TaxTMI 
TaxTMI 
2015 (12) TMI 1621
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....ayments made by the Appellant to BGR Energy System (India) Ltd. ("BGR") and Bharat Heavy Electricals Ltd. ("BHEL") (for AY 2010-11 in ITA 113 to Larsen & Tubro Ltd. L&T) for supply of equipments and thereby holding that the Appellant was an 'assessee in default' since it has not deducted tax at source while making payments in terms thereof in accordance with the provisions of section 194C. 1.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the contracts in question were contracts for supply of equipments and not a contract for carrying out any work and hence the provisions of section 194C are not applicable thereto and the stand taken by the Assessing Officer in this regard is misconceived, incorrect and erroneous and the Commissioner of Incometax (Appeals) ought to have held as such. 1.3 The Appellant submits that the impugned order passed by the Assessing Officer treating it as an 'assessee in default' be struck down as bad in law. 2:0 Re: General 2.1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or....
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....oint responsibility contract. However, with single point responsibility two separate contracts, one for design, engineering, manufacture, testing at works, supply and the other for installation, erection, testing and commissioning of main plant comprising of steam generator, steam turbine generator and other associated auxiliaries and balance of plant equipment for Khaparkheda TPS expansion project 1x500W covering completely the scope of work specified in the accompanied specification forming completely coordinated and engineered main plant package all in accordance with the specifications as detailed out in the various sections of this bid document." 3.5 The AO has considered the provisions of section 194C of the I.T. Act and held that there was a works contract between the appellant - Mahagenco on the one hand and BHEL and BGR Systems on the other hand. The supply contract and that of erection were in essence a composite contract, which attracted the provisions of section 194C. The AO has thus levied an interest u/s 201(1A) of Rs. 96,88,494/-, Rs. 2,89,56,270/- and Rs. 13,10,98,180/-. 4. Before the learned CIT(Appeals) the assessee raised common grounds for all the three ye....
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....ard of the contract, the responsibility of the contractor for the successful completion of the plant/equipment as per specification and a breach in one contract shall automatically be construed as a breach of other contract which will confer a right on the owner to terminate the other contract also at the risk and the cost of the contractor." 5. Considering the above, learned CIT(Appeals) agreed that the entire spectrum of activities from supply of equipment to erection and commissioning of BTG with BHEL and BGR Systems have the elements of a composite contract. Learned CIT(Appeals) observed that the intention of the Mahagenco is to "put up" a power plant as specified in the bid document. That the contract was awarded to BHEL to set up the BTG plant. BHEL is a public sector enterprise which is engaged in engineering and manufacturing in the power sector. In respect of the BTG contract dated 27-062007 with BHEL, AO has pointed out that although the supply of machinery was by terms of a separate contract there were no explicit clauses regarding transfer of title of machinery. That on the contrary, the AO has observed it was only from date of successful completion of the trial oper....
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....ted the reliance of the assessee's counsel on the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Glenmark Pharmaceuticals Ltd. 324 ITR 199. Learned CIT(Appeals) proceeded to conclude as under : " The appellant's case is that there is no "construction" of a power plant. Rather the activity falls within the ambit of 'works' contract. As the supply of equipment was not from the customer, tax had to be deducted only on the erection, commissioning and testing contract. However, as discussed in para 6.4 above the contracts entered into the appellant can be held to be composite construction contracts. It is further clear that a construction contract is outside the purview of clause (e) of Explanation (iv) to section 194C. It is also the appellant's argument that the contractor has not sourced the material from a person other than the customer and the contractor itself has supplied the equipment to put up the power plant as per the terms of the customer. As pointed out by the A.O. and as evident from the explanatory notes to the amended section 194C, this was a clarification introduced in respect of outsourcing contracts. Appellant has itself stated ....
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.....2,09 ,06,11,083/- 2009-10 Rs.324,51,97,895/- Rs.307,19,33,656/- I, therefore, uphold the findings of the A.O. that interest is leviable u/s, uls.201(IA) of LT.Act. As regards the additional ground raised for A.Yr.2010-11, the appellant has pointed out that the recipient BGR Energy System India Ltd. and BHEL have already made payments of advance tax on the amounts received by them. Therefore, they are not liable to TDS on the said payments. This ground is covered in favour of the appellant by the decision of the Hon'ble Supreme Court in the case of M/s. Hindustan Coca Cola Beverage Pvt.Ltd. vs. CIT 293 ITR 226, the Hon'ble Supreme Court has held as follows: "Be that as it may, the circular No. 275/201/95-IT(B) dated 29.01.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under section 201 (1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest....
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....wer Transmission Corporation Ltd. vs. ITO (2011) 11 taxmann.com 313 (Bang.- ITAT). Learned counsel contended that these case laws are applicable and fully support the case of the assessee. 12. Learned counsel further referred to the decision of Hon'ble Gujarat High Court in the case of Essar Oil Ltd. vs. ITO and submitted that the same was distinguishable on facts and hence not applicable. 13. Per contra learned D.R. relied upon the orders of the authorities below. 14. We have carefully considered the submissions and perused the records. 15. First we deal with the additional ground adjudicated by the learned CIT(Appeals).(This is not applicable to ITA 113). In the additional ground learned CIT(Appeals) has held that the assessee has claimed that the recipients BGR Energy System (India) Ltd. and BHEL have already made payment of advance tax on the amount received by them. Therefore, they are not liable to TDS on the said payment. In this regard learned CIT(Appeals) concluded that this ground was covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage P. Ltd. vs. CIT 293 ITR 226. Learned CIT(Appeals) held t....
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....in the case of CIT vs. Karnataka Power Transmission Corporation Ltd. [2012] 21 taxmann.com 473 (Kar.). We may gainfully refer to the expositions of the Hon'ble High Court as under : "FACTS The assessee was a State Government Public Sector company carrying on business of transmission of electricity from the electricity generating point to various electrical sub-stations in the State through its network of transmission lines and sub-stations. It had entered into contract agreements on total turnkey basis or partial turnkey basis with various contractors for setting up of its electrical sub-stations. In total turnkey contracts, the contractor was required to establish electric sub-stations and lines using his own material including the electrical transformer, whereas in partial turnkey contracts, the assessee supplied electrical transformer while contractor used his own other material to execute the contract. In total turnkey contract, as the contractor used his own transformer, value of supply portion was higher and in partial turnkey contract, value of supply portion was relatively lower as transformer was supplied by the assessee. In either event, 80 to 85 per cen....
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....ever, clause 3.5 of the proforma of contract agreement makes it clear that notwithstanding the fact that three separate contracts have entered into, all the three are integral parts of the composite contract on single sole responsible basis. The contractor is bound to perform the total contracts in its entirety. No performance of any part or portion of the contract would be treated as breach of entire contract. It is because of its inconsistent clause where at one place it is mentioned as three separate agreements and at other place all the three are referred to as the composite agreement, that in order to clarify what exactly the parties meant it become necessary to introduce clause 7.0 providing how the contract is to be construed. Clause 7.1 expressly state that notwithstanding anything stated elsewhere in the bid documents, the contract to be entered into would be treated as divisible contract resulting in three separate contracts, one for supply of goods, the second for erection and the third for the civil engineering works covering the entire scope of the partial/total turnkey package. Therefore, the intention is clear. There is no ambiguity in the language. The contract that....
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....lause (e). [Para 13] When the statute was amended to clarify the word 'work' under section 194C by introducing the aforesaid clause, it is obvious that the amendment is only clarificatory in nature and, therefore, it is retrospective. The Parliament did not intend to change the law because of conclusion which resulted in litigation. The Parliament thought it fit to clarify by way of amendment so that the litigation could be avoided. In view of the aforesaid clarification and the statutory provision, it is clear that 'work' did not include manufacturing or supplying a product according to the requirement upon specification of a customer by using raw materials purchased from a person other than such customer, as such a contract is a contract for sale. Further, it is also clarified that TDS shall be deducted on the invoice value excluding the value 0) material purchased from such customer, if such value is mentioned separately in the invoice. It is only in cases where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. Therefore, whatever ambiguity which prevailed earlier is clarifie....
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....r the contract would not come to an end. That the moment the machinery and the material is supplied under the agreement of supply the obligation of contract continues till the work extended to them is complete. The Hon'ble High Court has expounded that this by itself would not make it to a composite contract. It is clearly expressed in the contract how the contracts have to be construed. 21. Upon careful consideration of the facts and circumstances of the present case, in our considered opinion, the same is identical to the issue dealt with by the Hon'ble Karnataka High Court as above. Learned D.R. could not point out any feature in the contract in the present appeal whether distinguish it from the facts mentioned in above appeal dealt by the Hon'ble High Court. Hence following the above decision, we hold that the contract of supply of material is a separate distinct contract and on which no deduction is permissible u/s 194C. 22. Similar view was expressed by Hon'ble Karnataka High Court in the case of CIT vs. Executive Engineer in I.T. Appeal Nos. 92 to 97 of 2014 vide order dated August 18, 2015. The Hon'ble High Court in para 7 and 8 of the above decision has held as under....
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....anufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. Now we examine the factual matrix of the present case on the anvil of aforesaid provisions. In the present case it is undisputed that the assessee in this case in carrying out the work assigned has not used any material source from the customers. Learned CIT(Appeals) has not disputed this proposition. However, learned CIT(Appeals) has held that relevant clause of the Explanation is applicable only in the context of manufacturing or supplying a product. Learned CIT(Appeals) has referred to the dictionary meaning of "manufacturing" and has observed that the setting up a power plant cannot be described by the word "manufacture". Learned CIT(Appeals) has further observed that erection of a power plant can be reasonably held to be an activity of construction. She held that the term "construction' is more suitable to the act of putting up a power plant than the term "manufacturing". 24. We find that the above distinction brought out by the learned CIT(Appeals) is not correct. On the contract for supply of material....