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

Maharashtra State Power Generation Co. Ltd., Mumbai Versus Asstt. Commissioner of Income-tax (TDS), Circle-2, Nagpur

Maharashtra State Power Generation Co. Ltd., Mumbai Versus Asstt. Commissioner of Income-tax (TDS), Circle-2, Nagpur - TMI 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. 194C
The 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 Equipment
The 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 Works
The 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 Recipients
The 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.