2009 (10) TMI 556 - HC - Income Tax

Court dismisses writ petitions, petitioners can seek remedies under Income-tax Act, no coercive actions allowed.

Mani Muthusamy Versus. Personal Assistant to Collector

Mani Muthusamy Versus. Personal Assistant to Collector - [2010] 328 ITR 588 Issues Involved:1. Whether the contract in question is a contract of sale or a contract of work and labour.2. The applicability of Section 194C of the Income-tax Act to the transaction.3. The maintainability of the writ petitions under Article 226 of the Constitution of India.Issue-wise Detailed Analysis:1. Nature of the Contract: Sale or Work and LabourThe core issue is whether the contract for supplying eggs to the noon meal centres is a contract of sale or a works contract. The petitioners argued that the contract is a mere supply of eggs, constituting a contract of sale, not a works contract. They cited the CBDT circular dated March 8, 1994, which states that tax deduction at source under Section 194C of the Income-tax Act would not apply when the contractor supplies goods according to government specifications and the ownership passes upon delivery.The respondents contended that the contract includes various stipulations such as specific size and weight of eggs, color coding, affixing the State Government emblem, and other conditions like transportation and handling, making it a composite contract involving both goods and services, thus qualifying as a works contract.The court referred to several Supreme Court judgments to determine the nature of the contract, emphasizing that the essence of the contract, the dominant object, and the circumstances of the transaction are crucial in making this determination. The court concluded that these are essential questions of fact, which cannot be effectively adjudicated in a writ petition.2. Applicability of Section 194C of the Income-tax ActThe petitioners argued that Section 194C does not apply to their case, as the transaction should be considered a contract of sale. They relied on the CBDT circular and the Supreme Court decision in State of Andhra Pradesh v. Kone Elevators, which differentiates between a contract for sale and a works contract based on the intention to transfer property and the nature of the obligations.The respondents argued that the contract is indivisible and involves both the supply of goods and services, thus falling under the purview of Section 194C, which mandates tax deduction at source.The court noted that the determination of whether the contract falls under Section 194C involves a thorough analysis of the contract terms and factual circumstances, which are beyond the scope of a writ petition.3. Maintainability of the Writ PetitionsThe respondents contended that the writ petitions are not maintainable as they involve complex factual determinations that should be resolved through the mechanisms provided under the Income-tax Act, including appeals to the Assessing Officer and other appellate authorities.The court agreed with the respondents, stating that the Income-tax Act provides a comprehensive framework for resolving such disputes, including the opportunity to present oral and documentary evidence. The court emphasized that the remedies under the Act are efficacious and should be exhausted before approaching the High Court under Article 226.Conclusion:The court dismissed the writ petitions, granting the petitioners liberty to seek remedies under the Income-tax Act. The court provided the petitioners four weeks to approach the concerned authority, during which the respondents were restrained from initiating coercive recovery measures. The court emphasized that the issue involves essential questions of fact, which are not suitable for adjudication in writ petitions. No costs were imposed, and connected miscellaneous petitions were closed.