TaxTMI 
TaxTMI 
2017 (7) TMI 1199
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....ts and circumstances of the case, the ITAT was justified in law in upholding the order of CIT(A) deleting addition of Rs. 15,13,715/- on account of interest free loans to relatives?" 3. Counsel for the appellant contended that the tribunal has committed serious error in modifying the order of assessing officer on the first issue inasmuch as while considering the issue AO observed as under:- "The appellant, however, failed to make up this deficiency even during the appeal proceedings. In this view of things, disallowance of Rs. 3,65,249/-, being cash refund of fees for which the appellant failed to provide necessary and sufficient evidence, is confirmed. Ground 3 (f) is dismissed." 4. She contended that the tribunal has seriously committed error in allowing the same and wrongly observed as under:- "Considering the above submissions, we concur with the contention of the learned A/R that without conducting independent enquiry in the matter particularly when complete details of students and refund of fees to them maintained by the assessee were made available to the AO, the AO was not justified in disallowing the claimed refund to the extent that it was paid in ....
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....ly, the raw material for the manufacturing of such packing material was not supplied by the respondent. Thus, it was a case of sale and not a contract for carrying out any work. In the case of CIT v. Dabur India Ltd. , the Hon'ble Delhi High Court held that printing labels on corrugated boxes did not require any special skill or involve any confidence or secrecy and the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of Section 194C of the IT Act, 1961. In BDA Ltd. v. ITO , (the Hon'ble Bombay High Court) held that if a manufacturer purchases material on his own and manufactures a product as per the requirement of a specific customer, it is a case of sale and not a contract for carrying out any work. The fact that the goods manufactured were according to the requirement of the customer does not mean or imply that any work was carried out on behalf of that customer." 3. Commissioner of Income Tax vs. Girnar Food and Beverage P. Ltd. (2008) 306 ITR 23 (Gujarat) "As can be seen from the impugned order of the Tribunal, the facts are not in dispute. The as....
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....er for a price. Where under a contract of sale, the property in goods is transferred from the seller to the buyer, the contract is that of sale, but where transfer of property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is not a sale but is an agreement to sell. A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of the offer. Under Section 5(1) the contract may provide for immediate delivery of the goods or immediate payment of the price or postponement of delivery or payment of the price by installments.21. Broadly speaking, three situations are involved in the manufacture of pharmaceutical products. In the first situation, the pharmaceutical company itself manufactures pharmaceutical preparations which are sold under its brand name. The second situation involves loan licensing where the raw materials are supplied by the pharmaceutical company to the licensee manufacturer who in turn manufactures a pharmaceutical product on behalf of the Company. The third situation is one where by an agreement between a pharmaceutical company and a manufacturer, it is the manufacturer....
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....er has undertaken not to sell or supply the products which are to be manufactured for the assessee to any third party or to undertake the manufacture or sale of similar products to any third party. The assessee is entitled to inspect the facility and to approve the goods manufactured. The manufacturer is required by the terms of the agreement to affix the trademark of the assessee on the products manufactured, subject to the obligation not to use the mark upon the termination of the agreement. On the termination of the agreement or cessation the licences have to be surrendered. 24. The submission that the contract is not a contract of sale because, specifications are provided to the manufacturer by the purchaser cannot be accepted. That has not been the understanding of the law at any point of time. The fact that the purchaser provides specifications to the manufacturer has never been construed even by the Revenue to be a circumstance which should lead to the inference that the contract is not a contract of sale. Firstly, the circulars issued by the Central Board of Direct Taxes right since 29 May, 1972 consistently took the position that furnishing of specifications to th....
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....uirements or specifications are provided by the purchaser is not regarded by the statute as being dispositive of the question as to whether a contract constitutes a contract of work or sale. What is of significance is whether material has been purchased from the customer, who orders the product. When the material is purchased from the customer who orders the product, it constitutes a contract of work while on the other hand, where the manufacturer has sourced the material from a person other than the customer, it would constitute a sale. What is significant is that in using the words which Clause (e) uses in the explanation, Parliament has taken note of the position that was reflected in the circulars issued by the Central Board of Direct Taxes since 29th May, 1972. The judgment of the Supreme Court in Associated Cement gave an expansive definition to the expression work and rejected the attempt of the assessee in that case to restrict the expression work to works contracts. Both before and after the judgment of the Supreme Court the expansive definition of the expression 'work' co-existed with the Revenue's understanding that a contract for sale would not be within the....
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....r to delivery. 32. The reason that a specification or requirement is enunciated by the assessee constitutes a matter of business expediency. A purchaser who desires to get the product, which he intends to sell under his brand name, or trademark, manufactured from a third party would be interested in ensuring the quality of the product. The trade-mark has associated with it an assurance of the quality of the goods which are marketed traceable to the origin of the goods. Associated with the trade-mark is the goodwill and reputation which is associated with the mark. This is particularly so in the case of a pharmaceutical product where the ultimate consumer is legitimately entitled to ensure that her health is not prejudiced by the consumption of a product not meeting prescribed standards. The owner of a mark, therefore, introduces specifications to ensure that the product meets the standards justifiably associated with the reputation in the mark. The specification ensures the observance of standards. Similarly, a clause relating to exclusivity is not inconsistent with a transaction of sale. Here again, much depends upon the nature of the product. Restrictive covenants of thi....
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....inition of "work". It is further proposed to provide that in such a case TDS shall be deducted on the invoice, value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. 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 though 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 TDS shall be deducted on the invoice value excluding ....
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....rks" between the contractor and specified person. The work is also defined to exclude the situation where the material is not supplied by the assessee. In view of the specific definition of work, it is to be held that contract amounts to sale and not works contract. The fact that Clause (a) the definition of work was amended subsequently and not in the statutory book for the relevant years in question would not be of consequence because of the ratio laid down in KPTCL's case. The definition is clarificatory in nature. In that view, the question of law is answered against the revenue. The appeals are dismissed." 7. Commissioner of Income Tax vs. Spice Telecommunications (P.) Ltd. (2014) 369 ITR 72 "In the present cases, admittedly, the assessees did not supply any material whatsoever to the manufacturer/supplier for the supply of SIM/scratch cards as per their requirement or specification and therefore, the transaction cannot be treated as a contract for carrying out works within the meaning of the word "work" used in sub-section (1) of Section 194C of the Act, before its amendment. After the amendment, it is clarified that the definition of the word "work" wil....
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....d under Section 36(1)(iii) of the Act. In Madhav Prasad's case (supra), the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named. It was held by this Court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. Thus, the ratio of Madhav Prasad Jantia's case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under Section 36(1)(iii) of the Act. 18. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. It has been repeatedly held by this Court that the expression "for the purpose of business" is wider in scope than the expression " for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. , CIT v. Birla Cotton Spinning & Weaving Mills Ltd. etc." 2. Hero Cycles (P) Ltd. vs. Commissioner of Income Tax (Central), Ludhiana (2015) 379 ITR 347 "13. In t....
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....en proved by the assessee that it had trade transactions with persons to whom advances are made, then in our opinion, looking to the commercial and business expediency, one is not required to charge the interest. The assessee is to manage its own affairs looking to the commercial/business expediency and decide whether to charge interest or not. 21. In view of above facts and circumstances of the case, the Tribunal has correctly come to the conclusion that the interest was rightly allowable on the basis of the facts found and which have been referred to hereinabove. We do not find any question of law much less substantial question of law which could be said to emerge out of this case. We find no illegality or perversity in the impugned order." 4. The Commissioner of Income Tax-7 vs. Reliance Communications Infrastructure Ltd. (2012) 260 CTR 159 (Bombay) "9. In S.A. Builders, the Assessing Officer had observed that the assessee had transferred a certain amount to its subsidiary out of a cash credit account in which there was a debit balance. The Assessing Officer found that the assessee had diverted its borrowed funds to a sister concern without charging an....
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....or for making advances to Reliance Industries Ltd. But independent of that, in view of the decision of the Supreme Court in S.A. Builders what is significant is as to whether the investment and the advances made were commercially expedient and for the purpose of business. In this regard, the assessee had pointed out before the CIT(A) that it is engaged in the business of providing telecommunication infrastructure which mainly consists of a Pan India Fibre Optic Network. Reliance Infocomm Ltd. is a wholly owned subsidiary of the assessee which is engaged in the business of providing telecommunication services. The assessee made investments in the equity shares of its subsidiary and claimed that this was with a view to provide integrated telecommunication services. The case of the assessee was that those investments were to ensure the utilization of the telecommunications infrastructure of the subsidiary and was a strategic investment for furthering business prospects in the area of providing telecommunication services. As regards the advance which was made by the assessee to Reliance Industries Ltd. (RIL) the assessee pointed out to the CIT(A) that it was required to import equipmen....
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.... funds borrowed are not utilised for the purposes of both the transactions. But quite apart from that, the finding is 4 Compact Oxford Reference Dictionary pages 11 and 436 that the funds were deployed as a matter of commercial expediency and to further the business of the assessee. The latter finding is independent of whether borrowed funds were or were not utilized, for in view of the judgment of the Supreme Court held, the fact that borrowed funds were utilized for making investments or, as the case may be, for making advances would not disentitle the assessee to the deduction so long as business expediency exists. Consequently, we answer the questions of law as framed in the affirmative. The appeal shall accordingly stand disposed of. There shall be no order as to costs." 5. Bright Enterprises Pvt. Ltd. vs. Commissioner of Income Tax- (1016) 381 ITR 107 (P&H) "9. Whether the amount of Rs. 10.29 crores was debited to the account of the sister concern in respect of the payment made under Clause 3.3(b) of Article 3.1 of the share purchase agreement or whether the amount was actually paid to the sister concern and used by it for the purpose of business, is immater....
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....zed representative and that despite the same the appellant failed to establish the same. 18. In the circumstances, the question of law is answered in favour of the appellant and against the department. The order of the Tribunal is set aside. The appellant shall be entitled to the deduction under Section 36(1)(iii)." 6. Commissioner of Income Tax-2 v. Tata Chemicals Ltd., (2016) 75 Taxmann.com 228 (Bombay) "Re. Question (4) (a) The impugned order of the Tribunal has allowed the Respondent Assessee's appeal before it on the issue raised herein by following its decision rendered in respect of the same Respondent Assessee for the Assessment Year 1985-86. (b) The grievance of the Revenue before us is that the interest attributable to interest free advance of funds made to its subsidiaries out of interest bearing funds cannot be allowed as a deduction u/s 36(1)(iii) of the Act in view of the decision of this court in Phaltan Sugar Works Ltd. v. CWT (1994) 208 ITR 989/72 Taxman 325 (Bom.). This reliance upon the decision of this Court in Phaltan Sugar Works Ltd. (Supra) is of no avail as it has been overruled by the Apex Court in S.A. Build....