M/S. CAROL INFO SERVICES LTD, MUMBAI V. THE ACIT-TDS-RG 1(2), MUMBAI

ITA 1511/MUM/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2709 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 03-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 133A; 194C; 201(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: MUMBAI BEFORE SHRI R S SYAL, ACCOUNTANT MEMBER AND SHRI V D RAO, JUDICIAL MEMBER ITA NOS 1510 AND 1511 /MUM/2006 (ASSESSMENT YEARS: 2002-03 AND 2001-02 ) M/S CAROL INFO SERVICES LTD, ERSTWHILE M/S WOCKHARD LIFE SCIENCES LTD), WOCKHARDT HOUSE, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI PAN: AAACP 8989 J VS ACIT TDS RG -1(2), SMT K G MITTAL AYURVEDIC HOSPITAL BUILDING, CHARNI ROAD, MUMBAI 400 002 APPELLANT RESPONDENT APPELLANT BY: SHRI HIRO RAI RESPONDENT BY: MS SANJEEV JAIN ORDER PER V D RAO, JUDICIAL MEMBER THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINS T THE COMMON ORDER OF THE CIT (A) XXX MUMBAI DATED 19.10.2005 FOR THE ABOVE CAPTIONED ASSESSMENT YEARS. 2. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR T HE ASSESSEE HAS SUBMITTED THAT THE GROUND NOS 2.0 AND 2.01 AND 4.0 IN BOTH TH E APPEALS HAS NOT PRESSED BY THE ASSESSEE, THEREFORE, WE DISMISS AS NOT PRESSED. 3. FACTS ARE IN BRIEF THAT, THE ASSESSEE-COMPANY EN GAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING BIO AGRO PRODUCTS AND N UTRITION PRODUCTS. A SURVEY U/S 133A WAS CONDUCTED ON THE PREMISES OF THE ASSESSEE ON 26TH MARCH 2003. DURING THE SURVEY PROCEEDINGS, A STATEMENT OF THE VICE PRE SIDENT FINANCE OF THE ASSESSEE- COMPANY WAS RECORDED. THE ASSESSING OFFICER, ON NO TICING THAT PURCHASES MADE BY THE ASSESSEE OF FINISHED PRODUCTS AND PACKING MATER IALS WERE MADE ACCORDING TO ITS SPECIFICATIONS AND WAS OF THE OPINION THAT PAYMENTS MADE ON THESE PURCHASES ATTRACTED THE PROVISIONS OF SECTION 194C AND TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED AT THE TIME OF PAYMENT. THE ASSESSING OFF ICER AFTER EXAMINING THE ITAS 1510 AND 1511 /M/2006 CAROL INFO SERVICES LTD 2 AGREEMENT SUBMITTED BY THE ASSESSEE WITH VARIOUS VE NDORS/PARTIES FROM WHOM PURCHASES WERE MADE AND HE OBSERVED THAT THE AGREEM ENT FOR PURCHASE OF FINISHED PRODUCTS WERE OF A NATURE OF MANUFACTURING CONTRACT WITH THE PRINCIPLE OBJECT OF GETTING THE GOODS MANUFACTURED AS PER THE SPECIFICA TIONS OF THE ASSESSEE-COMPANY. THE ASSESSING OFFICER HAS SHOWED CAUSED THE ASSESSE E TO EXPLAIN THE REASONS AS TO WHY IT NOT BE TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) FOR NOT DEDUCTING TAX AT THE TIME OF THE PAYMENTS FOR PURCHASE OF FINISHED PRODU CTS AND PACKING MATERIALS IN TERMS OF SECTION 194C AND CHARGED INTEREST U/S 201(1A). THE ASSESSEE HAS EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE PURCHASES WERE ON PRINCI PAL TO PRINCIPAL BASIS. THE PRODUCTS WERE ALSO PURCHASED ON ALL INCLUSIVE BASIS. THE RA W MATERIAL NECESSARY FOR EXECUTION OF ORDERS WERE DIRECTLY PURCHASED BY THE VENDOR IN THE NORMAL COURSE OF HIS BUSINESS AND IN HIS OWN NAME. THE VENDOR ESTABLISHED THE CONTRACT THAT THE SUPPLIERS IN HIS OWN RIGHT. THE RAW MATERIAL BELONGED TO THE VENDOR. THE VENDO R WOULD EMPLOY HIS OWN LABOUR, MACHINES AND OTHER INFRASTRUCTURES TO MANUFACTURE F INISHED GOODS. THE VENDOR HOLDS NECESSARY LICENCES, REGISTRATION AND APPROVALS INCL UDING FDA IN HIS OWN NAME. THE VENDOR WOULD CHARGE APPLICABLE EXCISE AND SALES TAX IN RESPECT OF SALES TO THE ASSESSEE. THE VENDOR HAS HIS OTHER INDEPENDENT ACTIVITIES AND HE DOES SUPPLY TO OTHERS ALSO. HOWEVER, THE ASSESSING OFFICER HAS HELD THAT THE AS SESSEE HAD ENTERED INTO A CONTRACT WITH THE PARTIES FOR THE MANUFACTURE OF GOODS AND P URSUANT TO THE SPECIFICATIONS HENCE THE WORK CONTRACT WAS INVOLVED IN THESE TRANSACTION S. THE PAYMENT MADE TO 3 RD PARTY MANUFACTURES WERE LIABLE FOR DEDUCTION U/S 194C OF THE ACT. THE ASSESSEE HAS FAILED TO DEDUCT TAX ON THE PAYMENT MADE TO 3 RD PARTIES CLEARLY COMMITTED DEFAULT. THE ASSESSING OFFICER HAS INVOKED SECTION 201 SUB-CLAUSE (1) AND ALSO 201(1A) OF THE ACT. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT (A). 4. THE LEARNED CIT (A) AFTER EXAMINING THE AGREEMEN T ENTERED INTO BY THE ASSESSEE WITH THE VENDOR, HE HAS HELD THAT THE AGREEMENT ENT ERED BY THE ASSESSEE AS A MANUFACTURING AGREEMENT AND HELD THAT THE ASSESSEE HAS PURCHASED THE CRUCIAL PRODUCTS AND PACKING PURCHASED WITH SPECIFICATION WERE IN TH E NATURE OF WORKS CONTRACT AS PER SECTION 194C. ACCORDINGLY, ASSESSEE WAS CLEARLY IN DEFAULT FOR NON-DEDUCTING TAX AT ITAS 1510 AND 1511 /M/2006 CAROL INFO SERVICES LTD 3 SOURCE ON PAYMENT MADE ON THESE ACCOUNTS. HE CONFI RMED THE VIEW TAKEN BY THE ASSESSING OFFICER. ON BEING AGGRIEVED, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEES CASE IS COVERED BY DECISION OF THE A BENCH OF MUMBAI TRIBUNAL IN THE CASE OF NOVARTIS HEALTH CARE (P) LTD VS ITO (TDS) (29 SO T 425)(MUM) WHERE BOTH THE ACCOUNTANT AND JUDICIAL MEMBERS WERE AUTHORS OF THE ORDER. HE RELIED ON ANOTHER CASE, GLENMARK PHARMACEUTICALS LTD VS ITO (TDS). ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE FACTS OF THE PRESENT CASE AND CASES RELIED BY THE AR OF THE ASSESSEE IS DIFFERENT AND S UPPORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE FOR CONSI DERATION BEFORE US IS WHETHER THE AGREEMENT ENTERED BY THE ASSESSEE WITH 3 RD PARTY AMOUNTING TO WORKS CONTRACT OR CONTRACT FOR SALE? IT IS VERY CLEAR FROM THE AGREE MENT ENTERED BY THE ASSESSEE WITH THE 3 RD PARTIES, WHICH HAS BEEN EXTRACTED BY THE CIT (A) A T PAGE NOS 5 & 6 THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH 3 RD PARTY TO BUY CERTAIN GOODS ON PRINCIPAL TO PRINCIPAL BASIS. THE MANUFACTURER AS HIS OWN INFRA STRUCTURE IN THE FORM OF PREMISES, MACHINERIES, FINANCE. THE INFRASTRUCTURAL BELONGIN G TO MANUFACTURER EXCLUSIVELY AND THE INFRASTRUCTURE IS APPROVED BY THE VARIOUS AUTHORITI ES SUCH AS MANUFACTURE CORPORATION, BULLION CONTROL BOARD ETC. THE MANUFACTURER HAS TO BUY RAW MATERIAL HIMSELF AND THE MANUFACTURER HIMSELF IS RESPONSIBLE FOR EXCISE DUTY , INSURANCE OF HIS OWN STOCK. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E CONTRACT ENTERED BY THE ASSESSEE WITH THE THIRD PARTY IS CONTRACT FOR SALE AND NOT W ORKS CONTRACT. THEREFORE, THERE IS NO APPLICATION FOR SECTION 194C OF THE ACT. THE HONB LE TRIBUNAL IN CASE OF NOVARTIS HEALTH CARE (P) LTD VS ITO (TDS) (SUPRA), THE CATCH NOTE O F THE ORDER OF THE HONBLE TRIBUNAL AS CONSIDERED IN SECTION 194C AND SECTION 201(1A) OF T HE ACT, 1961 AND THE RELEVANT PORTION OF THE CATCH NOTE IS EXTRACTED HEREUNDER:- ITAS 1510 AND 1511 /M/2006 CAROL INFO SERVICES LTD 4 SECTION 194C, READ WITH SECTION 201(1A) OF THE INC OME-TAX ACT, 1961 . DEDUCTION OF TAX AT SOURCE. CONTRACTORS/SUB-CONTRACTORS, PAY MENTS TO ASSESSMENT YEARS 2003-04 TO 2005-06. WHETHER CONTRACTS FOR SALE OF GOODS IS COVERED WITHIN AMBIT OF SECTION 194C. HELD, NO ASSESSEE WAS ENGAGED IN TRADING OF CONSUMER HEALTH PRODUCTS- HOWEVER, ASSESSEE HAD NO MANUFACTURING FA CILITY AND IT USED TO PLACE ORDERS WITH MANUFACTURERS FOR MANUFACTURING MEDICIN ES STRICTLY ACCORDING TO ITS SPECIFICATION AND IT HAD FULL RIGHT TO REJECT ANY L OT ALTHOUGH INPUT COSTS FOR MANUFACTURING MEDICINES WERE INCURRED BY SUCH MANUF ACTURERS AND THEN SOLD TO IT ASSESSING OFFICER HELD THAT CONTRACTS WITH MANUFA CTURERS AND PAYMENTS THERETO WERE LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SE CTION 201(1A) WHETHER SINCE ASSESSEE SIMPLY USED TO PLACE ORDERS FOR MANUFACTUR E OF MEDICINES ACCORDING TO ITS OWN SPECIFICATION AND ALL OTHER RELEVANT DECISIONS FOR MANUFACTURING HAD BEEN LEFT TO WISDOM OF MANUFACTURER AND, MOREOVER, MANUFACTUR ERS WERE INCURRING ALL INPUT COSTS AT THEIR OWN AND PRODUCT SO MANUFACTURED WAS THEIR OWN TILL IT WAS DELIVERED TO ASSESSEE, IT COULD BE SAID THAT TRANSACTIONS BET WEEN ASSESSEE AND MANUFACTURERS WERE ONLY CONTRACTS FOR SALE OF GOODS AND NOT WORKS CONTRACT HELD, YES WHETHER THEREFORE, SECTION 194C WOULD NOT APPL Y IN INSTANT CASE AND POSITION BEING SO, QUESTION OF CHARGING INTEREST UNDER SECTI ON 201(1A)WOULD NOT ARISE HELD YES 7. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ORDER PASSED BY THE TRIBUNAL, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. SO FAR AS APPEAL NO 1511 FOR AY 2001-02, THE FACTS ARE SIMILAR, THERE IS NO SEPARATE ORDER IS REQUIRED TO BE PASSED, ACCORDINGLY, EFFECTIVE GROUNDS FILED IN BOTH THE APPEALS BY THE ASSESSEE ARE ALLOW ED. 8. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED ON 10TH DAY OF DECEMBER 2009 SD/- (R S SYAL) ACCOUNTANT MEMBER SD/- (V D RAO) JUDICIAL MEMBER MUMBAI, DATE: 10TH DECEMBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -XXX, MUMBAI. 4) THE CIT-(TDS), MUMBAI. ITAS 1510 AND 1511 /M/2006 CAROL INFO SERVICES LTD 5 5) THE D.R. C BENCH, ITAT, MUMBAI BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI ITAS 1510 AND 1511 /M/2006 CAROL INFO SERVICES LTD 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 07.12.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 9.12.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER