ITO, Hyderabad V. M/s Zorac Technologies Pvt Limited, Hyderabad

ITA 1031/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66117 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 22-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: P PRASAD
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1031/HYD/2010 ASSESSMENT YEAR: 2007-08 THE INCOME TAX OFFICER, APPELLANT WARD 3(2), HYDERABAD. VS. M/S ZORAC TECHNOLGIES PVT. LTD., RESP ONDENT HYDERABAD. (PAN AAACZ 1562 D) APPELLANT BY : SHRI NIVEDITA BISWAS RESPONDENT BY : SHRI P. PRASAD DATE OF HEARING : 06/06/2012 DATE OF PRONOUNCEMENT : 03/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-IV, HYDERABAD DATED 25/05/2010 FOR THE ASSESSMENT 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD PAID RENT OF RS. 1,45,200/- TO ONE SMT. B. POOR NA. SINCE NO TAX WAS DEDUCTED AT SOURCE IN ACCORDANCE WITH TH E PROVISIONS OF SECTION 194I, THE AO DISALLOWED THE EXPENDITURE U/S 40(A)(IA) OF THE ACT. 3. FURTHER, IN THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF THE SUNDR Y 2 ITA NO. 1031/HYD/2010 M/S ZORAC TECHNOLOGIES PVT. LTD. CREDITORS. THE AO NOTICED THAT AN AMOUNT OF RS. 15, 47,378/- WAS OUTSTANDING TO ONE M/S SURYA GRAPHICS, HYDERABA D, AGAINST THE TOTAL BILL AMOUNT OF RS. 25,47,378/-. I T WAS STATED THAT M/S SURYA GRAPHICS HAD DONE THE PRINTIN G WORK OF TEXT BOOK SOLUTIONS AND AUDIO VISUAL SOLUTIONS F OR THE ASSESSEE COMPANY. THE AR OF THE ASSESSEE SUBMITTED A LETTER FROM M/S SURYA GRAPHICS CONFIRMING THE OUTST ANDING BALANCE OF RS. 15,47,378/- ALONG WITH A COPY OF THE TAX INVOICE ISSUED BY SURPYA GRAPHICS. THE AO NOTED THA T THOUGH THE LETTER MENTIONS OF SALE MADE, IT IS CL EAR FROM THE TAX INVOICES ENCLOSED THAT THE ASSESSEE COMPANY HAD GIVEN PRINTING ORDER TO SURYA GRAPHICS AND THE SAID ORDER WAS EXECUTED AS PER THE SPECIFICATIONS AND MATTER G IVEN BY THE ASSESSEE COMPANY. THESE PRODUCTS WERE PRINTED O NLY FOR THE ASSESSEE COMPANY. THE AO, THEREFORE, WAS OF THE VIEW THAT IT WAS CLEARLY A CASE OF CONTRACT WORK ON WH ICH TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE U/S 194C. HOWEV ER, NO TAX WAS DEDUCTED AT SOURCE AS PER THE INFORMATION F ILED BY THE ASSESSEE COMPANY AND ALSO M/S SURYA GRAPHICS. H ENCE, THE AO DISALLOWED THE AMOUNT OF RS. 25,47,378/- U/S 40A(IA) OF THE ACT, BEING THE AMOUNT PAID FOR CONTRACT WOR K ON THE GROUND THAT THE ASSESSEE HAD NOT DEDUCTED THE TAX A T SOURCE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 194C O N THE SAID AMOUNT. AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE CIT(A). 4. AS REGARDS THE RENT OF RS. 145,200/- PAID BY THE ASSESSEE TO ONE SMT. B. POORNA, BEFORE THE CIT(A) T HE AR OF THE ASSESSEE SUBMITTED THAT THE LAND LADY SMT. B. P OORNA IS AGED ABOUT 70 YEARS AND THAT SHE HAD REQUESTED, BY WAY OF LETTER DATED DT 06/1/06, THE ASSESSEE NOT TO DEDUC T TAX 3 ITA NO. 1031/HYD/2010 M/S ZORAC TECHNOLOGIES PVT. LTD. SINCE HER TAXABLE INCOME IS BELOW THE PRESCRIBED LI MITS KEEPING IN VIEW THE BENEFITS AVAILABLE TO SENIOR CI TIZENS. THE CIT(A) RELYING UPON THE DECISION OF THE HYDERBAD BE NCH OF ITAT IN THE CASE OF M/S TEJA CONSTRUCTIONS AND OTHE R DECISIONS DIRECTED THE AO TO VERIFY AS TO HOW MUCH OF THE TOTAL RENT PAYMENTS OF RS. 145,200/- HAD REMAINED PAYABLE AS ON 31/03/2007 AND RESTRICT THE DISALLOWANCE U/S 40(A)(IA) TO THAT EXTENT ONLY. 5. AS REGARDS THE DISALLOWANCE OF RS. 25,47,378/- O N ACCOUNT OF PAYMENT TO M/S SURYA GRAPHICS, THE LEARN ED AR OF THE ASSESSEE BEFORE THE CIT(A) SUBMITTED THAT DU RING THE YEAR THE ASSESSEE HAD GOT PRINTED SOME OF ITS EDUCA TIONAL MATERIAL AND AUDIO VISUAL SOLUTION CDS THROUGH M/S SURYA GRAPHICS. IT WAS SUBMITTED THAT M/S SURYA GRAPHICS HAD SUPPLIED THE BOOKS AND OTHER MATERIAL BY RAISING IN VOICES, WHICH INCLUDED SALES TAX @ 4% ON SUCH SALES/SUPPLIES MADE, WHICH DULY INDICATED THAT THE TRANSACTION IS PURELY A PURCHASE TRANSACTION BY THE ASSESSEE AND THAT THE P ROVISIONS OF SALE OF GOODS ACT WERE APPLICABLE. IT WAS AVERRE D THAT IN VIEW OF THE ABOVE, THE TRANSACTIONS DO NOT FALL WIT HIN THE PURVIEW OF CONTRACT, AS SALES TAX HAD BEEN LEIV ED IN THE INVOICES. FOR THIS PROPOSITION, THE LEARNED AR RELI ED ON THE DECISION IN THE CASE OF M/S MARUTI MOVIES, IN ITA N O. 861/864/HYD/06 DT. 05/06/09 WHEREIN THE ITAT TOOK T HE VIEW THAT THE AMOUNT PAID BY THE ASSESSEE WAS ONLY TOWARDS SALE OF GOODS BY THE LABORATORIES AS SALES TAX HAD BEEN CHARGED THEREIN, AND THEREFORE THE PAYMENT DID NOT FALL WITHIN THE AMBIT OF SECTION 194C. ATER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) EXAMINED TH E ISSUE WITH VARIOUS CASE LAWS INCLUDING THE DECISION OF TH E BOMBAY 4 ITA NO. 1031/HYD/2010 M/S ZORAC TECHNOLOGIES PVT. LTD. HIGH COURT IN THE CASE OF CIT VS. GLENMARK PHARMACE UTICALS DT. 10/05/2010 AND HELD AS UNDER:- 5.8 IF WE COMPARE THE FACTS OF THE APPELLANTS CASE IT CAN BE SEEN THAT THE AO CONSIDERED THE TRANSACTIONS OF THE APPELLANT WITH M/S SURYA GRAPHICS TO BE IN THE NATURE OF CONTRACT FOR WORK ON THE SOLE GROUND THAT THE BOOKS/CDS GOT PRINTED/PREPARED AS PER THE SPECIFICATIONS OF THE APPELLANT. IN THE LIGHT OF TH E ABOVE REFERRED DECISION OF THE HONBLE BOMBAY HIGH COURT IT IS CLEAR THAT THE CONTRACT BETWEEN THE TWO WAS IN T HE NATURE OF A TRANSACTION BETWEEN PRINCIPAL TO PRINCI PAL. IN VIEW OF THE PURCHASE ORDER PLACED BY THE APPELLA NT, THE SUPPLIER HAS PROCURED INPUT MATERIALS ON HIS OW N, WITHOUT SOURCING THEM FROM THE APPELLANT. THE SUPPL IER HAD MANUFACTURED THE ARTICLES IN ITS OWN ESTABLISHM ENT AND FINALLY AFTER BRINGING THE GOODS IN A SALEABLE FORM THE SAME WERE SOLD TO THE APPELLANT BY RAISING INVO ICES, WHEREIN SALES TAX WAS ALSO CHARGED AND THEREBY THE PROPERTY IN THE ARTICLES AS A WHOLE PASSED ON TO TH E APPELLANT. UNDER THE CIRCUMSTANCES, IT IS TO BE HEL D THAT THE APPELLANTS TRANSACTION WITH M/S SURYA GRAPHICS WERE IN THE NATURE OF PURCHASE TRANSACTION , WHICH AT BEST CAN BE CONSIDERED AS A CONTRACT FOR S ALE AND NOT A CONTRACT FOR WORK SO AS TO ATTRACT THE PROVISIONS OF SECTION 194C. IN VIEW OF THE ABOVE DISCUSSION, THEREFORE, THE ADDITION OF RS. 25,47,57 8 IS ALSO DELETED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL: 1) THE CIT(A) HAS ERRED IN LAW AND IN FACTS. 2) THE CIT(A) HAS ERRED IN DELETING THE ADDITION MA DE TOWARDS RENT AND PRINTING CHARGES AMOUNTING TO RS. 26,92,578/-. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE GOODS HAD BEEN SUPPLIED FOR THE CONSUMPTION OF APPELLANT ONLY. 4. THE CIT(A) ERRED IN CONCLUDING THAT THE MATERIAL PRINTED HAD WORTH FOR OTHER PERSONS IN THE MARKET. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF T HE 5 ITA NO. 1031/HYD/2010 M/S ZORAC TECHNOLOGIES PVT. LTD. AUTHORITIES BELOW. WE FIND FROM THE FACTS THAT THE WITH RESPECT TO PRINTING OF EDUCATIONAL MATERIAL, NO MA TERIAL HAS BEEN SUPPLIED BY THE ASSESSEE FOR PRINTING. THE MAT TER IS PRINTED BY THE PRINTER BY PROCURING THE MATERIAL FR OM HIS OWN SOURCES AND WORK IS DONE IN HIS ESTABLISHMENT B Y EMPLOYING HIS WORKERS. FOR THAT SALES TAX IS COLLEC TED ON THE BILLS AS THE PROPERTY IN THE GOODS IS PASSED ON DEL IVERY AND THERE IS PRINCIPAL TO PRINCIPAL RELATIONSHIP. THE T RANSACTION IS COVERED BY SALE OF GOODS ACT, AND DOES NOT COME UND ER THE CONTRACT ACT AND HENCE, THE PROVISIONS OF SECTION 1 94C ARE NOT APPLICABLE. 8. IN THE CASE OF GLENMARK PHARMACEUTICALS, 324 ITR 199, THE HONBLE BOMBAY HIGH COURT HELD AS UNDER:- III) THOUGH A PRODUCT IS MANUFACTURED TO THE SPECIFICATIONS OF A CUSTOMER, THE AGREEMENT WOULD CONSTITUTE A CONTRACT FOR SALE, IF (I) THE PROPERTY IN THE ARTICLE PASSES TO THE CUSTOMER UPON DELIVERY AND (I I) THE MATERIAL THAT WAS REQUIRED WAS NOT SOURCED FROM THE CUSTOMER / PURCHASER, BUT WAS INDEPENDENTLY OBTAINED BY THE MANUFACTURER FROM A THIRD PARTY; (IV) THIS POSITION IS NOW STATUTORILY RECOGNIZED IN EXPL. (E) TO S. 194C INSERTED BY THE FA 2009 TO PROVIDE T HAT THE EXPRESSION WORK SHALL NOT INCLUDE MANUFACTURE OR SUPPLY OF A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL WHICH IS PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER; 9. IN THE PRESENT CASE, THE FACTS ARE (I) THE AGREE MENT WAS ON A PRINCIPAL TO PRINCIPAL BASIS, (II) THE MAN UFACTURER HAD HIS OWN ESTABLISHMENT WHERE THE PRODUCT WAS MANUFACTURED, (III) THE MATERIALS IS REQUIRED IN TH E MANUFACTURE OF THE ARTICLE OR THING WAS OBTAINED BY THE MANUFACTURER FROM A PERSON OTHER THAN THE ASSESSEE AND (IV) THE PROPERTY IN THE ARTICLES PASSED ONLY UPON THE DELIVERY OF THE PRODUCT MANUFACTURED, AND HENCE, TH E 6 ITA NO. 1031/HYD/2010 M/S ZORAC TECHNOLOGIES PVT. LTD. CONTRACT IS ONE OF SALE AND THERE WAS NO OBLIGATI ON TO DEDUCT TAX U/S 194C. RESPECTFULLY FOLLOWING THE RATION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F GLENMARK PHARMACEUTICALS(SUPRA), WE CONFIRM THE ORD ER OF THE CIT(A) AND DISMISS THE GROUNDS RAISED BY THE RE VENUE IN THIS REGARD. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2012. SD/- SD/- (D. KARUNAKARA RAO) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED:3 RD AUGUST, 2012. KV COPY TO:- 1) INCOME TAX OFFICER, WARD 3(2), ROOM NO. 72 6, 7 TH FOOR, IT TOWERS, AC GUARDS, HYDERABAD 04. 2) M/S ZORAC TECHNOLOGIES PVT. LTD., 2-1-290/5/1, NALLAKUNTA, HYDERABAD. 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.