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TMI Blog2013 (4) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... e. on 25.3.1997. In the subsequent agreements, the original agreement was mentioned at various places. - the covenants of the agreement led both the authorities to conclude that essentially it was only the main contract for construction of refinery and not three separate contracts. There is no reason to hold otherwise than what has been concluded by these authorities consecutively. - Decided against the assessee. - TAX APPEAL NO. 33 OF 2000 - - - Dated:- 3-9-2012 - AKIL KURESHI AND MS. SONIA GOKANI, JJ. J.P. Shah for the Appellant. Manish R. Bhatt for the Respondent. JUDGMENT Ms. Sonia Gokani, J. - The appellant, in the present Tax Appeal, has challenged the Order of the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot ["Tribunal" for short] dated 28th February 2000 passed in ITA No. 193/Rjt/1999 for A.Y 1998-99. This Court, while admitting the appeal, has framed following question as substantial question of law : "Whether the appellant was liable to pay the amount of Rs. 77,78,973/= as a defaulter under Section 201 (1) read with Section 194C of the Income Tax Act, 1961 ?" 2. To briefly state the facts - the appellant was in the process of settin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heque or draft or any other mode; whichever is earlier, deduct an amount equal to 2% of such sum as Income Tax on the income comprised therein. Circular No. 681 stipulates that these provisions shall now apply to all types of contracts for carrying out any work; including the transport contracts, service contracts, advertisement contracts, broadcasting contracts, tele-casting contracts, labour contracts, material contracts and work contracts. The Assessing Officer was also of the opinion that the term "material contract" would mean that, "any contract for supply of materials where the principal contract is for work and labour, and not contract for sale of materials." 5. In the aforementioned background, when the appellant had entered into three contracts on 25th March 1997 with Messrs. Essar Projects Limited, whether one of those particular contracts is a material contract or not was needed to be decided by the Assessing Officer. It also relied upon the judgment of the Apex Court in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC) where the Apex Court held that when the principal objective of work undertaken by the payee of the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company, or (e) any co-operative society, or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860)or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3) of 1956, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in that case noted that the Central Board of Direct Taxes had written a letter to the petitioner reiterating that since the certificate was applied for after the amount of interest was credited, the question of issuing certificate for non-deduction of tax at source under Section 197 (1) does not arise and that the grievance of the petitioner was to be treated as settled. In this context, the Court had directed the CBDT to consider whether and under what circumstances such a practice has developed and that, if such practice was not permissible, to decide as to what it should do and issue appropriate guidelines in the matter notwithstanding any individual reply sent to the petitioner. 13. The Apex Court in case of Hindustan Coco Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226 held that since the Department did not challenge the order of the Tribunal recalling its earlier order, that order attained finality and the High Court could not interfere with the final order. In this case, the Assessing Officer held the appellant to be assessee in default for failure to deduct tax at source the warehousing charges payable to Pradeep Oil Corporation. The plea of assessee was rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty under Section 271C on the person who did not have good and sufficient reason for not deducting tax at source; shifting the onus on the person concerned to prove such sufficient and good reasons. 16. Yet another decision sought to be relied upon is in case of the Associated Hotels of India Ltd. (supra), wherein the Apex Court held the transaction to be essentially one and indivisible, namely, one of receiving a customer in the hotel to stay. It further held that it was essentially one of the services by the hotelier, in the performance of which, and as part of the amenities incidental to the service, the hotelier served meals at stated hours. The revenue, therefore, was held not entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges for food stuffs served to him, with a view to bring the latter under the Act. The Apex Court further held that, "..the mere passing of property in an article or commodity during the course of the performance of a transaction does not render it a transaction of sale. For, even in a contract p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a contractor in pursuance of the contract in Formulations 1 2 could credit that sum of his account or make its payment to him in any other manner. (4) But, when the person referred to in Formulation-3 either credits the sum referred to therein to the account of or pays it to the contractor, he shall deduct out of that sum an amount equal to two per cent, as income tax on income comprise therein. 19. The Court further held that, while permitting exclusion of the amount reimbursed by the appellant to the contractor under clause 13 from the sum envisaged therein. "Thus, when the percentage amount required to be deducted under the sub-section as income-tax is on the sum credited to the account of or paid to a contractor in pursuance of a contract for carrying out a work or supplying labour for carrying out a work, of any of the organizations specified therein, there is nothing in the sub-section which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to 'works contract' as was argued on behalf of the appellant. We see no reason to curtail or to cut down the meaning of plain words used in the Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of chattel but for labour and work done and the material furnished, and therefore, provisions of Section 194C would be applicable. As in the present case, the contract for supply of Indian sourced equipments and materials was held to be fully covered by the said Supreme Court decision and provisions of Section 194C were held applicable to these contracts. It went to an extent saying that even if there were three separate contracts, then also, the assessee was bound to deduct tax at source. 22. Another question connecting this very discussion the Tribunal addressed to is as to whether three contracts were composite contracts, or they were separate contracts. It relied upon the discussion made by CIT(A) and it also independently examined this issue by holding that all the three contracts were for construction of refinery and there was only one single contract. It noted that for construction of refinery, the contractor was need to arrange labour, shall also to arrange some import and Indian equipments and materials, however, that would not divide the main contract which was for construction of a refinery. It also held that once the main contract is in existence, further separate co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have any application for such period, nor was there any mention in the certificate that the same would have effect from 1st April 1997. And therefore, it held that defect cannot be rectified by the certificate. 25. Circular No. 777 dated 17th March 1999 issued by the CBDT makes it clear that such certificate cannot have retrospective effect. The reason put forth by the assessee that he had a bona fide belief, as for earlier financial years the Assessing Officer of the contractor allowed the assessee to credit or pay without deduction of tax at source did not find favour with the Tribunal on the ground that the Circular issued under Section 197 (1) of the Act cannot have retrospective effect. Again the say of the assessee on the basis of earlier years experience did not weigh with it and it held that automatically such presumption was not allowable to the appellant that the tax was not deductible on account of the earlier experience. It also further directed to take steps for default of not deducting the tax at source for the payment made to the contractors for the period from 1st April 1997 to 9th September 1997. 26. As mentioned herein before, under chapter XVII collection a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terming them as the only contract for setting up refinery and hence was justified in holding non compliance of provision of Section 194C of the Income Tax Act and thereby holding assessee as a defaulter under Section 201 of the Income-tax Act. 30. For the reasons hereinafter, we answer in favour of the revenue and find no cogent grounds to entertain this tax appeal of the assessee appellant. 31. The appellant-Essar Oil Limited gave three contracts to its sister concerns viz., Essar Project Limited (EPL) (i) for supply of Indian sourced equipments and materials (ii) for labour-cum-erection (iii) for construction of refinery. 32. Main contract dated 7th Nov. 1994 for establishing refinery continues to hold field and is often referred to in these three contracts. 33. In case of Himachal Pradesh v. Associated Hotels of India Limited (Supra) what is held necessary to be considered for the Court in each case is as to what is the primary object of the transaction and intention of the parties while entering into it before the court determines whether contract is divisible or indivisible. It was observed : "The difficulty which the courts have often to meet with in construing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent agreements, the original agreement was mentioned at various places. The Tribunal therefore, held that later agreements were only in the nature of amendments to the original agreement and such new agreements were not independent agreements. The Commissioner (Appeals) also noticed a clause in the agreement dated 25.3.1997 for supply of materials which read as under:+ "complete Responsibility. Notwithstanding the separate identification of the work for design, engineering, manufacturing, testing, inspection and FOR Site delivery of all Indian Sourced Equipment and Materials in the SUPPLY CONTRACT, the work of construction of all buildings, bridges, structures, all enabling facilities, permanent General Work, construction erection, testing and commissioning of various package units, loading and despatch system, marine works, Piping Works, perimeterifence and boundary wall in the CONSTRUCTION CONTRACT and the work of Site Preparation, Port Clearance and Inland Transportation of Non-Indian sourced equipment and materials, Site Marine Survey, Erection and Installation of all equipment and materials (Indian sourced Non-Indian sourced) and carrying out of commissioning, start-up a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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