2019 (12) TMI 1184 - AT - Income Tax

Composite contracts require full TDS, interest liability under Section 201(1A) to be verified by AO. Appeals allowed for further verification.

North Bihar Power Distribution Company Limited, South Bihar Power Distribution Company Limited Versus ACIT, TDS Circle, Patna

North Bihar Power Distribution Company Limited, South Bihar Power Distribution Company Limited Versus ACIT, TDS Circle, Patna - TMI Issues Involved:1. Validity of the CIT(A) and AO's orders.2. Composite nature of contracts and TDS applicability.3. Opportunity for defense and principles of natural justice.4. Deduction of TDS on supply of materials.5. Interest liability under Section 201(1A) of the I.T. Act.Issue-wise Detailed Analysis:1. Validity of the CIT(A) and AO's Orders:The assessee argued that the orders of the AO and CIT(A) were 'bad both in law and on facts,' based on 'presumption, surmises and conjectures,' and violated principles of natural justice due to lack of adequate opportunity for defense. The Tribunal noted that the CIT(A) considered all submissions and facts before holding that the contracts were composite in nature, thus requiring TDS deduction.2. Composite Nature of Contracts and TDS Applicability:The core issue was whether the contracts for supply of materials and erection services were separate or composite. The AO and CIT(A) held that the contracts were composite, requiring TDS under Section 194C. The Tribunal agreed, noting the interlinking nature of the contracts, where the supply of materials was closely associated with erection work, making them inseparable. The CIT(A) emphasized that the contracts served the purpose of rendering one single service, and the supply of materials was specific and customized for the assessee, having no use elsewhere.3. Opportunity for Defense and Principles of Natural Justice:The assessee contended that no adequate opportunity was provided to furnish its defense during assessment proceedings. However, the Tribunal found that the CIT(A) had carefully considered all submissions and facts, indicating that due process was followed.4. Deduction of TDS on Supply of Materials:The assessee argued that separate contracts for supply and erection did not require TDS on the supply portion, citing Section 194C and relevant CBDT Circulars. The AO and CIT(A) disagreed, stating that the contracts were composite, and TDS was applicable on the entire payment. The Tribunal upheld this view, noting that the supply of materials was integral to the composite contract.5. Interest Liability under Section 201(1A) of the I.T. Act:The CIT(A) held that the assessee was liable to pay interest under Section 201(1A) for non-deduction of TDS. The assessee argued that if the deductee had incurred losses and filed returns, no TDS was required. The Tribunal referred to the Hon'ble Allahabad High Court's decision in M/s Sahara India Commercial Corporation Ltd., which stated that if the deductee filed returns declaring losses, no interest could be charged under Section 201(1A). The Tribunal remitted the issue to the AO for verification, holding that if the deductee included the impugned amount in its receipts and filed returns declaring losses, no demand could be raised under Section 201(1A).Conclusion:The Tribunal upheld the composite nature of the contracts, requiring TDS deduction on the entire payment. It remitted the issue of interest liability to the AO for verification, based on the deductee's tax filings. The appeals were allowed for statistical purposes, with directions for further verification by the AO.