TaxTMI 
TaxTMI 
2016 (7) TMI 164
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....oduction of medium and heavy commercial vehicles (MCVs and HCVs), i.e., in gross tonnage categories of 9 MT to 49 MT. The expenditure, capitalized in books, was however claimed as deductible u/s. 37(1) as the company was already in the business of manufacture and sale of vehicles. That is, the entire activity of development of new types of vehicles constituted an integral part of its existing business and existing line of business. In the Revenue's view, however, the expenditure was toward setting up a new, dedicated unit to roll out new types of vehicles, which commenced commercial production in May, 2010. The expenditure was accordingly capital expenditure, entitled to depreciation u/s.32(1)(i) of the Act. The company was here-in-before manufacturing only Light Commercial Vehicles (LCVs) (at Zaheerabad, Andhra Pradesh), and the new project entailed transfer of the technical know-how, again, a capital asset depreciable u/s. 32(1)(ii) and, accordingly, allowed depreciation thereon. At the outset, the ld. AR would concede that the issue stands squarely covered against the assessee by the order by the Tribunal in the case of its' associate concern, i.e., Mahindra and Mahindra Ltd. fo....
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.... and 4.4) of the impugned order, so as to inform us of the respective cases of both the sides. He would then place reliance on the order by the tribunal in the case of Hero Motocorp Ltd. (supra). The matter, he would continue, may be considered as settled, as far as the tribunal is concerned, in view of the said order by the tribunal, holding, in sum, that the services, being repairs, carried out by the authorized dealers (of the vehicle manufacturercompany) to the customer's vehicles, paid for by them by service coupons, which stand paid for by the company (at fixed, predefined rates for different vehicles) on their presentation thereto by the dealers, is neither availed by the assessee nor can be regarded as payment for services to itself. The ld. Departmental Representative (DR) would, on the other hand, place reliance on the orders by the Revenue authorities, further submitting that the tribunal's order (supra) is rendered in the context of section 194J, which concerns payment for technical services, while the section invoked by the AO, and the disallowance as confirmed by the ld. CIT(A), is qua non-deduction of tax at source u/s. 194C. 6. We have heard the parties, and p....
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....t and credited to Dealer's account. (viii) Where the vehicle is not in warranty, such costs are recovered from the customer. (ix) Thus the fact remains that the entire amount of recovery for service coupon is offered for tax at the time of booking the sale. A provision is made for unexpired service coupons at the end of the year. Value of such service coupons being part of the sale price itself, it is the customer himself who pays the dealer for the value of the service coupon when he buys the vehicle purchased by the dealer from the company. The provisions of s 194C are not therefore applicable. The dealer does not carry out any work for the company when he services the customer's vehicle at his service station. (x) Snap Shot of the accounting entry passed in the SAP system is as under: Description Amount Augusta Motors Pvt. Ltd 579,943.13 Sales - Vehicle 445,022.00 Sales - Vehicle Service 2500.00 Sales - Vehicle - Ware 10,750.00 Excise/Cess Transfer 55,566.00 Educ. Excise/Nccd 1667.00 Vat Payable - Maharashtra 64,438.13 Service Coupon - Domes 2500.00 Coupon - Domestic 2500.00 Prov Warranty - Domestic ....
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....ndent contract. The fact that the customer can approach any dealer for obtaining free service does not alter the position as it is a case of convenience and mutual arrangement drawn by the company. The reimbursement is not for services rendered by the dealer to the customer but in discharge of the warranty obligation included in the sale price. It is in term of a independent contract of sale which stipulates that the assessee should reimburse the cost incurred by the dealer if and when it performs free services to the ultimate customer. On this factual matrix, it would be wrong to hold that the dealer has rendered technical services as contemplated u/s. 194J to the assessee for which the assessee paid a particular amount to the dealer and non-deduction of tax at source on such payments attracts disallowance u/s. 40(a)(ia). 29.34 The assessing officer relied on Section 194J which reads as follows: ................. 29.42 We also find force in the argument of the assessee that the services in this case are availed by the ultimate customer who has paid the consideration by way of sale price to dealer by a separate transaction of purchase of two wheeler. Service is neither ava....
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....ccordingly. Explanation.-For the purposes of this section,- (i) "specified person" shall mean,- (a) the Central Government or any State Government; or (d) any company; or (ii) .............; (iii) "contract" shall include sub-contract; (iv) "work" shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.' As apparent, its scope is materially different (from s. 194J), and envisages: a) a contract between a resident (contractor) and a specified person in pursuance to which some work is carried out; and b) credit or payment to the contractor by any person responsible ....
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....e service coupons received by him, he is not required to pay for the services again, so that the payment for carrying out the work thereon by the dealer, is made by the manufacturer (assessee-company), who has already received the consideration in its respect from the customer as a part of its' (vehicle's) sale price. That is, the assessee-company is the person responsible for making the payment to the dealer (contractor) under the circumstances. That it is also the specified person u/s.194C(1) is another matter. How, we wonder, are the ingredients of the section not satisfied? It is not necessary that the payer or the specified person should also be the recipient of the services, i.e., the work carried out in pursuance to a contract, for which payment is being made and received. Equally, it is not incorrect to say that the vehicle manufacturer is the beneficiary of the services in-as-much as the same operate to discharge its' liability or obligation under the contract of sale, and which, being an incident of the sale of vehicle, would extend to who-so-ever is the owner of the vehicle for the time being. Whether it could be, strictly speaking, termed as a product warranty; the obli....
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....t therewith (Dealer Agreement). Reference in this context may also be made to answer to Q. No. 9 of Circular 715 dated 08.8.1995 issued by the CBDT. 6.5 Be that as it may, section 40(a)(ia) stands amended by Finance Act, 2012 w.e.f. 01.4.2013 to provide (vide second proviso thereto) that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B, but is not deemed to be in default under first proviso to section 201, he shall for the purpose of this clause (s. 40(a)(ia)), be deemed to have deducted and paid the tax on the relevant sum on the date of furnishing the return of income by the resident payee (dealer). That is, provides an exception to the operation of section 40(a)(ia). Section 201 also stands amended by way of first proviso thereto (by Finance Act, 2012 w.e.f. 1.07.2012) to the effect that any person failing to deduct in whole or in part the tax in accordance with the provisions of the relevant Chapter on the sum paid to a resident or credited to his account shall not be deemed as an assessee in default in respect of such tax, if such a resident (read contractor or dealer) has furnished his return u/s. 139; h....