TaxTMI 
TaxTMI 
2006 (4) TMI 194
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....e under s. 201(1) of the IT Act and charging interest on tax so short deducted in terms of s. 201(1A) of the Act. 2. The facts giving rise to the aforesaid appeal are as follows: The appellant is a company incorporated under the Companies Act, 1956. It came into existence on 17th March, 1997 with the object of generation of power in the State of Haryana. The appellant had two thermal plants-one at Faridabad and another at Panipat. The Panipat thermal plant entered into an agreement with M/s BHEL for designing, engineering, manufacturing, supply, erection, testing and commissioning for retrofit of ESPs. A copy of the agreement between the appellant and the BHEL is placed at pp. 1 to 10 of the appellant's paper book. The contract is in....
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.... 280.00 lakhs (v) Cost of spares for three years manual operation 12.1766 lakhs Total 1910.1766 lakhs 2.2 Another important clause is cl. 3 of the terms and conditions of the contract, which reads as follows: Delivery Commissioning of (a) Guaranteed delivery period for site from the date of acceptance of tender Unit-I: 18 months from the date of receipt of PO by BHEL along with advanced. (b) Time required for complete erection, testing and commissioning of the equipment from the date of supply Unit-II: 24 months from the date of receipt of PO by BHEL along with advance. 2.3 Clause 10 of the contract with regard to terms of payment is also very material and it reads as follows: "Te....
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....d bank. Bank guarantee shall be valid for a period of one year from the date of commissioning of each unit. Terms of payment for civil works (i) 10 per cent interest-free advance along with order. (ii) 30 per cent on completion of civil foundation for first unit. (iii) 30 per cent on completion of civil foundation for 2nd unit. (iv) 20 per cent on completion of control room construction. (v) 5 per cent on completion of floor of ESP area. (vi) 5 per cent on commissioning against bank guarantee of equivalent amount valid for one year from date of commissioning." 2.4 The appellant had made payments to M/s BHEL with reference to the aforesaid contract in various financial years c....
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....er the provisions of s. 194C of the IT Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract, shall at the time of credit of such sum or at the time of payment deduct tax at source at such percentage as is mentioned in s. 194C. The chart of payment of TDS by the appellant has already been set out above. The AO was of the view that the contract between the appellant and M/s BHEL was a composite contract and therefore the appellant ought to have deducted tax at source in respect of payments for supply of materials as well as the payments for execution of civil work, erection, designing and commissioning and also the freight and insurance. According to the appellant, the contract in....
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....tive. We have already set out the important terms of the contract between the appellant and M/s BHEL. A bare perusal of the components of the consideration for the contract would clearly show that the primary or the dominant intention of the appellant was to purchase the material namely, two ESPs for its power plant at Panipat. Freight and insurance payable in respect of its supply and the cost of material constituted a major portion of the contract value. The cost of spares will also fall in this category. As rightly contended by the learned counsel for the appellant, before installing the plant, it was necessary to dismantle the existing plant and also to do the necessary civil work for erecting the new plant. This by itself would not mea....
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....r generator was an independent transaction and its erection was only ancillary or incidental to the purchase of the power generator. We are also of the view that in each case the terms of the contract need to be analyzed before coming to the conclusion whether it was a composite contract or not. As already stated, in the present case, the contract, insofar as it relates to supply of the material, freight insurance and supply of spare parts, is clearly separable from the other part of the contract relating to carrying out civil work, commissioning and erection of the power generators. 3.1 In view of the discussion above, we direct the AO to work out the short deduction of tax at source, if any, by excluding the payments towards supply of ....