2015 (12) TMI 1621 - AT - Income Tax

Tribunal: Separate Contracts for Works Not Composite. No TDS on Supply Contract.

The Tribunal held that the contracts for supply, erection, and civil works were distinct, not composite. Citing a Karnataka HC decision, it ruled that ... TDS u/s 194C - contract of supply of material - nature of Composite contract - Held that:- In the present case we have three contracts, one for supply of goods/equipment, another for erection and another for civil engineering works. The dispute in the present case also is with respect to the deduction of tax with respect to the contract pertaining to supply of goods. The examination of the general terms and conditions of the contract here also proves that after the bid offered by the contractor is accepted and the assessee decides to award the contract to the successful bidder, a divisible contract covering the entire scope of the partial/total turnkey has to be entered into with the successful bidder. Upon careful consideration of the facts and circumstances of the present case, in our considered opinion, the same is identical to the issue dealt with in the case of CIT vs. Karnataka Power Transmission Corporation Ltd. [2012 (6) TMI 204 - Karnataka High Court ]. Learned D.R. could not point out any feature in the contract in the present appeal whether distinguish it from the facts mentioned in above appeal dealt by the Hon’ble High Court. Hence following the above decision, we hold that the contract of supply of material is a separate distinct contract and on which no deduction is permissible u/s 194C. We further find that in the present case the assessee is not liable to deduct tax at source on the supply portion as per Explanation (iv) (e) to section 194C. Section 194C mandates that a person responsible for paying any sum for carrying out any work in pursuance of the contract between the contractor and a specified person shall at the time of credit of such sum with the account of the creditor or at the time of payment thereof deduct a specified sums as incometax. The Hon’ble jurisdictional High Court in the case of CIT vs. Glenmark Pharmaceutical Ltd. [ 2010 (3) TMI 289 - BOMBAY HIGH COURT ] has clearly expounded that if the property in the product manufactured passes to the customer upon delivery and the material that was required was not sourced from the customer/purchaser but was independently obtained by the manufacturer from a person other than customer, the contract entered into by the assessee was not a contract for carrying on work within the meaning of section 194C.Considered from this point of view also the assessee is not liable for deduction of tax at source on the equipment good supply contract. - Decided in favour of assessee Issues Involved:1. Considering the Appellant as an 'assessee in default' u/s 201(1) r.w.s. 194C of the Income-tax Act, 1961.2. Applicability of TDS on payments made for supply of equipment under section 194C.3. Composite contract vs. distinct contracts for supply, erection, and civil works.4. Additional ground regarding advance tax payment by recipients (BGR and BHEL).Detailed Analysis:Issue 1: Considering the Appellant as an 'assessee in default' u/s 201(1) r.w.s. 194CThe Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer (AO) in holding that the provisions of section 194C are applicable to the payments made by the appellant to BGR Energy System (India) Ltd. (BGR) and Bharat Heavy Electricals Ltd. (BHEL) for the supply of equipment. The AO treated the appellant as an 'assessee in default' for not deducting tax at source while making payments, as per section 194C.Issue 2: Applicability of TDS on Payments Made for Supply of EquipmentThe appellant argued that the contracts in question were for the supply of equipment and not for carrying out any work, thus the provisions of section 194C were not applicable. The AO, however, concluded that there was a composite contract on which tax is deductible at source under section 194C. The AO based this conclusion on the terms and conditions of the agreements and the bid specifications for the Khaparkheda TPS Expansion Project.Issue 3: Composite Contract vs. Distinct Contracts for Supply, Erection, and Civil WorksThe appellant contended that the contracts were distinctly identifiable for three portions: supply of equipment, erection, and civil works. No tax was deducted on the supply contract, while TDS was deducted on the other two contracts. The CIT(A) and AO held that the contracts were composite, involving a single point responsibility contract, and thus attracted the provisions of section 194C. The CIT(A) emphasized that the intention was to set up a power plant, and the contracts should be viewed as a composite construction contract.Issue 4: Additional Ground Regarding Advance Tax Payment by RecipientsThe appellant raised an additional ground that BGR and BHEL had already paid advance taxes on the amounts received, and thus, the tax deductible by the appellant could not be recovered. The CIT(A) agreed with this ground, referencing the Supreme Court decision in Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT, which states that no demand under section 201(1) should be enforced if the tax due has been paid by the deductee-assessee. However, interest under section 201(1A) would still be applicable.Judgment:The Tribunal found that the contracts for supply, erection, and civil works were distinct and not composite. It referenced the Karnataka High Court decision in CIT vs. Karnataka Power Transmission Corporation Ltd., which held that separate contracts for supply, erection, and civil works are distinct, and TDS is not required on the supply contract. The Tribunal concluded that the appellant was not liable to deduct TDS on the supply contract as per section 194C and allowed the appeals by the assessee. The AO was directed to verify the factual position regarding the advance tax payment by BGR and BHEL and provide relief accordingly.