2013 (9) TMI 644 - AT - Income Tax

Tribunal: Supply Contract Not Subject to TDS

NTPC, Simhadri Super Thermal Power Project (VSP) Versus Income-tax Officer

NTPC, Simhadri Super Thermal Power Project (VSP) Versus Income-tax Officer - [2014] 29 ITR (Trib) 712 (ITAT [Viskha]) Issues Involved:1. Whether the machinery purchased by the assessee falls under the category of 'Contract for works and labour' or 'Contract for sale'.2. Whether the assessee is liable to deduct tax at source under section 194C of the Income Tax Act on payments made for the machinery.3. Whether the assessee can be treated as 'an assessee in default' under section 201 of the Income Tax Act for failing to deduct tax at source.Detailed Analysis:Issue 1: Classification of the ContractThe primary issue is whether the machinery purchased by the assessee falls under 'Contract for works and labour' or 'Contract for sale'. The Assessing Officer and CIT(A) held that the contracts for supply and installation of machinery are composite and inseparable, thus falling under 'Contract for works and labour'. The CIT(A) referred to various clauses in the 'Instruction to Bidders' to support this conclusion, emphasizing that the contract was awarded for a complete package of work, including design, engineering, manufacturing, and installation. The CIT(A) also noted that the machinery supplied was custom-made and could not be sold in the open market, thus constituting a works contract.However, the Tribunal disagreed, noting that the machinery was designed, manufactured, and tested at the supplier's site before being dispatched to the assessee. The Tribunal emphasized that the ownership of the machinery passed to the assessee upon shipment, indicating that the supply contract was a 'Contract for sale'. The Tribunal cited the decision in the case of Power Grid Corpn. of India Ltd. v. ACIT, where it was held that the supply portion of a contract, even if it involves custom specifications, remains a contract for sale if the property in the goods passes to the purchaser upon delivery.Issue 2: Tax Deduction at Source under Section 194CThe next issue is whether the assessee was required to deduct tax at source under section 194C on payments made for the supply of machinery. The CIT(A) held that since the contract was a composite contract for works, tax should have been deducted under section 194C. The Tribunal, however, concluded that the supply contract was a 'Contract for sale', and therefore, the provisions of section 194C did not apply. The Tribunal noted that the machinery was supplied as a complete unit, tested and ready for installation, and the property in the machinery passed to the assessee upon shipment.Issue 3: Assessee in Default under Section 201The final issue is whether the assessee can be treated as 'an assessee in default' under section 201 for failing to deduct tax at source. The Assessing Officer treated the assessee as in default and raised demands under sections 201(1) and 201(1A). The Tribunal, however, set aside these orders, concluding that since the supply contract was a 'Contract for sale', the assessee was not liable to deduct tax under section 194C. Consequently, the assessee could not be treated as in default under section 201.ConclusionThe Tribunal concluded that the supply contract was a 'Contract for sale' and not a 'Contract for works and labour'. Therefore, the assessee was not liable to deduct tax at source under section 194C on payments made for the supply of machinery. Consequently, the assessee could not be treated as in default under section 201. The Tribunal set aside the orders of the CIT(A) and the Assessing Officer, directing the deletion of the demands raised under sections 201(1) and 201(1A). All appeals filed by the assessee were allowed.