Assessee wins TDS dispute as purchases from suppliers deemed outright transactions not works contracts under Section 194C

The ITAT Rajkot ruled in favor of the assessee on TDS matters. The tribunal held that purchase of printed packing materials from six suppliers constituted outright purchase transactions, not works contracts, making Section 194C inapplicable since no job work was involved and suppliers used their own materials while paying excise duty and VAT. Additionally, discounts given to buyers were not subject to Section 194H as recipients were customers, not agents providing services. The tribunal distinguished these transactions from commission payments, noting buyers purchased goods for their own account rather than acting on behalf of the assessee. Revenue's appeal was dismissed entirely.

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Issues Involved:
1. Whether the assessee was required to deduct Tax at Source (TDS) under Section 194C of the Income Tax Act, 1961, on payments made for packing materials.
2. Whether the various discounts offered by the assessee should be treated as commission, thereby attracting TDS under Section 194H of the Act.
3. Whether the interest charged under Section 201(1A) of the Act for the alleged TDS defaults is justified.

Summary:

Issue 1: TDS under Section 194C for Packing Materials
The Revenue contended that the assessee's transactions with six parties for the purchase of packing materials constituted "works contract" under Section 194C, requiring TDS deduction. The Assessing Officer treated the assessee in default for non-TDS on Rs. 46,68,151/-. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, referencing the Jurisdictional High Court judgment in CIT vs. Girnar Food, which held that a contract for supply of materials with specific designs is a sale, not a works contract, and thus not subject to Section 194C. The Tribunal upheld the CIT(A)'s decision, stating that the transactions were outright purchases, not works contracts, as the suppliers independently produced the packing materials and paid excise duty and VAT. Therefore, Section 194C was not applicable.

Issue 2: TDS under Section 194H for Discounts
The Assessing Officer treated various discounts offered by the assessee as commission, asserting that TDS under Section 194H was required. The CIT(A) deleted this addition, citing the Jurisdictional High Court judgment in M/s. Gujarat Narmada Valley Fertilizer and Chemicals Ltd., which clarified that discounts given in a principal-to-principal transaction do not constitute commission. The Tribunal agreed, noting that the discounts were allowed to the assessee's buyers and not agents, and no services were rendered by the buyers to the assessee. Thus, Section 194H was not applicable.

Issue 3: Interest under Section 201(1A)
The Assessing Officer levied interest under Section 201(1A) for the alleged TDS defaults. Since the Tribunal upheld the CIT(A)'s deletion of the TDS defaults under Sections 194C and 194H, the interest charged under Section 201(1A) was also dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the assessee was not liable for TDS under Sections 194C and 194H, and consequently, the interest charged under Section 201(1A) was also not justified. The appeal was pronounced dismissed on 10-11-2023.

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