TaxTMI 
TaxTMI 
2019 (12) TMI 1184
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....der :- 1. For that the grounds of appeal hereto are without prejudice to each other. 2. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is bad both in law and on facts. 3. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is based on presumption, surmises and conjectures. 4. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is further violative of the settled principles of natural justice in as much as no opportunity much less adequate opportunity was ever afforded to the appellant to furnish its defence in course of assessment proceedings. 5. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is wholly perverse in as much as the same are contrary to and at variance with the materials available on record. 6. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the two separate and distinct contracts, one in relation to supply of goods and the other in relation t....
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....ether the deductor assessee is following TDS provisions as per chapter VIII B of the I.T.Act. During the course of survey operation, the statement of Sri Anurag, Deputy General Manager(Accounts) was recorded on 09.11.2017. Thereafter a show cause notice was issued on 06.11.2017 to furnish the explanation on 22.11.2017. On behalf of the assessee company, Shri Anurag, Dy. G.M.(Accounts) and Sri Alok Kumar, Sr. Manager (Finance) of the deductor assessee appeared and it was brought to the notice of AO that from the perusal of tender documents floated by the assessee company it is observed by the AO that the assessee company had made composite contract. The scope of the work is that the work is to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture's quality assurance, transportation, storage, erection including all civil/structural works, site testing commissioning of all items and supply of materials including all associated activities though not exclusively specified herein and are required for completion of the entire works. In this regard, Sri Alok Kumar, Sr. Manager (Finance) submitted the written explanation as under :- ....
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....of the employer. It implies that supply of materials and equipments are closely associated with the portion of erection works. Hence, the supply works cannot be segregated from the erection portion works. Thus, in view of the above the contract is composite in nature and is basically a work contract. Accordingly, the AO noted that the assessee has not deducted tax at source on supply of materials as per the provisions of Section 194C of the Act, therefore, he treated the assessee as 'assessee-in-default' u/s.201(1)/201(1A) of the Act for not deducting of tax under section 194C of the Act and passed order u/s.201(1)/1A of the Act, dated 23.11.2017. 5. Feeling aggrieved from the above order of AO, the assessee appealed before the CIT(A), wherein the assessee submitted its written submissions, however, the CIT(A) after considering all the submissions of the assessee and facts available before him and relying on the case laws submitted by the assessee, held that it was a composite contract and the assessee should have deducted TDS. The relevant observations of the CIT(A) are as under :- I have carefully considered the assessment order, the submissions of the app....
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.... its defense , the appellant assessee has placed heavy reliance on the decision of the Hon'ble Apex Court in the case of Hindustan Coca Cola Beverages [2007] 293 ITR 226 [SC] and CBDT's Instruction dated 29.01.1997 to make a case for non-deduction of tax at source. It has also stated that as per CBDT's instruction dated 29.01.1997 and the decision of the Hon'ble Apex Court, it would suffice if the deductee considered the receipts in its books and files ITR with the Department. This, according to the appellant would also be in keeping with the provisions of Section 201 [1] of the Income Tax Act, 1961. The appellant, while advancing this alternative argument, has also cited the following decisions in his favour to aver that in the light of these judgments, it cannot be held as an 'assessee in default':- [i] Power Grid Corporation of India ltd. Vs. CIT[TDS], Patna CWJC No.8472/2013 [Patna] [ii] DCIT[TDS] Vs Sahara India Commercial Corporation Ltd. [2017] 395 ITR 734 [Allahabad] [iii] ITO Vs. Secretary, KUMS, Chhabra, ITA No. 342, 343 & 344 of 2013 [Jaipur] [iv] Haldia Petrochemicals Ltd. Vs. DCIT, ITA No.66/2014 [Kol....
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....as payable and that in a case where the Act itself did not provide for levy of tax the deductor not be said to be an assessee in default. The averments of the appellant assessee have been carefully considered. It is an admitted fact that the appellant assessee has failed to make TDS in all the cases. It is also a fact that in some of the cases the deductees have filed their ITRs and have offered the receipts from the appellant assessee as their income and have paid taxes thereon. At the same time, it is also true that in a significant number of cases, neither TDS has been made nor taxes have been paid by the deductees on their own. The contention of the appellant that in its case the ratio of Hindustan Coca Cola Beverages, as expounded by the Hon'ble Apex Court, is applicable which comes to its aid in the given set of facts and circumstances is only partially true. While there is no denying the fact that the decision in the Coca Cola case [supra] is the law of the land but the said needs to be seen in proper perspective and in its entirety. The Hon'ble Apex Court while considering the recovery of taxes imposed u/s 201 in the light of the fact that the dedu....
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.... satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.] [(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,- (i) at one percent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:] [Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited....
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....e conditions have been partially met, the deductor is liable to be charged interest u/s 201 [1A] of the Income Tax Act, 1961 for the intervening period of default. The intention behind the introduction of the proviso was to clarify the TDS provisions and attendant eventualities arising out of its compliance. To be precise, the Explanatory Memorandum, appended to the Finance Bill, 2012 is quoted hereunder. - I. Deemed date of payment of tax by the resident payee Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191. of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore the deductor cannot be treated as assessee in default in respect of non/short deduction of....
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....ed purely on the facts and circumstances of its case. Let us now consider the decisions cited by the appellant assessee in support of its contention. [i] In the case of Power Grid Corporation of India ltd. Vs. CIT[TDS], Patna CWJC No.8472/2013 [Patna], the facts were that in spite of due taxes being paid by the appellant which was also filing its ITRs regularly and being assessed by the Department, the deductor had made TDS. The Hon'ble Court held it to be 'double jeopardy' and a refund was ordered. On facts alone, the case of the appellant assessee is distinguishable. The deductees have not filed their ITRs or paid taxes on income received from the appellant. Hence, this citation does not aid the case of the appellant assessee. [ii] The decision in DCIT[TDS] Vs Sahara India Commercial Corporation Ltd. [2017] 395 ITR 734 [Allahabad] too, stands on a different footing altogether. In this case, the Hon'ble ITAT had remanded the case back to determine as to whether the deductees were liable to pay any tax which was being contested by the Department before the Hon'ble Allahabad High Court. There is no such instance in the present ....
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....ii) payment of tax on such income. Only if all the three conditions are satisfied, would the beneficial provision be applicable to an assessee who failed to deduct tax at source. In the present case, admittedly, resident-receiver to whom the assessee paid or credited the lease rent has filed a return belatedly and not paid any tax due on the income declared. When there is no tax paid on the income declared; even if for reason of a loss return, there cannot be any claim raised by the assessee in default to absolve him from the consequences flowing from sections 201(1) and 40(a)(ia). He will then be treated as an 'assessee in default' and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed. In the light of the above discussion it is held that the assessee is liable to deduct TDS on both the contracts, supply and execution, as the nature of the two is composite. Further in the light of the clarity emerging from the decision of the Hon'ble High Court of Kerala in the case of 'The Academy of Medical Sciences' Vs. CIT, Kannaur, as reported in [2018] 403 ITR 74 (Kerala), the assessee is to be treated as an 'assessee in d....
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....rying out any work the question of deduction of tax at source would not arise. The ld. AR also submitted that the Central Board of Direct Taxes in its circular has clarified that no deduction of tax at source is to be made in respect of supply of goods. It was also the contention of ld. AR that in the present case the contractor has supplied goods pursuant to the award of a contract according to the specification given. Further it was stated that it has imported such goods into the State of Bihar on the strength of esuvidha permits and also paid Entry Tax thereon. The ld. AR also submitted that factum of payment of Entry Tax show that the assessee at the point of delivery itself is the owner of goods. The assessee stated that the same represents purchases and is accounted as such and after the receipt of goods and its certification by its qualified engineer that the goods imported are as per the specifications and do not suffer from any defect it hands it over to the contractor for using them in erection. Therefore, ld. AR submitted that the supply of equipment are a separate and distinct the same falls outside the purview of section 194C of the Act. Ld. AR also placed reliance ....
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....se of Karnataka Power Transmission Corporation (supra). The ld. AR also stated that it had in its previous submission also stated that it had paid Entry Tax on Entry of such goods into the State of Bihar and had also generated e-suvidha declaration as prescribed under the Bihar Value Added Tax Act, 2005 in respect of Entry of such goods into the State of Bihar. Further, the it was submitted that in this view of the matter it is in fact the owner of the goods which it parted with after receipt thereof in favour of its contractors for undertaking the installation and commissioning of the project. It was also submitted that in case the issue as to whether fax is deductible is answered in the affirmative the liability to pay interest under section 201(1A) of the Act would be consequential. Finally, ld. AR of the assessee submitted that the issue as to whether an assessee in default on account of his failure to deduct tax at source on the contract for supply of goods has been answered in the affirmative, particularly, in view of the judgment of the Hon'ble Supreme Court of India in the case of Hindustan Coca-Cola (supra); the legislative amendment in section 201 of the Act and the l....
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....tender documents floated by the above assessee it was observed that it had entered into composite contract with the contractors. The scope of the work included the work to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture's quality assurance, transportation, storage, erection including all civil/structural work, site testing, commissioning of all items and materials including all associated activities though not exclusively specified herein and were required for completion of the entire work. It was further observed that it had awarded contracts to specific persons for supply of materials and erection thereof for a particular job. Apart from this it is reiterated in the tender document as well as the letter of award that both these contracts contained Interlinking cross fall breach specifying that breach of one contract would constitute breach of other contract. Thus, it was assumed that even though it had awarded composite contract, but had deducted TDS on the erection part of the contract works only. It failed to deduct tax at source on the supply portion of the contract value which was integral part of th....
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....th its operational manual is only given. That is not the case here as the scope of the contract includes design, engineering, manufacture, type testing, and training of power grid personnel and supply of, goods. Further, as per the conditions of the supply of contract, the contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, subassemblies and raw materials or any other items used and it is clearly mentioned that no separate claim on these duties will be entertained by the contractors. Clearly it is a composite package, which does consist of material also. But the entire package is inseparable and is accordingly to be considered as 'Rendering of one single service.' It is an executory contract and the agreements entered into between the assessee and the contractors were basically for carrying out work as per the specifications of the assessee. From various covenants of the contract and by reading the contracts as a whole, it is clear that the contract entered into by the NBPDCL with its contractors is not merely a supply contract but that of a works contract of composite in nature and any paymen....
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.... the point of unloading upto the time of taking over by the NBPDCL including handing, transportation, storage, erection, testing & commissioning etc. The premium shall be paid to the insurance company by the Contractor. It will be the responsibility of the contractor to lodge, peruse and settle all claims with the insurance company in case of any damage, loss theft, pilferage, fire etc. and NBPDCL will be kept informed about it. The contractor shall be responsible for the replacement of losses, damages etc. in the execution of the contract to any equipment/materials either supplied by them or received by them from NBPDCL irrespective of the time of receipt of amount on insurance claim. Any loss on this shall be to the contractor's account. The contractor shall be totally responsible with regard to maintenance of all insurance cover. (Kindly refer to Annexure- 2) Order for supply of equipment and erection, testing and commissioning are being placed on two separate contracts i.e. first contract for supply and second contract for erection and civil works. However, both these orders/contract shall contain interlinking breach clause specifying that breach ....
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....e same for erection, if is not a contract of sale and Section 194C is applicable. On the contrary the contractor was required to submit all bills as per actual work done with proper item wise accounting for material supply erection and asset created has to be maintained. In view of the above the contract was treated as composite in nature. Accordingly, the assessee deductor was treated as an assessee in default u/s 201(1)/1A of Income-tax Act 1961 for not deducting of tax under section 194C of Income-tax, Act 1961. On the basis of the above, orders u/s 201(1)/(1A) were passed on 23/11/2017 by the A.O for the F.Y. 2013-14 to 2016-17 and demand notice was served upon the assessee. Further, the above assessee deductor filed appeal against the order of A.O before Ld. Commissioner of Income-tax (A) who vides his order dated 06-10-2018 in No. ITBA/APL/S/250/2018-19/1012849501(l) has confirmed that the AO was correct in holding the said contract as composite one. Accordingly the effect of above appellate order of Ld CIT (A) in No ITBA/APL/S/250/2018-19/1012849501(l) dt. 06-10-2018 was passed & served on the deductor assessee along-with the fresh modified demand ....
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....t be sufficient to treat an assessee as assessee in default for non- deduction of TDS u/s 194C and the entirety of the facts has to be taken into consideration in order to reach at a proper conclusion. In view of the aforementioned analysis of the contract details analyzing the totality of the facts and circumstances it is logically concluded by the A.O as "Composite Contract" which is further confirmed by the LD. CIT (A) after discussing thread bare on merit. In addition to the above submissions, ld.DR also submitted that both the authorities below have rightly held that the assessee to be treated as assessee-in-default and liable to pay the amount of TDS with interest on the amount of supply of materials which was part and parcel of the composite contract. The supply of material cannot be segregated with other contracts. 9. After hearing both the sides and perusing the entire material available on record, we find that the CIT(A) while dealing with the issue has observed that the deductees have neither filed their ITRs nor taxes have been paid. Even if it is taken that the deductees were incurring losses, the primary condition of filing of ITR has to be made so that the depa....
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....portion of erection works. Hence, the supply works cannot be segregated from the erection portion works. Thus, in view of the above the contract is composite in nature and is basically a work contract. We observed from the work award agreement that the supplier shall note that the total price of the contracts is the accepted price for carrying out the contract as per terms and conditions and thus the billing break up that will be issued from time to time against any of the contracts in future, will only meant for regulating the payments based on completed supplies/works. Therefore, the award of separate contracts shall not in any way dilute the responsibility for successful competition of the facilities, achieving the guaranteed performance of the erection/installation, proper O&M of the erection/installation after final acceptance by the corporation, etc as per the tender specification and a breach in one contract shall automatically be construed as a breach of the other contracts which will confer a right on the corporation to terminate other contracts also at the risk and the cost of the supplier. 10. Regarding the closure of projects, the contract mentioned the following cla....
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....assessed income becomes finally the taxes due from deductee. Therefore, if finally assessed income of deductee is positive and tax demand is created on it thhen deductor has to pay interest under Section 201(1A) till the demand is not paid by the deductee." 4. In all these appeals, question relates to liability of interest of Assessee under Section 201(1A) of Income Tax Act, 1961 (hereinafter referred to as the "Act, 1961"). On this aspect, Tribunal has recorded its finding as under:- "Before the lower authorities, except contentions of the assessee, no evidence was placed to substantiate that the recipient, M/s Sahara Airlines Ltd. has suffered loss in all the impugned assessment years. Though it was specifically claimed before us that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, but no evidence was placed. Therefore, it cannot be conclusively held that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years and there was no tax liability on the receipts at any point of time. Thus, this fact requires verification by the Assessing Officer. If it is e....