2000 (2) TMI 217 - AT - Income Tax

Summary

Issues Involved:
1. Whether the contracts for supply of material, construction, and labour-cum-erection are composite or separate.
2. Applicability of section 194C to the contract for supply of material.
3. Liability of TDS on the payment of Rs. 72.60 crores under section 194C.
4. Validity and retrospective application of the certificate issued u/s 197(1).

Summary:

Issue 1: Composite or Separate Contracts
The assessee argued that the contracts for supply of Indian sourced equipment and material, labour-cum-erection, and construction are distinct and separate. However, the CIT(A) held that these contracts are composite. The Tribunal upheld this view, stating that the contract was for the construction of a refinery, and the supply of materials and labour were integral parts of this main contract. The Tribunal found no infirmity in the CIT(A)'s conclusion that there was one composite contract for the construction of the refinery.

Issue 2: Applicability of Section 194C
The assessee contended that section 194C does not apply to the contract for supply of material, arguing it is not a works contract. The Tribunal referred to the Supreme Court's decision in Associated Cement Co. Ltd. v. CIT, which clarified that section 194C applies to all types of contracts, including material contracts. Therefore, the Tribunal concluded that the provisions of section 194C are applicable to the contract for supply of Indian sourced equipment and material.

Issue 3: TDS on Payment of Rs. 72.60 Crores
The Tribunal found that the payment of Rs. 72.60 crores to the contractor was for the work done for the construction of the refinery. Consequently, the provisions of section 194C are applicable to this payment. The Tribunal upheld the CIT(A)'s finding that tax should have been deducted at source from this payment.

Issue 4: Certificate Issued u/s 197(1)
The assessee argued that the certificate issued u/s 197(1) should apply retrospectively for the entire assessment year. However, the Tribunal noted that the certificate, dated 9-9-1997, cannot have retrospective effect and applies only to amounts paid on or after 9-9-1997. The Tribunal referred to Circular No. 774 issued by the CBDT, which clarified that such certificates are applicable only to credits or payments made on or after the date of the certificate. Therefore, the Tribunal found no infirmity in the CIT(A)'s finding on this issue.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that:
1. The contracts are composite.
2. Section 194C applies to the contract for supply of material.
3. TDS is applicable on the payment of Rs. 72.60 crores.
4. The certificate u/s 197(1) does not apply retrospectively.
The appeal was dismissed.