9911796707
TMI Blog2019 (12) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... or after completion of the project or as per decision of NBPDCL for closure of the project. The details of supplied materials and works executed as per the contract will be prepared by the contractors and reconciled with the engineer to his satisfaction. Therefore, the CIT(A) observed that the two contracts are of the nature of a composite package and that they are inseparable. Both contracts serve the purpose of rendering one single service. The scope of the contract includes design, engineering, manufacture, type testing, and training of power grid personnel and supply of, goods. Further, as per the conditions of the supply of contract, the contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, sub-assemblies and, raw materials or any other items used and it is clearly mentioned that no separate claim on these duties will be entertained by the contractee. These are essential elements of a composite contract and therefore the CIT(A) held that the two contracts of supply and erection, shall be taken as composite contract. As relying on M/S SAHARA INDIA COMMERCIAL CORPN. LTD. ALIGANJ LUCKNOW [ 2017 (1) TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on record. 6. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the two separate and distinct contracts, one in relation to supply of goods and the other in relation to labour and services were composite contract and that the appellant was liable to deduct tax on supply of materials and that the failure rendered him an assessee in default notwithstanding the fact that the two contracts were separate and independent and the contract of supply of goods was out of the purview of section 194C of the Act. 7. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the appellant was liable to deduct tax at source even in case of the deductee who had incurred loss and that the failure rendered him and assessee in default notwithstanding the fact that there was no liability deduct tax at source in case where the deductee had incurred loss and was not liable to pay tax. 8. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the appellant was liable to pay interest even in case of the deductee who had incurred loss and was not liable to pay tax notwithstanding the fact that there is no liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein and are required for completion of the entire works. In this regard, Sri Alok Kumar, Sr. Manager (Finance) submitted the written explanation as under :- "Regarding explanation of non-deduction of TDS on supply portion. With reference to the subject noted above it is to mention that despite composite work i.e. supply & erection work in tender document our department has issued separate LOA for supply work and separate LOA for erection work to TKC. Separate LOA of supply has been issued exclusive for supply work & separate LOA of erection exclusive for erection work. As for as TDS is concerned, we have deducted TDS @2% on all erection work as per provision of section 194(C) of Income Tax & at the same time we have not deducted TDS on supply work as TKC submitted their invoices exclusive of supply of materials as per our LOA. As per clause 194C (3) of Income Tax (copy attached) where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the explanation tax shall be deducted at source- (i) On the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) On the whole of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) are as under :- I have carefully considered the assessment order, the submissions of the appellant and the remand report and other material on record and the facts and merits of the case. I have also carefully considered the submissions of the appellant with regard to the contracts being distinct and separate and not in the nature of a composite contract. Admittedly, the contracts were awarded by the appellant assessee to the vendor requiring the vendor to execute the contracts as per terms specified therein. There is no dispute to the said fact. It is also not disputed that the appellant assessee was liable to deduct tax at source as per the provisions of Section 194C of the Income Tax Act, 1961 so far as the payments in respect of execution of work contract is concerned. Further, it is seen that separate contracts were entered into by the appellant assessee. While one of them was in respect of supply of material, the other related to execution of work awarded to the vendor. In my opinion the two contracts are of the nature of a composite package and that they are inseparable. Both contracts serve the purpose of rendering one single service The scope of the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vs. DCIT, ITA No.66/2014 [Kolkata] [v] Reliance Communications Ltd. Vs. ACIT, ITA No.2957/2014 [Mumbai] Before proceeding any further, it would be useful to advert to the facts of the case once again, if only limited..-to the issue at hand. The appellant assessee has contended that; it had either deducted tax at source iri respect of payments made by it to vendors in respect of service/works contract or where no TDS has been made, the deductee has itself offered the same for tax in its ITR arid paid taxes thereon or the vendor is not liable to be taxed, hence no taxes have been paid by it even though no TDS has been made by the appellant assessee. This practice, according to the assessee, was in consonance with the provisions of law and its interpretation enunciated by the Hon'ble Courts. With this factual matrix in the background and after considering the case laws cited by the appellant assessee, the attention of the Ld. Counsel of the appellant was invited to the decision of the Hon'ble Kerala High Court in the case of The Academy of Medical Sciences Vs. CIT, Kannaur, as reported in [2018] 403 ITR 74 [Kerala] and he was required to how the ratio in the said case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deductees had already paid tax on the receipts from the appellant, held that recovery of tax u/s 201 would tantamount to double jeopardy and thus, was not proper. It, however, held the deductor liable to pay interest u/s 201 [1A] for the default in deducting tax in time. CBDT, too, had expressed a similar view in its Instruction dated 29.02.1997, which was also considered by the Hon'ble Apex Court. In the present case, no recovery action has taken place and the appellant has failed to make out a case that taxes have been paid by the deductees and any recovery of demand would be hit by the decision of the hon'ble Apex Court. Instead, it has argued that it is covered by the amended provisions of Section 201 [1], which again is not entirely correct as we shall see in the following para. Section 201 [1] of the Income Tax Act, 1961 and more specifically its proviso, as amended by Finance Act, 2012, reads as under:- Consequences of failure to deduct or pay. 201. [(1) Where any person, including the principal officer of a company,- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident] (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). [(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of- (i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200-'has been filed? (if) six] years from the end of the financial year in which payment is made or credit is given, in any other case : Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011. (4) The provisions of sub-clause (ii) of sub-section (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which such tax was deductible to the date on which the payee has discharged his tax liability directly. As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the issue of the cut-off date, i.e. the date on which it can be said that the payee has discharged his tax liability. In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in default in respect of such tax if such resident payee - (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent that the deductees must first file their ITRs, which is then considered by the A.O. before a finding on TDS or its exemption, can be given. [iii] The decision in ITO Vs. Secretary, KUMS, Chhabra, ITA No. 342, 343 & 344 of 2013 [Jaipur] relates to an entity covered by Section 12A, which had been granted by the Department only, where it was held that proviso to Section 201 would come into play. In the case of the appellant, it is not the case. Hence, no application in the present case. [iv] In the case of Haldia Petrochemicals Ltd. Vs. DCIT, ITA No.66/2014 [Kolkata], rental payments were made to a subsidiary company which was being assessed to tax regularly and incurring losses year after year. Besides this; certificate u/s 197 had been granted by the TDS Wing to the appellant in the subsequent leaving no confusion as regards the application of section 201 and its proviso, which is not the case here. Hence, this case is distinguishable on facts. [v] The case of Reliance Communications Ltd. Vs. ACIT, ITA No.2957/2014 [Mumbai] involved treatment of 'roaming charges' for the purpose of Section 194J and non-cognizance of the order passed by A.O. by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us reiterated the submission made before the lower authorities and in addition to this, he submitted that there was a no liability for deduction of tax at source on supply of goods and there was a separate contract for the supply of goods and for erection and commissioning of the goods. Both were awarded separately which has been specified in Schedule 1, 2 & 3. He also referred to the CBDT Circular No.681, dated 08.03.1994 and also referred to Section 194C of the Act. It was also contended by ld. AR that there was no any work executed by the assessee and materials were supplied only as per the specifications given in the contract guidelines and the bills were also separately submitted. The ld. AR further submitted that the two contracts one for supply of goods and the other of erection is separate and distinct contracts and it has in respect of the other contract namely, execution of the works contract deducted tax at source in accordance with section 194C of the Act. The same have also been deposited in the Government Account. The assessee however has not deducted tax at source on the cost of materials supplies made by the contractor under a separate agreement. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the works contract. The Lordships after hearing the parties held that in a composite contract, if the invoices are raised, separately mentioning the value of the materials supplied, no deduction is permissible under section 194C of the Act. In a case where three separate agreements entered into and one such agreement is agreement for supply of material and because the said agreement is a part of a composite transaction, section 194C cannot be pressed into service to deduct tax at source. The whole object of introducing the section that it should deduct tax in respect of payments made for a works contract. No deduction is permissible in respect of a contract for supply of material for carrying out work. The ld. AR also submitted that that in view of the judgment of the Hon'ble High Court in an identical case read with the circular issued by the Central Board of Direct Taxes, New Delhi the supply of materials by the contractor do not attract deduction of tax at source under section 194C of the Act. Ld. AR also produced a copy of judgment and order of the Hon'ble Karnataka High Court in the case of Commissioner of Income Tax versus Karnataka Power Transmission Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in such case, as per the amended provisions, the assessee will not be treated as 'assessee-in-default'. In this regard, ld. AR relied on the decision of the Hon'ble Allahabad High Court in the case of CIT(TDS) Vs. M/s Sahara India Commercial Corpn, ITA No.58/2015, order dated 18.01.2017 and submitted that if there is no tax liability on the contractee due to loss or some other reasons, there is no requirement for deduction of TDS by the contractee. 8. On the other hand, ld. DR relied on the orders of lower authorities and submitted that the assessee had grossly failed to deduct TDS while making payment for the supply of goods which was unearthed during the course of survey conducted in its premises and he submitted that there was a composite contract, therefore, the assessee should have deducted TDS on the entire payment made to the contractor. Ld. DR also referred to some clauses of the contract which is placed on record. Ld. DR also submitted that the assessee could not produce Form No.26A as issued by the Chartered Accountant in respect of transactions have been considered for the income tax purposes and he further submitted that the case laws relied on by the ld. AR are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets created had to be maintained. Thereafter payment against next supply would be released upon completion of 40% erection work as per the contract and certification by Engineer-in-charge regarding completion of 40% erection work in the shape of admitted bills. Commissioning, for the purpose of payments shall mean satisfactory completion of all supplies, erection, commissioning checks and successful completion of all site tests and continuous energisation of the equipment/material at rated voltage as per the contract and to the satisfaction/approval of the employer. It implies that supply of materials and equipment were closely associated with the portion of erection works. Hence, the supply works cannot be segregated from the erection portion works. Thus, in view of the above the contract is composite in nature and is basically a work contract. Regarding the closure of projects, the contract mentioned the following clause. Closure proposal will be prepared by the contractor after completion of the project or as per decision of NBPDCL for closure of the project The details of supplied materials and works executed as per the contract will be prepared by the contractors and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he handing over of the project on completion by the contractor. Had the items been purchased by the department then (i) there must have been delivery of the items to NBPDCL, and (ii) it would have been received and kept under the custody of the department of NBPDCL, and (i) the NBPDCL would have sent items at the construction sites from its godown as per requirement after obtaining ownership right over such items. However, no evidences could be produced either during the course of survey or during the hearing by the assessee deductor which could establish that materials were ever delivered to NBPDCL As a matter of fact, the items were received by the contractor himself at the site of the construction. At no point of time the items came under the possession of the department of NBPDCL till the project was completed and handed over by the contractor to NBPDCL on turnkey basis. In the context. Para 7 (vi) (b) of CBDT Circular No. 681 dated 08-03-1994 may kindly be referred. It says that "contract for sale" exists where the property/ title of the article is transferred. Thus, in view of the above it was not the purchase of materials by the NBPDCL but the delivery of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate the "second contract" (i.e. contract of erection and civil works) and / or recover the damages that contract, shall give us right to terminate this contract as well. However, such breach or occurrence in the "second contract" shall not, automatically relieve the contractor from any of their obligations under this contract. It is agreed by the contractor that the equipment/ materials supplied by them under this contract, when erected tested and commissioned under the "second contract" shall give satisfactory performance in accordance with the tender documents. Another characteristic of this arrangement is that the amount of supply shown in the agreement is not backed by the computation of cost of purchased items depicting items, number, price etc by NBPDCL. Had it not been a composite contract then the amount shown against supply would have been fully backed by the quantitative details of items, price, cost of transportation etc but the deductor has absolutely no evidences to prove that amount shown as payment against supply was arrived at during the tender process. Only the contractor gives invoice as per their supply and the same contractor is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all respect i.e the property commissioned and handed over in "ready to use" condition to the deductor company. The goods were never transferred prior to erection. (4) Final payment of supply will be done after successful erection and commissioning of the project. (5) Supplied material was as per the specification of NBPDCL so the said supply is found to be customized one. Rebuttal to the citation of Circular 681 by the deduction. The instant case in not simply a case of either "contract for sale" or "contract for work" as argued by the deductor but this case involves the question of composite or indivisible contract. As per Para-7 (vi)(b) of the CBDT Circular 681, cited by the deductor a contract will be a "contract for sale" only when the property in such article or thing passes to the deductor. But in the instant case, property of the article/goods/things did not pass to the deductor unless the whole contract including the job of erection and commission is completed and handed over the NBPDCL in "ready to use" condition. Therefore citing this CBDT Circular does not help the deductor, moreover it corroborates the conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, manufacture's quality assurance, transportation, storage, erection including all civil/structural work, site testing, commissioning of all items and supply of materials including all associated activities though not exclusively specified herein and were required for completion of the entire work. It was further observed that it had awarded contracts to specific persons for supply of materials and erection thereof for a particular job. Apart from this, it is reiterated in the tender document as well as the letter of award that both these contracts contained Interlinking cross fall breach specifying that breach of one contract would constitute breach of other contract. Thus, it was assumed that even though it had awarded composite contract, but had deducted TDS on the erection part of the contract works only. It failed to deduct tax at source on the supply of materials portion of the contract value which was integral part of the composite contract. From the letter of agreement, it was observed that the final payment would be made on completion of all work and on fulfillment by the contractor of all his liabilities under the contract. The bidder was required to submit all bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth contracts serve the purpose of rendering one single service. The scope of the contract includes design, engineering, manufacture, type testing, and training of power grid personnel and supply of, goods. Further, as per the conditions of the supply of contract, the contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, sub-assemblies and, raw materials or any other items used and it is clearly mentioned that no separate claim on these duties will be entertained by the contractee. These are essential elements of a composite contract and therefore the CIT(A) held that the two contracts of supply and erection, shall be taken as composite contract. 10. Before us, ld. AR placed reliance on the decision of Hon'ble High Court in the case of M/s Sahara India Commercial Corporation Ltd.(supra), wherein the Hon'ble High Court has affirmed the view taken by the Tribunal in restoring the issue to the file of AO holding that if there is no liability of payment of tax by recipient-assessee, the question of deduction of tax by assessee in default would not arise and the question of payment of tax by such recipient- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed income and not because of non deduction of TDS by the assessee and hence it will not alter the situation particularly if that assessee has challenged the addition in his hands in appeal. Accordingly the order of the ld. CIT(A) on this issue is set aside and the matter is restored to the file of the Assessing Officer for verification and adjudication of the issue in terms indicated above after affording an opportunity of being heard to the assessee. If it is found that in the return of income filed for these years by the deductee, it has included the impugned amount in its receipts and there is loss as per return, no demand can be raised u/s 201(1A) on the present assessee." 5. Question about liability of interest under Section 201(1A) has also been considered by this Court in Writ Tax No. 870 of 2006 (Ghaziabad Development Authority Vs. Union of India and others), decided on 03.08.2016 wherein it has been held that it is compensatory and if recipient-Assessee has already paid tax or not liable to pay any tax whatsoever, obviously no interest under Section 201(1A) of Act, 1961 could have been recovered from alleged Assessee in default for the reason that interest could ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
