ITO, Bangalore V. M/s Karnataka Power Transmission Corpn Ltd., Kolar

ITA 160/BANG/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63752 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Keywords: Question of law
• Section: 133A; 194C; 201(1)

Judgement Text

PAGE 1 OF 9 ITA NOS.156 TO 160 /BANG/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NOS. 156 TO 160/BANG/2012 (ASST. YEARS 2005-06 TO 1009-2010) THE INCOME-TAX OFFICER (TDS) LTU, BANGALORE. VS M/S KARNATAKA POWER TRANSMISSION CORPORATION LTD., MAJOR WORKS DIVISION, BANGALORE ROAD, KOLAR. PA NO.AABCK7281M (APPELLANT) (RESPONDENT) DATE OF HEARING : 28.09.2012 DATE OF PRONOUNCEMENT : 19.10.2012 APPELLANT BY : SHRI FARHAT HUSSAIN QURESHI, C IT-II RESPONDENT BY : NONE OR DER PER BENCH : THESE APPEALS INSTITUTED BY THE REVENUE ARE DIREC TED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) LTU, BANGALORE DATED 24/11/2011. THE RELEVANT ASSESSMENT YEARS ARE 2005-06 TO 1009-20 10. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEA LS AND THEY PERTAIN TO THE SAME ASSESSEE, THEY WERE HEARD TOGETH ER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. PAGE 2 OF 9 ITA NOS.156 TO 160 /BANG/2012 2 3. THE GROUNDS RAISED IN THESE APPEALS ARE IDENTIC AL AND THEY READ AS UNDER:- I) THE CIT(A) HAS FAILED TO APPRECIATE THAT THE CONTRA CTS INVOLVING SUPPLIES OF MATERIALS, CIVIL WORK AND ERE CTION WORK IS ONE SINGLE, COMPOSITE AND INDIVISIBLE CONTR ACT AND INSTALLATION OF THE EQUIPMENT IS AS MUCH FUNDAMENTA L PART OF THE CONTRACT AS THE FABRICATION AND SUPPLY. II) THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ASSESS EE HAD DEFAULTED IN NOT DEDUCTING TDS ON THE SUPPLY POR TION IN CONTRAVENTION OF THE PROVISIONS OF SEC.194C AND WAS THEREFORE TO BE TREATED AS AN ASSESSEE IN DEFAULT IN ACCORDANCE WITH THE PROVISIONS OF SEC.201(1). III) FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING OF APPEAL IT IS HUMBLY PRAYED THA T THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF ASSESS ING OFFICER BE RESTORED. 4. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A STATE GOVERNMENT PUBLIC SECTOR UNDERTAKING. IT IS IN THE BUSINESS OF TRANSMISSION OF ELECTRICIT Y FROM ELECTRICITY GENERATING POINTS TO VARIOUS ELECTRICAL SUB-STATION S IN THE STATE OF KARNATAKA THROUGH ITS NET WORK OF TRANSMISSION LINES AND SUB- STATIONS. A SURVEY UNDER SECTION 133A WAS CARRIED OUT IN THE OFFICE PREMISES OF THE EXECUTIVE ENGINEER (MAJOR WORKS DIVISION), KPTCL, BANGALORE R OAD, KOLAR ON 29.1.2009. DURING THE COURSE OF SURVEY, IT WAS ASCERTAINED THAT THE ASSESSEE HAD ENTERED INTO A CONTRACT ON TOTAL AND PARTIAL TURNKE Y BASIS WITH VARIOUS CONTRACTORS FOR SETTING UP ITS ELECTRICAL SUB-STATI ONS. IN TOTAL TURNKEY CONTRACTS, THE CONTRACTORS WERE REQUIRED TO ESTABLI SH ELECTRICAL SUB-STATIONS AND TRANSMISSION LINES USING THEIR OWN MATERIALS IN CLUDING ELECTRICAL TRANSFORMERS FOR WHICH THE KPTCL MADE PAYMENTS TREAT ING THE SAME AS PAGE 3 OF 9 ITA NOS.156 TO 160 /BANG/2012 3 PAYMENTS MADE FOR PURCHASE OF MATERIALS FROM THE CON TRACTORS UNDER THE SUPPLY PORTION, WHEREAS IN PARTIAL TURNKEY CONTRACT S, THE ASSESSEE SUPPLIES ELECTRICAL TRANSFORMERS WHILE THE CONTRACTORS USES OTHER MATERIALS ON THEIR OWN TO EXECUTE THE CONTRACTS. THUS, THE DIFFERENCE BETWEEN THE TWO TYPES OF CONTRACT IS VALUE OF THE SUPPLY PORTION OF THE CONTRACT. IN TOTAL TURNKEY CONTRACT, AS CONTRACTORS USE THEIR OWN TRANSFORMERS , THE VALUE OF SUPPLY PORTION IS HIGHER AND IN PARTIAL TURNKEY CONTRACT, T HE VALUE OF SUPPLY PORTION IS RELATIVELY LOWER, AS THE TRANSFORMERS ARE SUPPLIE D BY THE ASSESSEE. IN EITHER EVENT, 80 TO 85% OF THE CONTRACT WAS TOWARDS SUPPLY OF MATERIAL AND BARELY 20 TO 15% WERE TOWARDS THE ERECTION AND CIVIL WORKS. THE ASSESSEE COMPANY HAD ENTERED INTO THREE INDEPENDENT CONTRACTS WITH THE CONTRACTORS. THEY ARE (1) AGREEMENT FOR SUPPLY PORTION; (2) AGREEMENT FOR CIVIL WORK PORTION AND (3) AGREEMENT FOR ERECTION WORK. WHILE TAX IS BEING DEDUCTED AT SOURCE ON CIVIL AND ERECTION WORK, THE TAX WAS NOT DEDUCTED AT SOURCE TOWARDS PAYMENTS MADE ON THE SUPPLY PORTION. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA D AWARDED WORK ON THE TURNKEY BASIS WHICH IS A COMPOSITE CONTRACT AND THE TAX SHOULD HAVE BEEN DEDUCTED ON SUPPLY PORTION ALSO. AS THE ASSESSE E HAD FAILED TO DEDUCT TAX ON THE SUPPLY PORTION, WHICH ACCORDING TO HIM, IS PART AND PARCEL OF THE COMPOSITE WORKS CONTRACT, THE ASSESSEE COMPANY SHOUL D BE TREATED AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) AND ACCO RDINGLY INTEREST WAS CHARGED UNDER SECTION 201(1A) OF THE ACT. A CONSOL IDATED ORDER WAS PASSED UNDER SECTION 201(1) RWS 194C VIDE ORDER DATED 23.3 .2011 FOR THE ASSESSMENT YEARS 2005-06 TO 2009-2010. PAGE 4 OF 9 ITA NOS.156 TO 160 /BANG/2012 4 5. AGGRIEVED BY TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) AND LEVYING INTEREST UNDER SECT ION 201(1A) OF THE ACT, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E FIRST APPELLATE AUTHORITY. 6. THE CIT(A), FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.112 TO 115 AND 162 TO 165/BANG/2 010 DATED 20.3.2011, ALLOWED THE APPEALS OF THE ASSESSEE. THE CIT(A) AL SO REFERRED TO THE ORDERS OF THE TRIBUNAL IN OTHER DIVISIONS OF THE AS SESSEE. THE ORDERS OF THE TRIBUNAL IN OTHER DIVISIONS OF THE ASSESSEE ARE DET AILED AT PAGES 24 AND 25 OF THE IMPUGNED ORDER OF THE CIT(A). 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 8. AT THE VERY OUTSET, IT WAS NOTICED THAT AN IDENT ICAL ISSUE HAS CROPPED UP IN ASSESSEES OWN CASE IN ITA NOS.112 TO 115 AND 162 TO 165/BANG/2010 DATED 10.3.2011. IT WAS ALSO NOTICED THAT THE ABOVE ORDER OF THE TRIBUNAL WAS AFFIRMED BY THE HONBLE JURISDICTIO NAL HIGH COURT VIDE JUDGEMENT DATED 15 TH MARCH, 2012 IN ITA NO.337/2011. 9. THE LEARNED DR PRESENT WAS DULY HEARD. NONE WA S PRESENT ON BEHALF OF THE ASSESSEE. 10. WE HAVE HEARD THE LEARNED DR AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE FOLLOWING ISSUES, NAMELY, (I) IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT AND DEMANDING THE TAX U/S 201(1) OF THE ACT ON THE BASIS THAT THE ASSESSEE OUGHT TO PAGE 5 OF 9 ITA NOS.156 TO 160 /BANG/2012 5 HAVE DEDUCTED TDS IN RESPECT OF PAYMENTS MADE TO THE CONTRACTORS TOWARDS SUPPLY OF MATERIALS; & (II) IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT AND DEMANDING INTEREST ON TAX U/S 201 (1A) OF THE ACT; ARISES FOR OUR CONSIDERATION. THE ABOVE ISSUES WER E ELABORATELY DISCUSSED AND SUBMISSIONS OF BOTH LEARNED AR AS WELL AS LEARN ED DR WAS DULY CONSIDERED AT LENGTH IN THE ASSESSEES OWN CASE IN APPEAL NOS.112 TO 115 & 162 TO 165/BANG/2010 DATED 10.3.2011. AFTER CONSIDERIN G THE RIVAL SUBMISSIONS, THE TRIBUNAL HAD RESOLVED THE ISSUES IN THE FOLLOWI NG MANNER:- (QUOTE ) 11.6. IN TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE ISSUES WHICH HAVE BEEN METICULOUSLY ANALYZED AND ALSO EXTENSIVELY QUOTING THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUES IN TH E FORE-GOING PARAGRAPHS, WE ARE OF THE CONSIDERED VIE W THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN TREATING THE ASSESSEE KPTCL AS AN ASSESSEE IN DEFAULT U/S 201(1) AND ALSO CHARGING OF INTEREST U /S 201(1A) OF THE ACT FOR THE FOLLOWING REASONS: 1. THE ASSESSEE CANNOT BE CATEGORIZED AS AN ASSESSEE IN DEFAULT WHEN THERE WAS NO OBLIGATION ON THE PART O F THE ASSESSEE TO DEDUCT TAX U/S 194C OF THE ACT FOR SUPPLY PORTION; 2. AMENDMENT OF S. 194C THROUGH FINANCE ACT(NO.2) OF 2009, CLARIFY DEDUCTION DOESNT EXTEND TO SUPPLY O F MATERIALS (PORTION); 3. THE MATERIALS IN QUESTION WERE PURCHASED FROM THE SUPPLIERS BY THE ASSESSEE AND GIVEN TO THE CONTRACTOR(S) FOR CARRYING OUT THE WORK OF CIVIL, ERECTION, ETC., 4. THE CONTRACT BETWEEN THE ASSESSEE AND THE CONTRACTO R WAS A CONTRACT FOR SUPPLY AND NOT FOR CONTRACT OF PAGE 6 OF 9 ITA NOS.156 TO 160 /BANG/2012 6 WORK AND THE REVENUE HAD CONSISTENTLY REFUSED TO S EE THE REASON AND TO RECOGNIZE THE DISTINCT MEANING - SUPPLY AND WORK; 5. IT WAS WRONGLY VISUALIZED THAT THE EQUIPMENTS, MATERIALS COMPONENT PARTS WERE FABRICATED AND INSTALLED AT WORK SITE PREMISES; 6. IT WAS WRONGLY PRESUMED THAT THE CONTRACTS ENTERED INTO BETWEEN THE ASSESSEE AND THE CONTRACTOR WERE COMPOSITE CONTRACT AND AN INDIVISIBLE CONTRACT WHER EAS THERE WERE THREE SEPARATE CONTRACTS, VIZ., (I) SUPP LY OF MATERIALS; (II) FOR ERECTION & (III) FOR CIVIL W ORK PORTION; 7. INSTRUCTION TO BIDDERS (SECTION II ITB) UNDER CLA USE 14. TAXES AND DUTIES [SOURCE P 123 OF PB AR] IT H AS BEEN MADE IMPLICITLY CLEAR THAT 14.1. AS INDICATED IN CLAUSE 35.2 OF SECTION ITB O F THE BID DOCUMENT, IN CASE OF AWARD OF CONTRACT, A DIVISIBLE CONTRACT COVERING THE ENTIRE SCOPE OF THE PARTIAL/TOTAL TURNKEY PACKAGE WILL BE ENTERED INTO WITH THE SUCCESSFUL BIDDER, THERE SHALL BE THREE SEPARAT E CONTRACTS AS UNDER: (I) FOR SUPPLY OF GOODS (II) FOR ERECTION WORKS (III) FOR CIVIL ENGINEERING WORKS THUS, TENDER CLEARLY GIVES BREAKS-UP OF SEPARATE AGREEMENTS R EFLECTING SEPARATE CONSIDERATION; THROUGH A SINGLE BIDDING PROCESS, ALL THE CONTRACTS WERE AWARDED DISTINCTLY WHICH DO NOT MEAN THAT THEY WERE COMPOSITE CONTRACTS; THE HONBLE APEX COURT IN THE CASE OF HINDUSTAN COC A COLA BEVERAGES P. LTD. V. CIT REPORTED IN 293 ITR 226(SC) HAD RULED THAT IT IS NOT DISPUTED THAT THE CIRCULAR NO. 275/201/95-IT(B) DATED JANUARY 29, 1997 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES DECLARING THAT 'NO DEMAND VISUALIZED UNDER SECTION PAGE 7 OF 9 ITA NOS.156 TO 160 /BANG/2012 7 201(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; WHEN THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX ON SUPPLY PORTION, THERE WAS NO QUESTION OF CHARGING OF INTEREST U/S 201(1A) OF THE ACT; WE HAVE ALSO DULY PERUSED THE CASE LAWS ON WHICH TH E LD. CIT (A) HAD PLACED STRONG RELIANCE. HOWEVER, W E ARE OF THE CONSIDERED VIEW THAT THOSE DECISIONS WER E CLEARLY DISTINGUISHABLE TO THE FACTS AND CIRCUMSTAN CES OF THE ISSUES UNDER CONSIDERATION. 11.7. IN A NUT-SHELL (I) WHEN THE ASSESSEE WAS UNDER NO OBLIGATION TO DEDUC T TAX U/S 194C OF THE ACT TOWARDS THE PAYMENTS MADE ON SUPPLY PORTION, THE ASSESSEES CASE DOESNT FALL WITHIN THE AMBIT OF THE PROVISIONS OF S.201(1) OF T HE ACT AND, THUS, THE ASSESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT; AND (II) THAT WHEN THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX TOWARDS THE PAYMENT ON SUPPLY PORTION, THERE WA S NO QUESTION WHATSOEVER IN CHARGING OF INTEREST U/S 201(1A) OF THE ACT. IT IS ORDERED ACCORDINGLY. (UNQUOTE). 10.1. THE ABOVE ORDER OF THE TRIBUNAL WAS CONFIRME D BY THE HONBLE JURISDICTIONAL HIGH COURT WHEREIN THE SUBSTANTIAL Q UESTION OF LAW FRAMED WAS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE SUBSTANTIAL QUESTION OF LAW THAT WAS CONSIDERED BY THE HONBLE H IGH COURT READ AS FOLLOWS:- PAGE 8 OF 9 ITA NOS.156 TO 160 /BANG/2012 8 (I) WHETHER THE TRIBUNAL WAS RIGHT IN SPLITTING UP THE CONTRACT, WHICH, ACCORDING TO THE REVENUE, WAS OF T HE COMPOSITE CONTRACT, INTO PARTS SUCH AS PART OF THE CONTRACT ATTRIBUTABLE TO THE VALUE OF THE MATERIALS INVOLVED IN THE EXECUTION OF THE WORK AND OTHER PAR T OF THE CONTRACT SUCH AS CIVIL WORKS AND TAKING THE VIEW THAT TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE ONLY IN RESPECT OF THE WORK PART OF THE CONTRACT AND NOT MATERIAL PART OF THE CONTRACT? (II) WHETHER THE TRIBUNAL WAS JUSTIFIED IN CONCLUDING TH AT INTEREST UNDER SECTION 201(1A) OF THE I T ACT, 1961 IS NOT LEVIABLE, AS THE ASSESSEE WAS NOT LIABLE TO MAK E ANY DEDUCTIONS IN RESPECT OF THE VALUE OF THE MATERI AL PART OF THE CONTRACT, THOUGH THE CONTRACT WAS ONE O F WHOLE CONTRACT? 10.2 THE FINDINGS OF THE HONBLE JURISDICTIONAL HI GH COURT ARE GIVEN FROM PARA 8 TO 16 IN THE JUDGMENT. THE HONBLE HIGH COURT HELD THAT THE CONTRACT ENTERED BETWEEN THE ASSESSEE COMPANY AND TH E CONTRACTORS WAS A DIVISIBLE CONTRACT AND THE CONTRACT FOR SUPPLY OF MA TERIAL IS A SEPARATE/ DISTINCT CONTRACT IN RESPECT OF WHICH NO DEDUCTION OF TAX NEED TO BE DONE UNDER SECTION 194C OF THE ACT. IN VIEW OF THE ABOV E JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, WE CONFIRM THE A CTION OF THE CIT(A) AND DISMISS THE APPEALS OF THE REVENUE. 11. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF OCTOBER, 2012. SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER PAGE 9 OF 9 ITA NOS.156 TO 160 /BANG/2012 9 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.