Tribunal Rules Contract Divisible; Directs Exclusion of Machinery Payments from TDS Calculations; Appeal Allowed for Stats.

The Tribunal concluded that the contract between the appellant and BHEL was divisible, not composite. It directed the AO to exclude payments for machinery, spare parts, and related costs from TDS calculations. The AO must verify if BHEL paid tax on received amounts. If confirmed, the appellant should not be deemed an assessee-in-default. The appeal was allowed for statistical purposes.

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Issues Involved:
1. Creation of demand for short deduction of tax at source under Section 201(1) of the IT Act.
2. Charging of interest on tax short deducted under Section 201(1A) of the IT Act.
3. Determination of whether the contract between the appellant and BHEL was composite or divisible.
4. Verification of tax payment by the contractor (BHEL) and its impact on the appellant being treated as an assessee-in-default.

Issue-wise Detailed Analysis:

1. Creation of demand for short deduction of tax at source under Section 201(1) of the IT Act:
The appellant challenged the action of the Revenue authorities in creating a demand for short deduction of tax at source under Section 201(1) of the IT Act. The AO considered the contract between the appellant and BHEL as a composite contract and held that TDS should have been deducted on the entire sum, including payments for supply of materials. The appellant contended that the contract was divisible, and TDS was only required for the civil work, erection, designing, and commissioning, not for the supply of materials.

2. Charging of interest on tax short deducted under Section 201(1A) of the IT Act:
The AO also charged interest on the tax short deducted in terms of Section 201(1A) of the IT Act. The appellant disputed this, arguing that the contract was divisible and not composite, thus affecting the calculation of TDS and the subsequent interest charged.

3. Determination of whether the contract between the appellant and BHEL was composite or divisible:
The Tribunal analyzed the terms of the contract, noting that the primary intention was to purchase materials (two ESPs) and that civil work and commissioning were incidental. The Tribunal referenced the Supreme Court's decision in State of Himachal Pradesh & Ors. vs. Associated Hotels of India Ltd., emphasizing the need to determine the primary object of the contract. The Tribunal concluded that the contract was divisible, with separable parts for supply of materials and for civil work, commissioning, and erection.

4. Verification of tax payment by the contractor (BHEL) and its impact on the appellant being treated as an assessee-in-default:
The appellant claimed that BHEL had already paid tax on the amounts received, thus they should not be treated as an assessee-in-default under Section 201 of the Act. The Tribunal directed the AO to verify if BHEL had offered the sums to tax. If verified, the appellant should not be treated as an assessee-in-default, as per the Gujarat High Court's decision in CIT vs. Rishikesh Apartments Co-operative Housing Society Ltd.

Conclusion:
The Tribunal directed the AO to exclude payments towards supply of machinery, spare parts, and freight and insurance while calculating the short deduction of tax at source. The AO was also instructed to verify if BHEL had paid tax on the amounts received from the appellant. If confirmed, the appellant should not be treated as an assessee-in-default. The appeal was allowed for statistical purposes.

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