Petitioner fails to prove transactions outside section 194C scope, NIL TDS certificate under section 197 denied

The HC dismissed the petitioner's application for NIL TDS certificate under section 197 r.w.s. 206(C)(9). The petitioner sought to avoid 2% TDS under section 194C on sales to buyer, claiming transactions constituted sale contracts rather than works contracts. The court held the petitioner failed to prove transactions fell outside section 194C scope, noting insufficient documentation to distinguish between sale and works contracts. The court found petitioner's own submissions in Form 13 consistently treated receipts as contractual payments, and petitioner failed to join the buyer as party or dispute TDS deductions, indicating acceptance of works contract classification. The petition was rejected as legally untenable.

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Issues Involved:
1. Whether the transactions between the Petitioner and Hindustan Unilever Ltd. (HUL) constitute a "Contract for Sale" or a "Works Contract" under Section 194C of the Income Tax Act, 1961.
2. The legality of the Certificates issued under Section 197 of the Income Tax Act, 1961, and the rate of TDS deduction specified therein.
3. Whether the rejection of the Petitioner's application for NIL/reduced TDS was arbitrary and violative of Article 19(1)(g) of the Constitution of India.

Comprehensive Summary:

I. Contract for Sale vs. Works Contract:
The Petitioner contended that the agreement with HUL was a "Contract for Sale" and not a "Works Contract" as defined under Section 194C of the Income Tax Act, 1961. The Petitioner argued that it procured raw materials independently and only one raw material from HUL, treating it as a separate transaction. The Petitioner cited Clause 5.6 of the Purchase Agreement to substantiate that it was not acting as an agent for HUL but as an independent entity.

The Opposite Party (Income Tax Department) argued that the agreement between the Petitioner and HUL was clearly a "works contract" as per Section 194C. They emphasized that the Petitioner had itself applied for non-deduction under Section 197, indicating it as a "contractual receipt." The Department further argued that the materials used in manufacturing could only be verified through purchase invoices and books of accounts.

The Court noted that the term "work" under Section 194C includes manufacturing or supplying a product using materials provided by the customer, which would classify the transaction as a "works contract." The onus was on the Petitioner to provide sufficient documents to prove otherwise, which they failed to do.

II. Legality of Certificates Issued Under Section 197:
The Petitioner challenged the Certificates issued by the Assistant Commissioner of Income Tax, which specified the TDS rates at 1.25% and 1.20% for different periods, arguing that these were arbitrary and without basis. The Petitioner sought a NIL TDS certificate, claiming financial loss due to the higher TDS rates.

The Opposite Party argued that the rates were derived based on the Departmental analysis and the Estimated Net Profit of the Petitioner. They contended that the Petitioner had accepted these rates in previous applications and had not made HUL a party to the case, indicating no objection to the TDS deductions.

The Court found that the rates were derived based on a thorough analysis and were approved by the competent authority. The Petitioner's repeated applications for lower TDS rates were not supported by adequate documentation to justify NIL TDS.

III. Rejection of Application for NIL/Reduced TDS:
The Petitioner claimed that the rejection of their application for NIL/reduced TDS was arbitrary and violated Article 19(1)(g) of the Constitution of India. They argued that the continued collection of TDS at higher rates caused financial hardship.

The Opposite Party maintained that the rejection was based on the lack of sufficient documentation from the Petitioner to prove that the transactions did not fall under Section 194C. The Court upheld this view, stating that the Petitioner did not provide adequate evidence to support their claim for NIL/reduced TDS.

Court's Conclusion:
The Court concluded that the transactions between the Petitioner and HUL fell within the purview of "works contract" under Section 194C of the Income Tax Act, 1961. The Certificates issued under Section 197 specifying the TDS rates were legally valid and based on proper analysis. The rejection of the Petitioner's application for NIL/reduced TDS was not arbitrary or illegal.

Both Writ Petitions were disposed of accordingly.

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