2023 (11) TMI 586 - AT - Income Tax

TDS u/s 194C - works contract - purchase of packing materials - assessee in default for non-TDS u/s 201(1) - HELD THAT - The assessee made purchase of the printed packing materials from six parties as mentioned in the assessment order. It is not a case of the Revenue that assessee s own material given to the suppliers for getting any particular work or a job or printing done from them. Further there is no agreement between the assessee and suppliers of goods as being in the nature of job work. Thus it is not a works contract, but it is an outright purchase which is not hit by Section 194C of the Act. The entire material of flexi packaging were purchased by the suppliers on their own and paid Excise Duty and VAT. The assessee submitted sample bills from each of the suppliers, wherein the above facts are proved which is not disputed by the Assessing Officer. Further the above issue was considered in the case of Girnar Food 2006 (2) TMI 160 - GUJARAT HIGH COURT and clearly held that it is a case of sale and not works contract and section 194C will not be applicable. Respectfully following the above decision, Ground No. 1 raised by the Revenue is devoid of merits and the same is hereby dismissed. Discounts given by the assessee is to be treated in the nature of commission u/s 194H - HELD THAT - Plain reading of the definition of section 194H makes it clear that the said section applies only if the nature of the payment is for acting on behalf of another person or for rendering of services. However, in the case of the assessee, the discounts were allowed to assessee's own buyers/parties to whom goods are sold. None of the parties were assessee's agents and none of them had rendered any services to the assessee. For buying goods from the assessee, they paid sales consideration. They had also not sold the goods supplied to them on behalf of assessee, but they had sold the same in their own rights as independent parties. Thus, all the 12 parties were not the agents and had not rendered any services to the assessee, therefore section 194H does not apply in the present case. As seen that all the credit notes are by way of sales price difference allowed to said parties for specific reasons as stated therein. The said credit notes therefore rightly would reduce the gross sale consideration charged at the time of raising the original invoices and supplying of the goods to them. All the said 12 parties were the buyers/customers of the assessee. Therefore, the provision of section 194H would not apply in the above transaction. The said issue is squarely covered in favour of the assessee as relying on case of M/s. Gujarat Narmada Valley Fertilizer and Chemicals Ltd. 2019 (4) TMI 1723 - GUJARAT HIGH COURT - Thus we do not find any merits in the ground no. 2 raised by the Revenue and the same is hereby rejected. Charging of interest u/s. 201(1A) of the Act which is consequential of non-deduction of TDS to be set aside - Revenue appeal dismissed.

Summary

Issues Involved:
1. Whether the assessee was required to deduct Tax at Source (TDS) under Section 194C of the Income Tax Act, 1961, on payments made for packing materials.
2. Whether the various discounts offered by the assessee should be treated as commission, thereby attracting TDS under Section 194H of the Act.
3. Whether the interest charged under Section 201(1A) of the Act for the alleged TDS defaults is justified.

Summary:

Issue 1: TDS under Section 194C for Packing Materials
The Revenue contended that the assessee's transactions with six parties for the purchase of packing materials constituted "works contract" under Section 194C, requiring TDS deduction. The Assessing Officer treated the assessee in default for non-TDS on Rs. 46,68,151/-. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, referencing the Jurisdictional High Court judgment in CIT vs. Girnar Food, which held that a contract for supply of materials with specific designs is a sale, not a works contract, and thus not subject to Section 194C. The Tribunal upheld the CIT(A)'s decision, stating that the transactions were outright purchases, not works contracts, as the suppliers independently produced the packing materials and paid excise duty and VAT. Therefore, Section 194C was not applicable.

Issue 2: TDS under Section 194H for Discounts
The Assessing Officer treated various discounts offered by the assessee as commission, asserting that TDS under Section 194H was required. The CIT(A) deleted this addition, citing the Jurisdictional High Court judgment in M/s. Gujarat Narmada Valley Fertilizer and Chemicals Ltd., which clarified that discounts given in a principal-to-principal transaction do not constitute commission. The Tribunal agreed, noting that the discounts were allowed to the assessee's buyers and not agents, and no services were rendered by the buyers to the assessee. Thus, Section 194H was not applicable.

Issue 3: Interest under Section 201(1A)
The Assessing Officer levied interest under Section 201(1A) for the alleged TDS defaults. Since the Tribunal upheld the CIT(A)'s deletion of the TDS defaults under Sections 194C and 194H, the interest charged under Section 201(1A) was also dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the assessee was not liable for TDS under Sections 194C and 194H, and consequently, the interest charged under Section 201(1A) was also not justified. The appeal was pronounced dismissed on 10-11-2023.