover to be Rs. 23,89,393, which was later refixed by the AAC at Rs. 22,71,158. The appellants contested this assessment, claiming that the disputed turnover of Rs. 11,98,890 should be excluded from the scope of assessment as it involved 'works contracts'.

The Tribunal examined the details of the contracts, including the specific work done, the involvement of civil and engineering works, and the integration of the conveyor systems into the existing infrastructure. It found that the contracts were for the execution of work involving significant labor and skill, and the materials used were incidental to the overall work performed. The Tribunal concluded that the disputed turnover should be excluded from the scope of assessment as it related to 'works contracts'.

3. Applicability of Tax Rates:
The authorities had apportioned the turnover at various rates of tax, including 3.5%, 4%, 5%, 9%, and 12%. The appellants argued that the disputed turnover should not be subject to these tax rates as it involved 'works contracts'.

The Tribunal's analysis of the contractual terms and the nature of the work performed led to the conclusion that the contracts did not involve the sale of chattels but were 'works contracts'. Consequently, the disputed turnover was not liable to be assessed under the tax rates applicable to sales of goods.

Conclusion:
The Tribunal allowed the appeal, concluding that the disputed turnover related to 'works contracts' and was not liable to be assessed at the hands of the appellants. The detailed contractual terms, execution process, and legal precedents supported the finding that the contracts were for work and labor, not for the sale of chattels. The appeal was allowed, and the disputed turnover was excluded from the scope of assessment.