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TMI Blog2024 (4) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... between the assessee and HUL, whether the materials used in manufacturing the products sold to HUL cannot be assessed and/or judged from the reading/ analysis of the agreement. The views in respect to purchase of materials can be only assessed from the verification of purchase invoices and books of accounts and confirmation from the HUL. Based on the Departmental analysis the rate of deduction has been derived and accordingly approval has been given by the competent authority. Based on the Estimated Net Profit of the assessee for the F.Y. 2020-21, the rate of deduction has been derived and accordingly approval has been given. The contention of the petitioner is not pertinent in this instant case, since the Petitioner itself submitted application in F.No.13 claiming receivable for the Hindustan I.ever as contractual receipts . Further it had not made M/s. Hindustan lever Limited as a party to this case which indicates that it primarily had no objection with M/s. Hindustan Lever Limited treating it's payment to the applicant as contractual payment . Petitioner's claim that the Hindustan lever had been wrongly deducting tax at source under section 194C, treating the contractu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction from this Court to the Assistant Commissioner of Income Tax, Circle TDS, Bhubaneswar to issue a Certificate under Section 197 read with Section 206(C)(9) of the Act to the Hindustan Unilever Limited for NIL Tax Deduction at Source (TDS) on all sales effected by the Petitioner/ Company. The Petitioner has also made a prayer in W.P.(C) No.30312 of 2020 to quash the order dated 28.10.2020 rejecting the application filed by the Petitioner/ Company for issuance of Certificate to reduce the rate of collection during the credit of the sale proceeds to its account. I. FACTUAL MATRIX OF THE CASE: 3. The facts of the case leading to filing of the present Writ Application are that on 28.03.2013, the Petitioner Company, M/s. Oriclean Pvt. Ltd. entered into a Purchasing Agreement with Opposite Party No. 4, M/s. Hindustan Unilever Ltd., having its registered office at Hindustan Unilever House, B.D. Sawant Marg, Chakala, Andheri (E), Mumbai-400099 whose main business is manufacture and sale of detergents, etc. 4. As per the Purchase Agreement, the Seller Company, i.e. the Petitioner, M/s. Oriclean Pvt. Ltd. would manufacture/ process and package the products in accordance with the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions in support of his contentions: 8. In view of the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2009, as issued in Circular No. 05/2010 F.No. 142/13/2010-SO (TPL), Government of India, Ministry of Finance, Department of Revenue (Central Board of Direct Taxes) on 03.06.2010, it is hereby clear that the case of the Petitioner Company does not fall within the purview of the definition of 'Work', as the Petitioner Company procured raw materials along with other packing materials at its own cost from different Suppliers with separate invoices raised on its own name. It procured only one Raw Material from a Unit of the Buyer Company, M/s. Hindustan Unilever Ltd., through a separate tax invoice for the manufacture of one of the three products that it supplied to the Buyer Company in accordance with Clause 5.6 of the 'Purchase Agreement' dated 28.03.2020, which states as under- Ingredients and components shall be purchased by the Seller in its own name and on their own account and not in any circumstances as agent for or otherwise on behalf of the Buyer. The Seller shall ensure this is clear in all correspondence and documentation with their suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (TDS) at the time of payment of Credit to it by the Opposite Party No. 4 as the Petitioner Company had not entered into a 'Works Contract', but only into a 'Contract for Sale' with the Buyer M/s. Hindustan Unilever Ltd. for the manufacture and sale of finished products. 13. On receipt of the aforesaid Application dated 03.07.2019 under Form 13 the Opposite Party No. 3, Assistant Commissioner of Income Tax (ACIT), Circle TDS Bhubaneswar, on 06.08.2019 issued a Certificate Under section 197 of the Income Tax Act, 1961, certifying that a tax deduction of 0.30% is to be deducted with respect to the payment or credit of the Sale amount to the account of the Petitioner Company, instead of deducting the same at the previous rate of 2% from the date of issue of such Certificate, i.e. from 03.07.2019 till 31.03.2020. 14. The Petitioner Company, at the beginning of the next Financial Year, 2020-21 (Assessment Year, 2021-22), submitted another Application dated 25.06.2020, under Form 13 to the Assessing Officer, requesting therein for the issuance of a Certificate in favour of the Petitioner Company to reduce the rate of TDS being collected from all the Sales being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court, the Opposite Party No. 4 kept collecting TDS at the rate of 1.25% on all Sales effected by the Petitioner Company, on the basis of the Certificate dated 07.08.2020, which clearly stipulated that the said Rate of Collection of Tax @1.25% would remain valid for the period between 07.08.2020 and 31.03.2021. 20. Pursuant to such arbitrary and continued collection of TDS at the rate of 1.25%, the Petitioner Company filed a fresh application before the Opposite Party No. 3, Assessing Officer, Income Tax Department, vide Application dated 30.06.2021 under Form 13 requesting 'NIL' deduction of TDS, (Tax deducted at Source), on the Sales effected by the Petitioner Company for the Assessment Year-2022-23, i.e. for the remaining part of the Financial Year 2021-22. 21. The Office of the Opposite Party No. 1, A.C.I.T., Circle TDS, Bhubaneswar, after one and a half month of receipt of the above-referred Application dated 30.06.2021, issued a Concessional Certificate Under section 197 of the Income Tax Act, 1961 on 07.08.2020, therein arbitrarily certifying that a deduction of TDS @ 1.20% is to be made by the Creditor, Opposite Party No. 4 Company, on all sales effected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it id out of the purview of Section 194C of the Income Tax Act, 1961. 27. The Agreement entered into between the Petitioner and the Opposite Part No. 4 Company amounted to a Sale and Purchase Agreement / and was clearly out of the purview of a Works Contract for reasons specified above, it is hereby submitted that the Petitioner was never liable to any deduction in the form of TDS and has already been harassed enough in the hands of the Opposite Party Authorities who are wrongfully collecting TDS from all the Sales effected by the Petitioner Company. III. SUBMISSION OF OPPOSITE PART NO. 4: 28. Per contra, learned Senior Standing Counsel for the Opp. Parties intently made the following submissions: a. The assessee while applying for the non-deduction under section 197 under Rule 28 37G of the Income Tax Rules vide Form no.13, has expressed in writing that its case is covered under Payment to Contractors in the Column Nature of payment and no where it has been mentioned that it is a transaction of contract for sale. Based on its own facts the assessce had applied for non-deduction under section197. b. Based on the agreement entered into between the Petitioner company and Hindustan U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase invoices and books of accounts and confirmation from the HUL. In most of the points including point no. 5.1 (as per the purchase agreement made by the HUL and the Petitioner) it has been expressly noted that the assessee can purchase materials from HUL. In absence of adequate information relating to purchase, it cannot be ascertained whether the entire purchase was made directly from the third party or from HUL. h. Based on the Departmental analysis the rate of deduction has been derived and accordingly approval has been given by the competent authority. Based on the Estimated Net Profit of the assessee for the F.Y. 2020-21, the rate of deduction has been derived and accordingly approval has been given. 29. As per the submissions of OP No. 4: a. Owing to a change in circumstances w.e.f. January 2019 in the transactions between the Petitioner and Opposite Party No.4 under the Purchasing Agreement, the Opposite Party No.4 was of the view that the same shall squarely fall under the definition of Work as defined in the explanation to Section 194-C of the Income Tax Act, 1961. Accordingly, from May 2019, the Opposite Party No.4 in compliance with the statutory mandate as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of INR 407.43 Crores. f. The Opposite Party No.4 in compliance with the certificates dated 06.08.2019 for the FY 2019-20, 07.08.2020 for the FY 2020-2021, and 16.08.2021 for the FY 2021-2022 has deducted Tax Deductible at Source at the rates prescribed in the certificates issued by the Opposite Party No.1 on all the invoices issued by the Petitioner as against the sales effected under the Purchasing Agreement. The Opposite Party No. 4 submits that a Chartered Accountant has also certified that: (a). the Opposite Party No. 4 has duly deducted TDS on its transactions with the Petitioner, as per the rates stipulated in the certificate issued by the Opposite Party No. 1 to the Petitioner under Section 197 of the Income Tax Act, 1961; and (b). based on such deductions, the Opposite Party No.4 has deposited the amount of TDS and has issued a certificate to that effect to the Petitioner. IV. COURT S REASONINGS AND ANALYSIS: 30. Having perused the document and having heard the parties, this Court is of the view that Section 194C of the Income Tax Act, 1961 clearly states that any person responsible for paying a sum to any resident for carrying out any work in pursuance of a contract bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 issued by the CBDT. 33. As per the purchase agreement entered into between the assessee and HUL, whether the materials used in manufacturing the products sold to HUL cannot be assessed and/or judged from the reading/ analysis of the agreement. The views in respect to purchase of materials can be only assessed from the verification of purchase invoices and books of accounts and confirmation from the HUL. 34. Moreover, in most of the points including point no. 5.1 (as per the purchase agreement made by the HUI, with the assessee-petitioner) it has been expressly noted that the assessee can purchase materials from HUL. In absence of adequate information relating to purchase, it cannot be ascertained whether the entire purchase was made directly from the third party or from HUL. 35. Based on the Departmental analysis the rate of deduction has been derived and accordingly approval has been given by the competent authority. Based on the Estimated Net Profit of the assessee for the F.Y. 2020-21, the rate of deduction has been derived and accordingly approval has been given. 36. The contention of the petitioner is not pertinent in this instant case, since the Petitioner itself submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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