M/s Vedanta Aluninium Ltd, Jharsuguda V. ACIT(TDS) II, Bhubaneswar

ITA 346/CTK/2012

• Counselvise Citation: 34622114 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-05-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVIN CHOUDHARY
• Assessee Lawyers: M P RASTOGIA PAKRASH
• Keywords: Non-deduction of tax
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. B. P. JAIN, ACCOUNTANT MEMBER ITA NO. 352/CTK/2012 ASSESSMENT YEAR: 2010 - 11 ACIT (TDS) BHUBANESHWAR V. THE PRINCIPAL OFFICER M/S VEDANT ALUMINIUM LTD. JHARSUGUDA T AN /PAN : BBNVO0151E (APP ELL ANT) (RESPONDENT) ITA NO. 346/CTK/2012 ASSESSMENT YEAR: 2010 - 11 THE PRINCIPAL OFFICER M/S VEDANT ALUMINIUM LTD. JHARSUGUDA V. ACIT (TDS) BHUBANESHWAR T AN /PAN : BBNVO0151E (APP ELL ANT) (R ESPONDENT) DEPARTMENT BY: SHRI. RAVIN CHOUDHARY ASSESSEE BY: SHRI. M.P. RASTOGI/A PAKRASH DATE OF HEARING: 26 05 201 5 DATE OF PRONOUNCEMENT: 10 0 8 2015 O R D E R PER SUNIL KUMAR YADAV: THESE CROSS-APPEALS ARE PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) PERTAIN ING TO ASSESSMENT YEAR 2010-11. 2. SINCE COMMON ISSUE IS INVOLVED IN THESE APPEALS, TH E SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH TH IS CONSOLIDATED ORDER. :-2-: FOR THE SAKE OF REFERENCE, WE EXTRACT THE GROUNDS O F APPEAL RAISED BY THE RESPECTIVE PARTIES AS UNDER:- GROUNDS IN ITA NO.352/CTK/2012 : BY THE REVENUE: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEAL-1), IS JUSTIFIED IN HOLDING THA T THE CONTRACT PAYMENTS TO VARIOUS COMPANIES BY THE ASSESSEE DEDUC TOR RELATE TO SUPPLY CONTRACT INSTEAD OF WORKS CONTRACT OR FEES FOR TECHNICAL SERVICES. 2. THE LEARNED CIT(APPEAL-1) IS DOES NOT APPEAR TO BE JUSTIFIED IN BIFURCATING TO CONTRACT INTO SUPPLY AND SERVICE CON TRACT THOUGH THE CONTRACT WORK IS CONSOLIDATED ONE AND INVOLVES EXECUTION OF WORK THROUGH PROVISION OF TECHNICAL SERVICES. 3. THE LEARNED CIT (APPEAL-1) IS NOT JUSTIFIED IN TAKI NG THE EPC (ERECTION, PROCUREMENT & ENGINEERING) CONTRACT AS W ORKS/CIVIL CONTRACT U/S 194C OF IT ACT INSTEAD OF TAKING THE S AME AS FEES FOR TECHNICAL SERVICES AS PER U/S 194J OF IT ACT. 4. THE LEARNED CIT (APPEAL-1) HAS ERRED IS NOT TAKING THE EPC CONTRACT AS A CONSOLIDATED ONE AND A CONTRACT TOWAR DS PROVIDING TECHNICAL SERVICES FOR WHICH TAX SHOULD H AVE BEEN DEDUCTED AT SAME U/S 194J OF IT ACT INSTEAD OF SPLI TTING THE CONTRACT INTO SUPPLY AND SERVICE CONTRACT AND HOLDI NG THAT IDS IS NOT APPLICABLE TO SUPPLY CONTRACT AND IN CASE OF SERVICE CONTRACT TDS SHOULD HAVE BEEN AS PER U/S 194C OF IT ACT INSTEAD OF U/S 194J (FEES FOR TECHNICAL SERVICES). GROUNDS IN ITA NO.346/CTK/2012 : BY THE ASSESSEE: 1. THAT THE CIT (APPEAL) HAS ERRED ON FACTS AND UNDER THE LAW TO HOLD THAT THE CONTRACT ENTERED INTO WITH M/S THERMO SYSTEMS PVT. LTD. IS A COMPOSITE CONTRACT LIABLE TO TDS ON THE ENTIRE CONTRACT VALUE DESPITE THE CLEAR PRICE BREAK UP PRO VIDED IN THE AGREEMENT RE: THE OBLIGATION OF THE PARTY TOWARDS S UPPLY AND SERVICE SEPARATELY ALONG WITH PRICE THEREOF. 2. THAT WITHOUT PREJUDICE TO GROUND NO.1 ABOVE, THE HO N'BLE :-3-: CIT(APPEAL) SHOULD NOT HAVE UPHELD THE CHARGEABILI TY OF TDS TOWARDS THE SUPPLY PORTION OF THE CONTRACT W ITH M/S THERMOSYSTEMS PVT. LTD. 3. THAT THE HON'BLE CIT (APPEAL) SHOULD NOT HAVE DIREC TED THE ASSESSING OFFICER TO CHARGE INTEREST U/S 201/201(1A ) OF THE ACT TOWARDS ALLEGED SHORT DEDUCTION OF TDS ON PAYMENT T O M/S THERMOSYSTEMS PVT. LTD. 3. THE FACTS IN BRIEF CULLED OUT FROM THE ORDERS OF TH E LOWER AUTHORITIES ON THE IMPUGNED ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCES (TDS) UNDER SECTION 194C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') IN RES PECT OF PAYMENT MADE FOR SUPPLY CONTRACTS AND ALSO FOUND THAT THE TAXES WERE ALSO NOT DEDUCTED UNDER SECTION 194J OF THE ACT IN RESPECT OF CERTAIN OTHER CONTRACTS CALLED SERVICE CONTRACTS. THE ASSESSING OFFICER, AFTER AN ALYZING VARIOUS REPLIES SUBMITTED BY THE ASSESSEE AND VARIOUS CONTRACTS IN DETAIL, CAME TO THE CONCLUSION THAT THE APPELLANT-DEDUCTOR WAS LIABLE T O DEDUCT TDS UNDER SECTION 194C OF THE ACT ON THE VALUE OF CONTRACT FO R SUPPLY OF PLANT & MACHINERY AND ALSO LIABLE TO DEDUCT TDS UNDER SECTI ON 194J OF THE ACT TOWARDS INSTALLATION OF PLANT & MACHINERY. HE ACCO RDINGLY TREATED THE ASSESSEE TO BE IN DEFAULT AND RAISED A DEMAND OF RS .23,34,70,053/- UNDER SECTION 201(1) OF THE ACT AND INTEREST OF RS.1,63,4 2,904/- UNDER SECTION 201(1A) OF THE ACT, TOTALING TO RS.24,98,12,957/-. THE DETAILS OF SHORT DEDUCTION OR NON-DEDUCTION OF TAX UNDER SECTION 194 C AND 194J OF THE ACT AND ALSO DETAILS OF CONTRACTS ARE NARRATED IN PARAS 4.1 TO 5 OF THE ORDER OF THE LD. CIT(A) AND FOR THE SAKE OF REFERENCE, WE RE PRODUCE THE SAME AS UNDER:- :-4-: 4.1. THE ASSESSING OFFICER FOUND OUT THAT SHORT DE DUCTION OR NOT DEDUCTIONS HAVE BEEN MADE IN RESPECT OF FOLLOWING C ONTRACTS WHERE PROVISIONS OF SECTION 194C ARE APPLICABLE. NAME OF THE PARTY AMOUNT (RS.) SHORT /NON DEDUCTION 201(1) HINDUSTAN DORR OLIVER LTD. 259,790,796 5,871,272 MACNALLY BHARAT ENGG. CO. 816,524,76 2 18,453,460 SIEMENS LIMITED 470,403,916 10,631,129 THERMOSYSTEMS PVT. LTD. 46,533,341 1,051,654 THERMOSYSTEMS PVT. LTD. 55,149,281 1,246,374 WEBB INDIA 53,867,835 1,217,413 WEBB INDIA 62,620,993 1,415,234 WEBB INDIA 119,633,667 2, 703,721 WEBB INDIA 41,074,609 928,286 ABB LIMITED 1,677,070,331 37,901,789 ABB LIMITED 1,200,694,452 27,135,695 ABB LIMITED 294,810,718 6,662,722 ALSTOM PROJECTS LTD. 1,189,354,913 26,879,421 TOTAL 142,098,169 THE AO ALSO FOUND OUT AND/OR WORKED OUT SHORT DEDUC TIONS/NON- DEDUCTIONS OF TAX IN RESPECT OF CONTRACTS WHERE SEC TION 194J WAS APPLICABLE INSTEAD OF SECTION 194C APPLIED BY THE A PPELLANT. SUCH DETAILS ARE AS UNDER: :-5-: NAME OF THE PARTY AMOUNTS(RS.) TDS TO BE DEDUCTED U/S 194J TDS ALREADY DEDUCTED U/S 194C SHORT/NON DEDUCTION 201(1) HINDUSTAN DORR OLIVER LTD. 26,801,821 3,036,646 661421 2,375,225 MACNALLY BHARAT ENGG. CO. 394,120,327 44,653,833 10173542 34,480,291 SIEMENS LIMITED 130,903,018 14,831,312 25345 0 14,577,862 THERMOSYSTEMS PVT. LTD. 2,132,382 241,599 51138 190,461 WEBB INDIA 333,331 37,766 7552 30,214 - DO - 900,000 101,970 20394 81,576 ABB LIMITED 139,861,012 15,846,253 3518257 12,327,996 - DO - 6,570,864 744,479 148897 595,582 ALSTOM PROJECTS LTD. 351,268,487 36,286,035 9573358 26,712,677 TOTAL 91,371,884 THUS, THE TOTAL SHORT DEDUCTION/NON-DEDUCTION OF TA X WORKED OUT BY THE AO COMES TO RS.23,34,70,053/- ON WHICH THE AO A LSO WORKED OUT INTEREST U/S.201(1A) AMOUNTING TO RS.1,63,42,904/-. 5. THE DETAILS OF CONTRACTS WHICH HAVE BEEN CONSIDE RED BY THE AO FOR WORKING OUT SHORT DEDUCTION/NON-DEDUCTION OF TA X U/S.194C AND 194J ARE AS UNDER: NAME OF THE PARTIES CONTRACT NO. NATURE OF CONTRACT AS PER ASSESSEE DATE OF CONTRACT AS MENTIONED BY THE AO HINDUSTAN DORR OLIVER LTD. VJ/SML2/UT/1274 - 01 SUPPLY 31.3.2009 - DO - VJ/SML2/UT/1274 - 02 SERVICE - DO - MACNALLY BHARAT ENGG. CO. VJ/SML2/GA/1056 - 01 SUPPLY 23.3.2009 - DO - VJ/SML2/GZ/1056 - 02 SERVICE - DO - :-6-: SIEMENS LIMITED VJ/SML2/EL/1189 - 01 SUPPLY 12.12.2008 - DO - VJ/SML2/EL/1189 - 02 SERVICE - DO - THERMOSYSTEMS PVT. LTD. VJ/SML2/BF/1183 SUPPLY/SER VICE 22.12.2008 - DO - VJ/SML2/UT/1291 SUPPLY/SER VICE 20.4.2009 WEBB INDIA VJ/SML2/RS/1253 - 01 SUPPLY 11.3.2009 - DO - VJ/SML2/RS/1252 - 01 SUPPLY 20.3.2009 - DO - VJ/SML2/GA/1 162 - 01 SUPPLY 11.4.2009 - DO - VJ/SML2/GA/ 11 62 - 02 SERVICE - DO - - DO - VJ/SML2/GA/1 163 - 01 SUPPLY - DO - - DO - VJ/SML2/GA/1 163 - 02 SERVICE - DO - ABB LIMITE D VJ/SML2/EL/1027 - 01 SUPPLY 15.4.2008 - DO - VJ/SML2/EL/1027 - 02 SERVICE - DO - - DO - VJ/SML2/EL/1096 - 01 SUPPLY 27.6.2008 - DO - VJ/SML2/EL/1096 - 02 SERVICE - DO - - DO - VJ/SML2/EL/1096 - 03 SERVICE - DO - - DO - VJ/SML2/EL/1096 - 04 SERVICE - DO - - DO - VJ/SML2/EL/1280 - 01 SUPPLY 31.3.2009 - DO - VJ/SML2/EL/1280 - 02 SERVICE - DO - ALSTOM PROJECTS LTD. VJ/SML2/PR/1041 - 02 SUPPLY 22.9.2008 - DO - VJ/SML2/PR/1041 - 03 SERVICE - DO - 4. THE ASSESSING OFFICER ACCORDINGLY BIFURCATED THESE CONTRACTS IN THREE CATEGORIES I.E. TYPE A, TYPE B AND TYPE C. :-7-: 5. TYPE A THE AGREEMENTS ARE THOSE AGREEMENTS WHERE TH ERE IS AN AGREEMENT FOR SUPPLY OF EQUIPMENT/MACHINES FOR A LU MP SUM PRICE I.E. TO SAY, THE PRICE IS FOR SUPPLY OF EQUIPMENTS WITH NO BIFURCATION OF THE PRICE INTO SUPPLY OF EQUIPMENT, DESIGNS, DRAWINGS ETC. T HE SUPPLY IS FOR A SINGLE LUMP SUM PRICE WITHOUT SEGREGATION OF THE CONSIDERA TION INTO VARIOUS PARTS THEREBY CLEARLY SHOWING THE INTENTION OF THE PARTIE S TO ENTER INTO A SINGLE INDIVISIBLE SUPPLY CONTRACT FOR A LUMP SUM PRICE. 6. TYPE B AGREEMENTS/CONTRACTS ARE THOSE CONTRACTS WHI CH WERE EXECUTED ONLY FOR SERVICE CONTRACT, GENERALLY INVOL VING CIVIL WORKS, ERECTION, COMMISSIONING, ETC. 7. TYPE C AGREEMENTS ARE TYPICALLY THOSE AGREEMENTS WH ERE THERE IS AN AGREEMENT FOR SUPPLY OF MACHINE ALONG WITH DRAWINGS , DESIGNS, ETC. AND CERTAIN OTHER NECESSARY AND INCIDENTAL ACTIVITIES L IKE INSTALLATION, COMMISSION, ETC. AND THE CONSIDERATION HAS BEEN SPL IT IN THE SAME AGREEMENT INTO SUPPLY OF EQUIPMENT AND INCIDENTAL S ERVICES WHICH IS INEXTRICABLY LINKED TO THE PROCUREMENT OF THE EQUIP MENTS/MACHINERY. 8. THE AGREEMENTS EXECUTED WITH MCNALLY BHARAT ENGG. C OMPANY; WEBB INDIA; ABB LIMITED AND ALSTOM LIMITED FALLS WI THIN THE CATEGORY OF TYPE A. IN THE CATEGORY OF TYPE B CONTRACTS, THE A SSESSEE HAS ENTERED INTO A SEPARATE AGREEMENT FOR PROVIDING OF CERTAIN SERVI CES WITH MCNALLY BHARAT ENGG. COMPANY; WEBB INDIA; ABB LIMITED AND ALSTOM L IMITED. 9. THE AGREEMENT EXECUTED WITH HINDUSTAN DORR-OLIVER L IMITED AND THERMOSYTE MS PVT. LTD. FALLS WITHIN THE CATEGORY O F TYPE C CONTRACTS. 10. ACCORDING TO THE ASSESSING OFFICER, TYPE A CONTRACT S RELATE TO SUPPLY PORTION AND TYPE B CONTRACTS RELATE TO CIVIL WORKS, INSTALLATION AND COMMISSIONING PORTION AWARDED THROUGH SEPARATE CONT RACTS. THE ASSESSING OFFICER ACCORDINGLY OBSERVED THAT TYPE A CONTRACT FALLS UNDER SECTION 194C OF THE ACT AND TYPE B CONTRACT FALLS U NDER SECTION 194J OF THE :-8-: ACT WHEREAS ACCORDING TO THE ASSESSEE TYPE B CONTRA CTS FALL UNDER SECTION 194C OF THE ACT. TYPE C CONTRACT IS A SINGLE CONTR ACT HAVING TWO COMPONENTS I.E. SUPPLY AND INSTALLATION & COMMISSIO N AND CONSIDERATION OF BOTH 1 AND 2 ARE SEPARATELY MENTIONED. THE ASSESSI NG OFFICER HAS SUBJECTED TYPE C CONTRACT TO BOTH THE SECTIONS 194C AND 194J OF THE ACT WHEREAS THE ASSESSEE HAS SUBJECTED ONLY PART 2 OF T HE SAID CONTRACT TO SECTION 194C OF THE ACT. THE ASSESSING OFFICER, ON ACCOUNT OF NON- DEDUCTION OF PROPER TAX BY THE ASSESSEE ON PAYMENT UNDER AFORESAID CONTRACT, HAS COMPUTED THE TAX DEDUCTION UNDER SECT ION 201(1) AT RS.23,34,70,053/- AND INTEREST UNDER SECTION 201(1A ) OF THE ACT AT RS.1,63,42,904/- AFTER HOLDING THE ASSESSEE TO BE I N DEFAULT. 11. ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAVING OBTAINED WRITTEN SUBMISSION FROM THE ASSESSE E AS WELL AS COUNTER COMMENTS FROM THE ASSESSING OFFICER, HAS FORMULATED THE FOLLOWING QUESTIONS FOR ADJUDICATION:- THE ISSUES WHICH ARE TO BE ADJUDICATED ARE; WHETHER THE ORDER PLACED BY THE APPELLANT AS PER SE PARATE CONTRACTS FOR SUPPLY OF PLANT & MACHINERY AND FOR INSTALLATIO N AND COMMISSIONING THEREOF SHOULD BE CONSIDERED SEPARATE LY OR THEY SHOULD BE TREATED AS A COMPOSITE ORDER. WHETHER THE ORDER PLACED BY THE APPELLANT IN A SING LE CONTRACT FOR SUPPLY OF PLANT & MACHINERY AND FOR INSTALLATION AN D COMMISSIONING THEREOF SHOULD BE CONSIDERED SEPARATELY IN RESPECT OF SUPPLY AND SERVICE SEGMENTS OR THEY SHOULD BE TREATED AS A COM POSITE ORDER. WHETHER THE PROVISION OF SECTION 194C IS APPLICABLE IN RESPECT OF THE ORDER RELATING TO SUPPLY OF PLANT AND MACHINERY, IN ABOVE SITUATIONS. WHETHER THE AMOUNTS PAID TO THE DEDUCTEES AGAINST T HE SERVICE CONTRACTS IN RELATION TO ERECTION AND COMMISSIONING OF PLANT & MACHINERY IS IN THE NATURE OF FEES FOR TECHNICAL SE RVICES AS :-9-: CONTEMPLATED U/S 194J OF THE ACT OR SIMPLE WORKS CO NTRACT LIABLE FOR TAX U/S 194C OF THE ACT? WHETHER UNDER THE CIRCUMSTANCES WHERE THE DEDUCTEE COMPANIES HAVE FILED THEIR INCOME-TAX RETURNS AND PAID THE IN COME-TAX DUE ON THE CONTRACTED AMOUNT, THE TDS DEMANDS RAISED BY TH E ASSESSING OFFICER CAN BE RECOVERED FROM THE APPELLANT AND INT EREST UNDER SECTION 201(1A) CAN BE LEVIED? 12. THE LD. CIT(A) HAS DELIBERATED ON THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND THE NATURE OF CONTRACTS AND WAS OF THE VIEW THAT WHEN THE SUPPLY OF MATERIAL HAS BEEN MADE IN P URSUANCE OF CONTRACT FOR A CONTRACTED SALE PRICE, DELIVERY AND TITLE TO GOODS PASSES ON TO THE CONTRACTEE BEFORE COMMISSIONING AND ERECTION WORK S TARTS, AND WHEN SALE OR SUPPLY IS PREDOMINANT RELATIVE TO COMMISSIONING WORK PORTION AND SUPPLY CONTRACT IS VALID AND NOT TREATED AS SHAM, THE MATE RIAL SUPPLY IS TO BE REGARDED AS SALE AND NO TDS UNDER SECTION 194C OF T HE ACT IS TO BE DEDUCTED. THE LD. CIT(A) ACCORDINGLY HELD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX IN RESPECT OF SUPPLY CONTRACTS (TYPE A C ONTRACTS) I.E. CONTRACTS ONLY FOR SUPPLY OF MATERIALS EXCLUDING COMPOSITE CO NTRACTS WHICH INCLUDE BOTH SUPPLY AND SERVICE. THEREFORE, THE ASSESSEE I S NOT TO BE TREATED AS AN ASSESSEE IN DEFAULT IN RESPECT OF TYPE A CONTRACTS. 13. WITH REGARD TO THE CONTRACT OF TYPE B CATEGORY, THE LD. CIT(A) WAS OF THE VIEW THAT IN CASE OF SERVICE CONTRACTS WHICH AR E NOTHING BUT WORK IN THE NATURE OF CIVIL WORK, INSTALLATION, ERECTION, COMMI SSION, ETC. UNDER THE TERMS OF CONTRACT, THE TAX DEDUCTIBLE AT SOURCE IS UNDER SECTION 194C OF THE ACT AND NOT UNDER SECTION 194J OF THE ACT. ACCORDINGLY , THE LD. COMMISSIONER OF INCOME-TAX FURTHER HELD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCTION TAX IN RESPECT OF SERVICE CONTRACTS UNDER SECTION 194J OF THE ACT. :-10- : 14. WITH RESPECT TO THE TYPE C CATEGORY OF CONTRACT, TH E LD. CIT(A) HAS HELD THAT THESE CONTRACTS ARE COMPOSITE CONTRACTS W HEREIN THE CONTRACT HAS BEEN MADE FOR BOTH SUPPLY OF MATERIALS AND ERECTION AND COMMISSIONING. THEREFORE, THE COMPOSITE CONTRACTS ARE INDIVISIBLE CONTRACTS SO FAR AS SUPPLY OF MATERIALS AND COMMISSIONING OF THE PROJECT IS CO NCERNED. THE LD. CIT(A) HAS FURTHER HELD THAT THE SCOPE OF WORK BOTH SUPP LY AND SERVICE COMPONENT HAVE BEEN MENTIONED AND THE SUPPLY AND SE RVICES ARE NOT DISTINCT AND THE CONTRACTOR HAS ASSUMED OVERALL RES PONSIBILITY FOR THE PROJECT WHICH IS EQUIVALENT TO THE TURNKEY PROJECT AND THER EFORE THE CONTRACT CANNOT BE DIVIDED INTO SUPPLY SEGMENT AND SERVICE SEGMENT FOR THE PURPOSES OF TAX DEDUCTION AT SOURCE. THE LD. CIT(A) ACCORDINGLY UP HELD THE ORDER OF THE ASSESSING OFFICER WHO HELD THESE TWO CONTRACTS ARE COMPOSITE CONTRACTS AND SUBJECTING THE ENTIRE PAYMENT UNDER SUCH CONTRACT F OR DEDUCTION OF TAX AT SOURCE. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A ) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 14.2 THE AO IS OF THE VIEW THAT THE CONTRACTS HAVE BEEN SPLIT DELIBERATELY INTO TWO CONTRACTS FOR SUPPLY AND SERV ICE TO AVOID PAYMENT OF TDS ON THE SUPPLY OF PLANT & MACHINERY. WHILE SUPPLY OF ANY PLANT & MACHINERY ATTRACTS EXCISE DUTY, SALES T AX, OCTROI ETC. THE INSTALLATION/COMMISSIONING CHARGES ATTRACT ONLY TDS . IT IS APPARENT THAT 80% TO 90% OF THE VALUE OF THE ORDER (SUPPLY & INSTALLATION) IS TOWARDS SUPPLY OF THE PLANT & MACHINERY, HENCE THE APPELLANT WOULD NOT MAKE ANY SAVING BY SEGREGATING THE TWO CONTRACT INTO TWO PARTS AS THE TOTAL QUANTUM OF EXCISE DUTY, SALES TAX, OCT ROI ETC. WILL BE MUCH MORE THAN THE TDS THAT WILL BE DEDUCTIBLE IF T HE CONTRACT IS CONSIDERED AS A COMPOSITE CONTRACT. WHEREAS IDS WIL L BE ON THE ACCOUNT OF THE CONTRACTOR, EXCISE DUTY, SALES TAX, OCTROI ETC. ON THE SALES WOULD BE CHARGED TO THE APPELLANT, HENCE, COM MERCIAL CONSIDERATION DO NOT FAVOUR TO SPLIT THE CONTRACT. IN THE CASE OF THE APPELLANT, WHERE THE CONTRACT O F SUPPLY AND ERECTION IS GIVEN TO THE SAME PARTY IN TWO DIFFEREN T CONTRACTS, THE :-11- : VALUE OF THE COMMISSIONING, INSTALLATION AND ERECTI ON CONTRACT CAN BE SEEN AS LESSER THAN THE VALUE OF THE SUPPLY CONTRAC T. IT CANNOT THEREFORE CONTROL THE INTERPRETATION OF THE CONTRAC T, SPECIFICALLY WHEN THE PROPERTY IN THE GOODS HAS PASSED EX-WORKS ON DE LIVERY AND NOT ON THE THEORY OF ACCRETION. THE APPELLANT TOOK POSS ESSION OF THE GOODS AND THE TITLE PASSED ON TO IT AS A CHATTEL PR IOR TO COMMENCEMENT OF THE SERVICE CONTRACT. THE HON'BLE T RIBUNAL, HYDERABAD BENCH IN THE CASE OF POWER GRID CORPORATI ON OF INDIA LTD. VS. ACIT [2007] 112 TTJ 654 (HYD.-ITAT) RULED THAT; '5.5........THE MERE FACT THAT THE SUPPLIER HAS TO PERFORM MANY OTHER OBLIGATIONS CAST ON IT BY VIRTUE OF THE CONTR ACT AFTER DELIVERY OF GOODS DOES NOT CHANGE THE NATURE OF TRA NSACTION. THE 'SUPPLY' PORTION OF THE CONTRACT IS THE PREDOMI NANT OBJECT AND INTENTION OF THE PARTIES. ERECTION IS RELATIVEL Y MINOR PORTION AS COMPARED TO THE SUPPLY PORTION. IF THE ERECTION PORTION CANNOT BE TAKEN AS THE MAIN OBJECT OF THESE CONTRAC TS, TITLE IN GOODS WAS TRANSFERRED AS MOVABLES PRIOR TO ERECTION . IF EQUIPMENT ARE MANUFACTURED AS PER THE DESIGN, ENGIN EERING, ETC., SPECIFIED BY THE CUSTOMER, IT WOULD NOT RESUL T IN A WORKS CONTRACT ESPECIALLY WHEN ALL THE MATERIAL BELONG TO THE SUPPLIER, EVEN THOUGH IT PRODUCED A TAILOR-MADE PRODUCT. THE ERECTION PORTION BEING SUBSEQUENT TO PASSING OF TITLE BY EXE CUTION OF THE SUPPLY PORTION, IT CANNOT BE SAID THAT THE ERECTION PORTION CONTROLS THE SUPPLY PORTION, THOUGH THE FULFILLMENT OF THE CONDITIONS OF THE ERECTION CONTRACT HAS A BEARING O N THE FULFILLMENT OF THE CONDITION OF SUPPLY PORTION OF T HE CONTRACT, AND THOUGH IN SOME CASES BOTH THE CONTRACTS ARE IN THE SAME DOCUMENT. THE SCOPE AND OBJECT OF EACH PART OF THE CONTRACT IS DIFFERENT. THOUGH THE SUPPLY PORTION AND ERECTION P ORTION DOVETAIL INTO EACH OTHER, THE ERECTION PORTION DOES NOT CONTROL THE SUPPLY PORTION AND THE SUPPLY CONTRACT DOES NOT BECOME A WORKS CONTRACT, JUST BECAUSE THERE IS AN OBLIGATION CAST ON THE SUPPLIER TO ERECT THE EQUIPMENT WHICH BY THAT TIME HAS BECOME THE PROPERTY OF THE PURCHASER. THE TITLE IN THE GOO DS IN RESPECT :-12- : OF EQUIPMENT/MATERIAL TO BE SUPPLIED AS PER THE TER MS OF CONTRACT IS TO BE TRANSFERRED 'EX-WORK' ON DISPATCH AS MOVABLE PROPERTY. THE CRITICAL TEST TO BE APPLIED IS AS TO WHEN THE TITLE IN THE GOODS IS TRANSFERRED. THUS AS THE TITLE IN THE GOODS WERE PASSED ON TO THE ASSESSEE, BEFORE THE COMMENCEMENT OF THE WORKS OR ERECTION CONTRACT AND AS ADMITTED BY THE A SSESSEE HAD TREATED THESE GOODS AS ITS PROPERTY AND ENTERED THE SAME AS SUCH IN ITS STOCK REGISTER BEFORE ISSUING THE SA ME FOR ERECTION, IT IS A CONTRACT OF SALE AND SECTION 194C HAS NO APPLICATION. ON ERECTION PORTION AS ADMITTED TDS IS MADE.' 14.3 THUS, IT IS AMPLY CLEAR, AS IN THE CASE OF THE APPELLANT, WHEN THE SUPPLY OF MATERIALS HAVE BEEN MADE IN PURSUANCE OF A CONTRACT FOR A CONTRACTED SALE PRICE, DELIVERY AND TITLE TO GOODS PASSES ON TO THE CONTRACTEE BEFORE COMMISSIONING AND ERECTION WO RK STARTS, WHEN SALE OR SUPPLY IS PREDOMINANT RELATIVE TO COMMISSIO NING WORK PORTION, WHEN SUPPLY CONTRACT IS VALID AND NOT TREATED AS SH AM, THE MATERIAL SUPPLY IS TO BE REGARDED AS SALE AND NO TDS U/S 194 C IS TO BE MADE. ACCORDINGLY, THE APPELLANT IS NOT LIABLE TO DEDUCT TAXES IN RESPECT OF SUPPLY CONTRACTS (TYPE A CONTRACTS AS PER APPELLANT ) I.E. CONTRACTS ONLY FOR SUPPLY OF MATERIALS EXCLUDING COMPOSITE CO NTRACTS WHICH INCLUDE BOTH SUPPLY AND SERVICE. HENCE, THE APPELLA NT IS NOT TREATED AS AN ASSESSEE-IN-DEFAULT IN RESPECT OF TYPE A CONT RACTS. 15. THE APPELLANT HAS ALSO ENTERED INTO COMPOSITE C ONTRACTS CALLED BY THE APPELLANT AS TYPE C CONTRACTS. THOSE CONTRAC TS HAVE BEEN ENTERED WITH M/S THERMOSYSTEMS PVT. LTD. VIDE CONTR ACT NOS.VJ/SML2/BF/1183 AND VJ/SML2/UT/1291. THESE CONT RACTS ARE COMPOSITE CONTRACTS WHEREIN THE CONTRACT HAS BEEN M ADE FOR BOTH SUPPLY MATERIALS AND ERECTION AND COMMISSIONING. TH E SCOPE OF WORK AND OTHER RELEVANT TERMS OF AGREEMENT HAVE ALREADY BEEN NARRATED IN PARA 12. THE SCOPE OF WORK AS MENTIONED IN ARTICLE 2 OF BOTH THE CONTRACTS IS INCLUSIVE OF MATERIALS SUPPLY AS WELL AS INSTALLATION, COMMISSIONING, OPERATION AND MAINTENANCE OF THE PRO JECT. THE :-13- : CONTRACT PRICE AS MENTIONED IN ARTICLE 5 IN BOTH TH E CONTRACTS IS A SINGLE CONTRACT PRICE EVEN THOUGH A BREAK UP HAS BE EN ATTEMPTED IN ANNEXURE-I TO THE CONTRACT BETWEEN SUPPLY AND SERVI CE AGREEMENTS. A CONTRACT PRICE AS MENTIONED IS FOR SETTING UP THE COMPLETE FACILITY. THE COMPLETENESS CLAUSE BELOW ARTICLE 2 MANDATES TH E CONTRACTOR FOR COMPLETION OF THE PROJECT AND SATISFACTORY OPERATIO N. ACCORDINGLY, THE COMPOSITE CONTRACTS ARE INDIVISIBLE CONTRACTS SO FA R AS SUPPLY OF- MATERIALS AND COMMISSIONING OF THE PROJECT IS CONCE RNED. IN THE SCOPE OF WORK, BOTH SUPPLY SEGMENTS AND SERVICE AGR EEMENT HAVE BEEN MENTIONED SIMULTANEOUSLY AND THE SUPPLY AND SE RVICES ARE NOT DISTINCT. THE CONTRACTOR HAS ASSUMED OVERALL RESPON SIBILITY FOR THE PROJECT WHICH IS EQUIVALENT TO THE TURNKEY PROJECT. ACCORDINGLY, THE CONTRACT CANNOT BE DIVIDED INTO SUPPLY SEGMENT AND SERVICE SEGMENT FOR THE PURPOSES OF TAX DEDUCTION AT SOURCE. THUS, THE AO WAS RIGHT IN TREATING THE AFORESAID TWO CONTRACTS AS A COMPOS ITE CONTRACT AND SUBJECTING THE ENTIRE PAYMENT UNDER SUCH CONTRACT F OR DEDUCTION OF TAX AT SOURCE. 16. REGARDING TAX DEDUCTION U/S 194J IN RESPECT OF SERVICE CONTRACTS IN THE CASE OF THE APPELLANT, THE APPELLA NT SUBMITS AS UNDER; '.....4.8 WHILE HOLDING THE APPELLANT LIABLE FOR DE DUCTION OF TDS U/S 194J OF THE ACT, THE AO HAS NOT LOOKED INTO THE SCOPE OF WORKS AS ASSIGNED TO THE CONTRACTORS TO CARRY OU T THE JOB IN TERMS OF CONTRACTS ENTERED..... FOR THE SAKE OF CON VENIENCE THE SCOPE OF WORKS AS ASSIGNED TO ABB AND ALSTOM IS AS UNDER: ABB '3.1 THE SCOPE OF WORK TO BE CARRIED OUT BY THE CON TRACTOR PURSUANT TO THE TERMS OF THIS CONTRACT SHALL INCLUD E, IN RELATION TO THE FACILITY, ALL ELEMENTS AS DESCRIBED IN THE A NNEXURE 1 (TECHNICAL SPECIFICATIONS) AND SPECIFICALLY THE FOL LOWING: (A) RECEIPT/UNLOADING AT SITE, STORAGE AND PR ESERVATION OF ALL EQUIPMENT AND MATERIAL REQUIRED FOR THE FACILIT Y; :-14- : (B) ALL ERECTION WORKS INCLUDING HANDLING, ER ECTION CONSUMABLES, SITE SUPERVISION AND INSPECTION, PRE O PERATIONAL CHECKING, STARTING, CALIBRATION, SYSTEM BALANCING, HOOKING UP WITH EXISTING SYSTEM, ALL COMMISSIONING ACTIVITIES INCLUDING START-UP, TRIAL RUN, RELIABILITY RUN AND ACTIVITIES RELATING TO PERFORMANCE GUARANTEE TESTS; (C) COMPREHENSIVE PROJECT MANAGEMENT SERVICES INCLUDING CONSTRUCTION MANAGEMENT, SITE ADMINISTRATION, PROCU REMENT OF STATUTORY CLEARANCES/APPROVALS, COORDINATION, INTER FACING, INTEGRATION, SYNCHRONIZATION, ETC; (D) PROCUREMENT OF ALL APPLICABLE CLEARANCES; (E) ANY OTHER ACTIVITY OR INPUT REQUIRED TO E NSURE COMPLETENESS OF THE FACILITY AS PER ARTICLE 3.3. 3.2 COMPLETENESS ANY SCOPE OF WORK, WHICH IS NOT SPECIFICALLY MENTIO NED IN THIS CONTRACT, BUT IS REQUIRED FOR THE COMPLETION AND SA FE, TROUBLE FREE, NORMAL OPERATION OF THE FACILITY SHALL, UNLES S SPECIFICALLY EXCLUDED IN THIS CONTRACT, BE CONSIDERED AS INCLUDE D IN THE SCOPE OF WORK AND SHALL BE SUPPLIED AND/OR RENDERED FREE OF COST TO THE OWNER.' 4.9 ON PERUSAL OF THE SCOPE OF WORKS AS ASSIGNED TO ABB AND ALSTOM (OTHER SERVICE AGREEMENTS ALSO ON THE SAME L INES), IT IS CLEAR THAT THOSE CONTRACTORS HAVE NOT RENDERED ANY PROFESSIONAL OR TECHNICAL SERVICES TO THE APPELLANT BUT HAS CARR IED OUT THE JOB OF CIVIL WORKS, ERECTION AND INSTALLATION OF TH E PLANT AND MACHINERY WHEREIN SUCH TECHNICAL KNOWLEDGE MAY BE H ELPFUL TO THE DEDUCTEE COMPANY TO CARRY OUT THE JOB OF ERECTI ON AND INSTALLATION BUT THAT DOES NOT MEAN THAT THE DEDUCT EE COMPANY HAD RENDERED ANY PROFESSIONAL OR TECHNICAL SERVICES TO THE APPELLANT.....' THE APPELLANT ALSO SUBMITS; :-15- : '4.11 .... THE AO HIMSELF ADMITS THAT THESE CONTRAC TOR COMPANIES ARE NOT DIRECTLY PROVIDING ANY PROFESSION AL SERVICES OR TECHNICAL SERVICES TO THE APPELLANT BUT HIS CASE IS THAT THE CHARGE FOR IMPLEMENTATION AND INSTALLATION INCLUDED THE FEE FOR TECHNICAL SERVICES OR ENGINEERING SERVICES AND THE SERVICE PROVIDED WILL BE DEEMED AS PROFESSIONAL SERVICE. FR OM THE CONTRACT, IT IS CLEAR THAT NEITHER THE APPELLANT AS KED THE DEDUCTEE TO PROVIDE ANY TECHNICAL SERVICE BY EMPLOY ING ANY TECHNOCRATS AND ENGINEERS BUT THE CONTRACT WAS IN R ESPECT TO EXECUTE THE WORK OF INSTALLATION AND ERECTION OF PL ANT AND MACHINERY. IT IS THE OUTLOOK OF DEDUCTEE COMPANY HO W TO EXECUTE THE WORK. AS ALREADY SUBMITTED ABOVE, AS NO TED BY THE DELHI BENCH OF THE ITAT IN THE CASE OF PARAS RAMPUR IA SYNTHETICS (SUPRA) THAT THERE IS A DIFFERENCE BETWE EN CARRYING OUT THE JOB BY USING TECHNICAL KNOWLEDGE AND RENDER ING OF TECHNICAL SERVICES TO THE CLIENT AS THE TECHNICAL E XPERTISE, IF ANY, WAS USED BY THEM FOR THEIR OWN TO CARRY OUT THE JOB WORK AS ASSIGNED IN THE SERVICE AGREEMENTS. HOWEVER, AS ALR EADY STATED THAT SINCE THE DATE OF INCEPTION OF SECTION 194C, T HE ERECTION AND INSTALLATION OF THE PLANT AND MACHINERY IS ALWA YS CONSIDERED AS A WORKS CONTRACT LIABLE FOR DEDUCTION U/S 194C OF THE ACT. SIMILARLY, EVEN THE JOB OF CONSTRUCTION AN D ASSEMBLY OF THE PLANT AND MACHINERY IS ALWAYS KEPT OUTSIDE THE DEFINITION OF FEE FOR TECHNICAL SERVICES AS EXPLAINED BY THE BOAR D ALSO IN CIRCULAR NO. 202 DATED 5TH JULY 1976 AS THEY ARE BU SINESS INCOME............. 4.15 IN THE PRESENT CASE, THE AO HAS TREATED THE AS SESSES IN DEFAULT IN TERMS OF SECTION 1943 OF THE ACT ON ACCO UNT OF HIS PRESUMPTION AND FICTION THAT THE SERVICES PROVIDED IN INSTALLING AND ERECTION OF THE PLANT AND MACHINERY WILL BE DEE MED AS PROFESSIONAL SERVICE BECAUSE FOR THE INSTALLATION A ND ERECTION OF THE PLANT AND MACHINERY, SPECIFIC ENGINEERING AND T ECHNICAL KNOWLEDGE IS REQUIRED. AS ALREADY SUBMITTED ABOVE T HAT IN THE CASE OF PARAS RAMPURIA SYNTHETICS IN 20 SOT 248, TH E HON'BLE :-16- : BENCH OF THE ITAT HAD CLEARLY CHALKED OUT THE DIFFE RENCE BETWEEN THE AREA APPLICABILITY OF SECTIONS 194C AND 1943 OF THE ACT. THE DELHI BENCH OF THE ITAT HELD THAT TO C ARRY OUT THE JOB BY USING TECHNICAL KNOWLEDGE IS DIFFERENT FROM RENDERING OF TECHNICAL SERVICES. IN THE INSTANT CASE, THE DEDUCT EE COMPANY HAS NOT RENDERED ANY TECHNICAL/PROFESSIONAL SERVICE S TO THE APPELLANT COMPANY AS SUCH BUT HE HAS CARRIED OUT TH E JOB OF ERECTION AND INSTALLATION OF THE PLANT AND MACHINER Y WHICH IS ALWAYS CONSIDERED AS BUSINESS AS EXPLAINED ABOVE. 4.16 APART FROM THE ABOVE, ANOTHER ASPECT OF THE MA TTER IS THAT FROM THE ENTIRE ORDER OF THE AO IT IS CLEAR THAT HE HAS TRIED TO ESTABLISH THAT THE CONTRACTS AS AWARDED TO THE DEDU CTEES ARE COMPOSITE CONTRACTS. IN OTHER WORDS, SUPPLY AND SER VICE CONTRACTS ARE ONE CONTRACT BUT AT THE TIME OF SUBJE CTING THE PAYMENTS TO TDS PROVISIONS, HE HIMSELF IDENTIFIED T HE SUPPLY CONTRACTS AND SERVICE CONTRACTS AS SEPARATE CONTRAC TS. THE SUPPLY CONTRACTS HE CONSIDERED AS WORKS CONTRACTS O N WHICH THE PROVISIONS OF SECTION 194C ARE APPLICABLE, WHER EAS ON PAYMENTS IN RELATION TO SERVICE CONTRACTS, HE HELD THAT PROVISIONS OF SECTION 1943 OF THE ACT ARE APPLICABL E. THIS TREATMENT OF THE AO IS ITSELF CONTRADICTORY TO EACH OTHER AND IS NOT PERMISSIBLE UNDER THE LAW.' 16.1 AS FAR AS APPLICATION OF SECTION 194X IS CONCE RNED, THE AO HAS SUBJECTED SERVICE PORTION OF THE TYPE C CONTRACT AN D WHOLE OF TYPE B CONTRACTS (SERVICE CONTRACTS) TO DEDUCTION OF TAX U /S 194J. CLARIFICATION REGARDING APPLICABILITY OF SECTION 19 4C WAS PROVIDED IN THE CBDT'S CIRCULAR NO. 632, DATED THE 20TH AUGUST, 1992 IN VIEW OF THE SUPREME COURT'S DECISION IN ASSOCIATED CEMENT C O. LTD. V. CIT [1993] 67 TAXMAN 346/201 ITR 435, AS UNDER; '5.3 IT IS CLARIFIED THAT THE TERM 'ANY WORK' IN SE CTION 194C HAS TO BE UNDERSTOOD, IN ITS NATURAL MEANING I.E., ANY WORK MEANS ANY AND NOT ONLY A 'WORKS CONTRACT' WHICH HAS A SPE CIAL CONNOTATION IN THE TAX LAW. THIS HAS BEEN CLEARLY E NUNCIATED BY :-17- : THE SUPREME COURT OF INDIA IN ITS JUDGMENT DATED 23 -3-1993 IN CIVIL APPEAL NO. 2860 (NT) OF 1979. ASSOCIATED CEME NT CO. LTD. V. CIT [1993] 201 ITR 435. THUS, THE PROVISION S OF SECTION 194C ARE APPLICABLE TO ALL TYPES OF CONTRACTS FOR C ARRYING OUT ANY WORK, SUCH AS TRANSPORT CONTRACTS, SERVICE CONT RACTS, LABOUR CONTRACTS, MATERIAL CONTRACTS, AS WELL AS WORKS CON TRACTS, ETC...' THE CBDT IN CIRCULAR: NO. 715, DATED 8-8- 1995 CLARIFIED CERTAIN DOUBTS REGARDING 194C/194J AS UNDER; 'QUESTION 28 : WHETHER THE SERVICES OF A REGULAR EL ECTRICIAN ON CONTRACT BASIS WILL FALL IN THE AMBIT OF TECHNICAL SERVICES TO ATTRACT THE PROVISIONS OF SECTION 194J OF THE ACT? IN CASE THE SERVICES OF THE ELECTRICIAN ARE PROVIDED BY A CONTR ACTOR, WHETHER THE PROVISIONS OF SECTION 194C OR 194J WOULD BE APP LICABLE? ANSWER : THE PAYMENTS MADE TO AN ELECTRICIAN OR TO A CONTRACTOR WHO PROVIDES THE SERVICE OF AN ELECTRICI AN WILL BE IN THE NATURE OF PAYMENT MADE IN PURSUANCE OF A CONTRA CT FOR CARRYING OUT ANY WORK. ACCORDINGLY, PROVISIONS OF S ECTION 194C WILL APPLY IN SUCH CASES. QUESTION 29 : WHETHER A MAINTENANCE CONTRACT INCLUD ING SUPPLY OF SPARES WOULD BE COVERED UNDER SECTION 194 C OR 1943 OF THE ACT ? ANSWER : ROUTINE, NORMAL MAINTENANCE CONTRACTS WHIC H INCLUDES SUPPLY OF SPARES WILL BE COVERED UNDER SEC TION 194C. HOWEVER, WHERE TECHNICAL SERVICES ARE RENDERED, THE PROVISION OF SECTION 194J WILL APPLY IN REGARD TO TAX DEDUCTI ON AT SOURCE.' THE INCOME TAX ACT HAS NOT DEFINED THE TERM 'TECHNI CAL SERVICES'; BUT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SKYCELI COMMUNICATIONS LTD. V. DY.CIT, (2001) 251 ITR 53 (M AD) / [2001]119TAXMAIM 496 (MAD.) HAD AN OCCASION TO EXAM INE THE DEFINITION OF 'FEE FOR TECHNICAL SERVICES' IN THE C ONTEXT OF PAYMENT OF FEES BY A CELLULAR/MOBILE PHONE SUBSCRIBER TO THE O PERATOR OF THE CELLULAR/MOBILE PHONE FACILITY. :-18- : THE FOLLOWING WERE ITS OBSERVATIONS: '... DEFINITION SHOWS THAT CONSIDERATION PAID FOR T HE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICE ,- AS ALSO THE CONSIDERATION PAID FOR THE PROVISION OF SERVICE S OF TECHNICAL OR OTHER PERSONNEL, WOULD BE REGARDED AS FEES PAID FOR 'TECHNICAL SERVICE'. THE DEFINITION EXCLUDES FROM I TS AMBIT CONSIDERATION PAID FOR CONSTRUCTION, ASSEMBLY, OR M INING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT, AS ALSO CONSID ERATION WHICH WOULD CONSTITUTE INCOME OF THE RECIPIENT CHAR GEABLE UNDER THE HEAD 'SALARIES'. THUS, WHILE STATING THAT 'TECHNICAL SERVICE' WOULD INCLUDE MANAGERIAL AND CONSULTANCY SERVICE, THE LEGISLATURE HAS NOT SET OUT WITH PRECISION AS TO WHAT WOULD CONSTITUTE 'TEC HNICAL' SERVICE TO RENDER IT 'TECHNICAL SERVICE'. THE MEANI NG OF THE WORD 'TECHNICAL' AS GIVEN IN THE NEW OXFORD DICTIONARY I S ADJECTIVE. 1 OF OR RELATING TO, A PARTICULAR SUBJECT, ART OR CRA FT OR ITS TECHNIQUES: TECHNICAL TERMS (ESPECIALLY OF A BOOK O R ARTICLE) REQUIRING SPECIAL KNOWLEDGE TO BE UNDERSTOOD: A TEC HNICAL REPORT. 2 OF INVOLVING, OR CONCERNED WITH APPLIED A ND INDUSTRIAL SCIENCES: AN IMPORTANT TECHNICAL ACHIEVEMENT. 3 RES ULTING FROM MECHANICAL FAILURE: A TECHNICAL FAULT AND 4 ACCORDI NG TO A STRICT APPLICATION OR INTERPRETATION OF THE LAW OR THE RUL ES: THE ARREST WAS A TECHNICAL VIOLATION OF THE TREATY. 6. HAVING REGARD TO THE FACT THAT THE TERM IS REQUI RED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED, 'FEE FOR TECHNICAL SERVICES' COULD ONLY BE MEANT TO COVER SUCH THINGS TECHNICAL AS ARE CAPABLE OF BEING PROVIDED BY WAY OF SERVICE FOR A FEE. THE POPULAR MEANING ASSOCIATED WITH 'TECHNICAL' IS 'INV OLVING OR CONCERNING APPLIED AND INDUSTRIAL SCIENCE'. 7. IN THE MODERN DAY WORLD, ALMOST EVERY FACET OF O NE'S LIFE IS LINKED TO SCIENCE AND TECHNOLOGY INASMUCH AS NUMERO US THINGS USED OR RELIED UPON IN EVERY DAY LIFE IS THE RESULT OF SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENT. EVERY INSTRUMENT OR GADGET :-19- : THAT IS USED TO MAKE LIFE EASIER IS THE RESULT OF S CIENTIFIC INVENTION OR DEVELOPMENT AND INVOLVES THE USE OF TE CHNOLOGY. ON THAT SCORE, EVERY PROVIDER OF EVERY INSTRUMENT O R FACILITY USED BY A PERSON CANNOT BE REGARDED AS PROVIDING TE CHNICAL SERVICE. 8. WHEN A PERSON HIRES A TAXI TO MOVE FROM ONE PLAC E TO ANOTHER, HE USES A PRODUCT OF SCIENCE AND TECHNOLOG Y, VIZ., AN AUTOMOBILE. IT CANNOT ON THAT GROUND BE SAID THAT T HE TAXI DRIVER WHO CONTROLS THE VEHICLE AND MONITORS ITS MO VEMENT IS RENDERING A TECHNICAL SERVICE TO THE PERSON WHO USE S THE AUTOMOBILE. SIMILARLY, WHEN A PERSON TRAVELS BY TRA IN OR IN AN AEROPLANE, IT CANNOT BE SAID THAT THE RAILWAYS OR A IRLINES IS RENDERING A TECHNICAL SERVICE TO THE PASSENGER AND, THEREFORE, THE PASSENGER IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE RAILWAY OR THE AIRLINE FOR HAVING USED IT FOR TRAVELLING FROM ONE DESTINATION TO ANOT HER. WHEN A PERSON TRAVELS BY BUS, IT CANNOT BE SAID THAT THE U NDERTAKING WHICH OWNS THE BUS SERVICE IS RENDERING TECHNICAL S ERVICE TO THE PASSENGER AND, THEREFORE, THE PASSENGER MUST DE DUCT TAX AT SOURCE ON THE PAYMENT MADE TO THE BUS SERVICE PR OVIDER FOR HAVING USED THE BUS. THE ELECTRICITY SUPPLIED TO A CONSUMER CANNOT, ON THE GROUND THAT GENERATORS ARE USED TO G ENERATE ELECTRICITY, TRANSMISSION LINES TO CARRY THE POWER, TRANSFORMERS TO REGULATE THE FLOW OF CURRENT, METERS TO MEASURE THE CONSUMPTION, BE REGARDED AS AMOUNTING TO PROVISION OF TECHNICAL SERVICES TO THE CONSUMER RESULTING IN THE CONSUMER HAVING TO DEDUCT TAX AT SOURCE ON THE PAYMENT MADE FOR THE POWER CONSUMED AND REMIT THE SAME TO THE REVENUE.' THE COURT FINALLY CONCLUDED AS FOLLOWS: '10. INSTALLATION AND OPERATION OF SOPHISTICATED EQ UIPMENTS WITH A VIEW TO EARN INCOME BY ALLOWING CUSTOMERS TO AVAIL OF THE BENEFIT OF THE USER OF SUCH EQUIPMENT, DOES NOT RESULT IN THE PROVISION OF TECHNICAL SERVICE TO THE CUSTOMER FOR A FEE. :-20- : 11. WHEN A PERSON DECIDES TO SUBSCRIBE TO A CELLULA R TELEPHONE SERVICE IN ORDER TO HAVE THE FACILITY OF BEING ABLE TO COMMUNICATE WITH OTHERS, HE DOES NOT CONTRACT TO RE CEIVE A TECHNICAL SERVICE. WHAT HE DOES AGREE TO IS TO PAY FOR THE USE OF THE AIRTIME FOR WHICH HE PAYS A CHARGE. THE FACT THAT THE TELEPHONE SERVICE PROVIDER HAS INSTALLED SOPHISTICA TED TECHNICAL EQUIPMENT IN THE EXCHANGE TO ENSURE CONNECTIVITY TO ITS SUBSCRIBER, DOES NOT ON THAT SCORE, MAKE IT PROVISI ON OF A TECHNICAL SERVICE TO THE SUBSCRIBER. THE SUBSCRIBER IS NOT CONCERNED WITH THE COMPLEXITY OF THE EQUIPMENT INST ALLED IN THE EXCHANGE, OR THE LOCATION OF THE BASE STATION. ALL THAT HE WANTS IS THE FACILITY OF USING THE TELEPHONE WHEN H E WISHES TO, AND BEING ABLE TO, GET CONNECTED TO THE PERSON AT T HE NUMBER TO WHICH HE DESIRES TO BE CONNECTED. WHAT APPLIES T O CELLULAR MOBILE TELEPHONE IS ALSO APPLICABLE TO FIXED TELEPH ONE SERVICE. NEITHER SERVICE CAN BE REGARDED AS 'TECHNICAL SERVI CE' FOR THE PURPOSE OF SECTION 194J. 12. THE USE OF THE INTERNET AND THE WORLD-WIDE WEB IS INCREASING BY LEAPS AND BOUNDS, AND THERE ARE HUNDR EDS OF THOUSANDS, IF NOT MILLIONS, OF SUBSCRIBERS TO THAT FACILITY. THE INTERNET IS VERY MUCH A PRODUCT OF TECHNOLOGY, AND WITHOUT THE SOPHISTICATED EQUIPMENT INSTALLED BY THE INTERNET S ERVICE PROVIDERS AND THE USE OF THE TELEPHONE FIXED OR MOB ILE THROUGH WHICH THE CONNECTION IS ESTABLISHED, THE SERVICE CA NNOT BE PROVIDED. HOWEVER, ON THAT SCORE, EVERY SUBSCRIBER OF THE INTERNET SERVICE PROVIDER CANNOT BE REGARDED AS HAV ING ENTERED INTO A CONTRACT FOR AVAILING OF TECHNICAL SERVICES FROM THE PROVIDER OF THE INTERNET SERVICE, AND SUCH SUBSCRIB ER REGARDED AS BEING OBLIGED TO DEDUCT TAX AT SOURCE ON THE PAY MENT MADE TO THE INTERNET SERVICE PROVIDER, 13. AT THE TIME THE INCOME-TAX ACT WAS ENACTED IN T HE YEAR 1961, AS ALSO AT THE TIME WHEN EXPLANATION 2 TO SEC TION 9(1)(VII) WAS INTRODUCED BY THE FINANCE (NO. 2) ACT , WITH EFFECT :-21- : FROM 1-4-1977, THE PRODUCTS OF TECHNOLOGY HAD NOT B EEN IN SUCH WIDE USE AS THEY ARE TODAY. ANY CONSTRUCTION O F THE PROVISIONS OF THE ACT MUST BE IN THE BACKGROUND OF THE REALITIES OF DAY-TO-DAY LIFE IN WHICH THE PRODUCTS OF TECHNOL OGY PLAY AN IMPORTANT ROLE IN MAKING LIFE SMOOTHER AND MORE CON VENIENT. SECTION 194], AS ALSO EXPLANATION 2 IN SECTION 9(1) (VII) WERE NOT INTENDED TO COVER THE CHARGES PAID BY THE AVERAGE H OUSE- HOLDER OR CONSUMER FOR UTILISING THE PRODUCTS OF MO DERN TECHNOLOGY, SUCH AS, USE OF THE TELEPHONE, FIXED OR MOBILE, THE CABLE T.V., THE INTERNET, THE AUTOMOBILE, THE RAILW AY, THE AERO PLANE, CONSUMPTION OF ELECTRICAL ENERGY, ETC. SUCH FACILITIES WHICH WHEN USED BY INDIVIDUALS ARE NOT CAPABLE OF B EING REGARDED AS TECHNICAL SERVICE, CANNOT BECOME SO WHE N USED BY FIRMS AND COMPANIES. THE FACILITY REMAINS THE SAME WHOEVER THE SUBSCRIBER MAY BE INDIVIDUAL, FIRM OR COMPANY. 14. 'TECHNICAL SERVICE' REFERRED TO IN SECTION 9(1) (VII) CONTEMPLATES RENDERING OF A 'SERVICE' TO THE PAYER OF THE FEE. MERE COLLECTION OF A 'FEE' FOR USE OF A STANDARD FA CILITY PROVIDED TO ALL THOSE WILLING TO PAY FOR IT DOES NOT AMOUNT TO THE FEE HAVING BEEN RECEIVED FOR TECHNICAL SERVICES.' 16.2 TO QUALIFY U/S. 194J, PAYMENT FOR TECHNICAL SE RVICES SHOULD BE A CONSIDERATION FOR ACQUIRING OR USING TECHNICAL KNOW -HOW. IN VIEW OF THE SPECIFIC PROVISION AS CONTAINED IN EXPLANATION 2 OF SECTION 9(1)(VII), THE JOB OF ASSEMBLY AND INSTALLATION OF PLANT & MACHINERY CANNOT BE TREATED AS A FEES FOR TECHNICAL SERVICES. IN CASE OF A CONTRACT WORK THE CONTRACTOR HAS TO WORK AS PER SPE CIFICATIONS PROVIDED BY THE CONTRACTEE. THEREFORE APART FROM IT S SPECIALIZATION IN EXECUTING SUCH KIND OF WORK, THE CONTRACTOR PRIMA F ACIE IS NOT BRINGING IN ANY TECHNICAL OR PROFESSIONAL KNOWLEDGE AS CONSULTANCY OR VALUE ADDITION TO THE OTHER PARTY. THUS IF THE NATU RE OF AGREEMENT IS AWARD OF CONTRACT TO INSTALL AND COMMISSION A PROJE CT, IT IS IN THE NATURE OF WORK AS PER SPECIFICATIONS PROVIDED BY TH E CONTRACTEE, HENCE TDS AS PER SECTION 194C WILL BE APPLICABLE, N OT 194J. :-22- : IN VIEW OF AFORESAID DISCUSSIONS, I AM OF THE FIRM VIEW THAT IN THE CASE OF SERVICE CONTRACT, WHICH ARE NOTHING BUT WORK IN THE NATURE OF CIVIL WORK, INSTALLATION, ERECTION, COMMISSIONIN G ETC, UNDER THE TERMS OF CONTRACT, THE TAX DEDUCTIBLE AT SOURCE IS U/S. 194C AND NOT U/S 194J. ACCORDINGLY, THE APPELLANT IS NOT LIABLE TO DEDUCT TAX IN RESPECT OF SERVICE CONTRACTS DISCUSSED IN THIS ORDE R U/S 194J. 15. CONSEQUENTLY DIRECTIONS WERE ALSO GIVEN TO THE ASSE SSING OFFICER TO MODIFY THE DEMANDS RAISED UNDER SECTION 201(1) OF T HE ACT AND INTEREST CHARGED UNDER SECTION 201(1A) OF THE ACT. 16. AGGRIEVED, THE REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 17. THE REVENUES MAIN GRIEVANCE IS WITH REGARD TO THE CHARGEABILITY OF TDS UNDER SECTION 194C OF THE ACT WITH RESPECT TO C ONTRACT OF TYPE B AND TYPE C IN PLACE OF 194J OF THE ACT; WHEREAS THE ASS ESSEES GRIEVANCE IS WITH REGARD TO CONTRACT OF TYPE C CATEGORY, FOR WHICH TH E LD. CIT(A) HAS HELD THAT TDS IS DEDUCTIBLE UNDER SECTION 194C OF THE AC T. THEREFORE, THE ISSUE BEFORE US IS WITH REGARD TO THE DEDUCTIBILITY OF TD S IN RESPECT OF PAYMENT RELATING TO CONTRACTS FALLING WITHIN THE CATEGORY O F TYPE B AND TYPE C. 18. SO FAR AS PAYMENT RELATING TO CONTRACTS FALLING IN TYPE A CATEGORY THERE IS NO DISPUTE AMONG THE PARTIES, AS THE CONTR ACTS FALLING IN CATEGORY A IS CONTRACT FOR SALE, THEREFORE, THERE WAS NO LIABI LITY ON THE ASSESSEE TO DEDUCT TDS ON PAYMENT. 19. NOW, THEREFORE, WE HAVE TO DEAL WITH MAINLY TWO ISS UES I.E. (1) WHETHER ON PAYMENT MADE FOR CONTRACT FALLING IN THE CATEGORY OF TYPE B, TDS IS DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 1 94C OF THE ACT OR 194J OF THE ACT AND (2) WHETHER ON PAYMENT MADE FOR CONTRAC TS FALLING UNDER TYPE C CATEGORY, TDS IS DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 194C OF THE ACT? :-23- : 20. WITH REGARD TO TYPE B CONTRACT, THE ASSESSING OFFIC ER HAS HELD THAT THE PAYMENTS ARE MADE FOR ACQUIRING OR USING TECHNI CAL KNOWHOW IN VIEW OF SPECIFIC PROVISIONS AS CONTAINED IN EXPLANATION 2 T O SECTION 9(1)(VII) OF THE ACT, BUT THE LD. CIT(A) HAVING DISCUSSED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS WAS OF THE VIEW THAT IN CAS E OF CONTRACT WORK, THE CONTRACT IS TO BE EXECUTE AS PER THE SPECIFICATION PROVIDED BY THE CONTRACTEE. THEREFORE, APART FROM ITS SPECIALIZATI ON IN EXECUTING SUCH KIND OF WORK, THE CONTRACTEE PRIMA-FACIE IS NOT BRINGING IN ANY TECHNICAL OR PROFESSIONAL KNOWLEDGE AS CONSULTANCY OR VALUE ADDI TION TO THE OTHER PARTY. THUS THE NATURE OF AGREEMENT IS AN AWARD OF CONTRAC T TO INSTALL AND COMMISSION OF A PROJECT. IT IS IN THE NATURE OF WO RK AS PER SPECIFICATIONS PROVIDED BY THE CONRTRACTEE AND HENCE TDS IS REQUIR ED TO BE DEDUCTED AS PER PROVISIONS OF SECTION 194C OF THE ACT AND NOT A S PER PROVISIONS OF SECTION 194J OF THE ACT. 21. DURING THE COURSE OF HEARING, THE LD. D.R. HAS SIMP LY PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. NOTHING W AS STATED AS TO HOW THE FINDINGS OF THE LD. CIT(A) ARE INCORRECT. WHEREAS ON A CAREFUL PERUSAL OF THE ORDER OF THE LD. CIT(A), WE FIND THAT THE LD. CIT(A ) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF DEFINITION OF FEE FOR TECHNIC AL SERVICES EXAMINED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SKYCELI CO MMUNICATIONS LTD. VS. DCIT (2001) 251 ITR 53 (MAD). BESIDES, OTHER JUDGM ENTS WERE ALSO TAKEN INTO ACCOUNT BY THE LD. CIT(A). SINCE NO INFIRMITY HAS BEEN POINTED OUT IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD, WE CONF IRM HIS ORDER. 22. SO FAR AS THE OTHER ISSUE AS TO WHETHER THE CONTRAC T FALLING IN CATEGORY C IS A COMPOSITE CONTRACT AND ATTRACTS PRO VISIONS OF SECTION 194C OF THE ACT FOR DEDUCTION OF TAX AT SOURCE, OUR ATTE NTION WAS INVITED BY THE LD. COUNSEL FOR THE ASSESSEE TO THE TERMS OF CONTRA CT AND VARIOUS JUDICIAL PRONOUNCEMENTS. THE PHOTOCOPY OF THE CONTRACT WITH M/S THERMOSYSTEMS PVT. LTD., WHICH WAS ALLEGED TO BE A COMPOSITE CONT RACT IS APPEARING AT :-24- : PAGE 630 OF THE COMPILATION OF THE ASSESSEE. ALONG WITH THIS CONTRACT, ANNEXURE 1 IS ATTACHED DETAILING THE PAYMENTS FOR E QUIPMENTS AND SPARES AND SERVICES. ARTICLE 2 OF THIS CONTRACT DEALS WIT H THE SCOPE OF WORK AND ARTICLE 5 DEALS WITH THE CONTRACT PRICE AND AS PER ARTICLE 5.1.2., THE BREAKUP OF CONTRACT PRICE IS GIVEN IN ANNEXURE 1. FOR THE SAKE OF REFERENCE, WE EXTRACT ARTICLE 2 AND 5.1 ALONG WITH ANNEXURE 1 ATT ACHED TO THE CONTRACT AS UNDER:- ARTICLE 2 SCOPE OF WORK 2.1 THE SUPPLIER'S SCOPE OF WORK INCLUDES DESIGN, D ETAIL ENGINEERING, FABRICATION, MANUFACTURE, ASSEMBLY, TE STING, SUPPLY, PACKING, TRANSPORTATION, SHOP PAINTING, DELIVERY TO SITE INCLUDING UNLOADING AND GUARDED STORAGE, ERECTION, FINAL PAIN TING, INTERLOCKING AND COMMISSIONING OF UN-LOADING, STORAGE OF FUEL OI L STORAGE & PUMPING (HFO SYSTEM) WITH ALL ACCESSORIES AND ATTAC HMENT REQUIRED FOR BAKING FURNACE OF BAKING SHOP INCLUDING COMMISS IONING SPARES, INITIAL FILLS AND TWO YEARS OPERATION AND MAINTENAN CE SPARES ON F.O.R JHARSUGUDA BASIS AS PER TECHNICAL ANNEXURE AND THE AGREED DELIVERY SCHEDULE. 2.2 THE SUPPLIER'S SCOPE WILL ALSO INCLUDE PACKING, FORWARDING AND TRANSPORTATION OF THE MATERIALS UPTO F.O.R JHARSUGU DA. 23. THE SUPPLIER'S SCOPE SHALL ALSO INCLUDE SUPPLY OF RELATED TECHNICAL DOCUMENTS FOR INSTALLATION, COMMISSIONING , OPERATION AND MAINTENANCE AS SPECIFIED IN TECHNICAL SPECIFICATION OF THIS CONTRACT. 2.4 THE SUPPLIER'S SCOPE OF WORK SHALL ALSO INCLUDE DEMONSTRATION AND ACCOMPLISHMENT OF PERFORMANCE GUARANTEE TESTS O F THE EQUIPMENT INCLUDING SUPERVISION, ERECTION AND COMMI SSIONING AT SITE. 2.4.1 SUPPLIER'S SCOPE OF SUPPLY SHALL ALSO INCLUDE SHOP INSPECTION AND TESTING OF EQUIPMENT/ PACKING AND FORWARDING, T RANSPORTATION FROM THE FACTORY PREMISES OF THE EQUIPMENT ON F.O.R JHAISUGUDA BASIS FOR DELIVERY. :-25- : COMPLETENESS ANY SCOPE OF WORK, WHICH IS NOT SPECIFICALLY MENTIO NED IN THIS CONTRACT, BUT IS REQUIRED FOR THE COMPLETION AND SA FE, TROUBLE FREE, NORMAL OPERATION OF THE FACILITY SHALL, UNLES S SPECIFICALLY EXCLUDED IN THIS CONTRACT, BE CONSIDERED AS INCLUDE D IN THE SCOPE OF WORK AND SHALL BE SUPPLIED AND / OR RENDER ED FREE OF COST TO THE OWNER. ARTICLE 5: CONTRACT PRICE 5.1 IN CONSIDERATION OF CONTRACTOR'S EXECUTION OF THE WORKS FOR THE FACILITY, AS PER THE SCOPE AND TERMS PROVIDED HEREI N, THE OWNER HEREBY COVENANTS TO PAY TO THE CONTRACTOR THE CONTR ACT PRICE AMOUNTING TO RS. 67,673,342.00 (INDIAN RUPEES SIX C RORES SEVENTY SIX LAKHS SEVENTY THREE THOUSAND THREE HUNDRED & FO RTY TWO ONLY) AS PER THE PRICE BREAK UP GIVEN IN ARTICLE 5.1.2 AN D AT THE TIME AND IN THE MANNER AS PRESCRIBED IN CONTRACT HERETO, SUBJEC T TO SUCH DEDUCTIONS / ADJUSTMENTS AS MAY BE ALLOWABLE IN THE CONTRACT. 5.1.2. PRICE BREAK-UP: THE BREAKUP OF THE CONTRACT PRICE IS AS PER ATTACHE D ANNEXURE I 5.1.3 THE CONTRACT PRICE SHALL BE FIRM & BINDING, WITH NO ESCALATION WHATSOEVER, FOR THE ENTIRE EXECUTION PERIOD OF THE CONTRACT. 5.1.4 THE CONTRACT PRICE IS FOR THE WORKS REQUIRED FOR SETTING UP THE COMPLETE FACILITY (EXCEPT TO THE EXTENT SPECIFICALL Y EXCLUDED) AND IS INCLUSIVE OF ALL COSTS RELATED TO EQUIPMENT, LABOUR , TOOLS, TACKLES AND OTHER VARIOUS ACTIVITIES / PROVISIONS / INPUTS ETC, INCLUDING THOSE DETAILED IN ARTICLE 2, WHICH, THOUGH MAY NOT BE SPE CIFICALLY MENTIONED IN THE CONTRACT, ARE FAIRLY AND OBVIOUSLY REQUIRED IN ORDER TO ENSURE COMPLETE AND SUCCESSFUL COMMISSIONING OF THE FACILI TY. THE OWNER SHALL NOT ENTERTAIN ANY OF THE CONTRACTOR'S CLAIM W HATSOEVER IN THIS RESPECT. :-26- : 5.1.5THE CONTRACT PRICE IS INCLUSIVE OF ALL ROYALTI ES, RENTS AND FEES APPLICABLE FOR ALL ARTICLES/PROCESSES AND SUPPLIES, PROTECTED BY LETTERS (PATENT OR OTHERWISE) AND INCORPORATED IN OR USED I N CONNECTION WITH THE FACILITY. THE CONTRACTOR SHALL INDEMNIFY AND KE EP THE OWNER INDEMNIFIED AGAINST ALL LOSSES, CLAIMS, ACTIONS, PR OCEEDINGS, DAMAGES, COSTS AND EXPENSES TOUCHING THE WORKS AND ARISING F ROM USE OF ANY SUCH DESIGNS, DRAWINGS, ARTICLES, PROCESSES OR SUPP LIES IN SETTING UP OF THE FACILITY. ANNEXURE 1 SR. NO. MATERIAL DESCRIPTION QTY UNIT PRICE TOTAL PRICE SUPPLY : EQUIPMENT & SPATES IN RS. IN RS. (CR.) 1 SUPPLY OF EQUIPMENT INCLUDING COMMISSIONING AND MANDATORY SPARES. [EX WORKS FOR INDIGENOUS] 1 54,086,298.00 54,086,298 5.41 2 OCEAN FREIGHT (FOR IMPORTED ONLY) - - 0.00 3 TRANSIT INSURANCE - 0.00 4 COST OF 2 YEARS O&M SPARES (LIST TO BE ATTACHED) 1 687,500.00 687,500 0.07 5 SUBTOTAL (1+2+3+4) 54,773,798 5.48 6 EXCISE DUTY & CVD INCL. ED. CESS (EXTRA AS ACTUALS) 1 5,000,000.00 5,000,000 0.50 7 SALES TAX (EXTRA AT ACTUALS) 220,485 0.02 8 INLAND TRANSPORTATION 1 1,200,000.00 1,200,000 0.12 9 SUBTOTAL (5+B+7+8) 61,194,283 6.12 :-27- : 10 ENTRY TAX ON SUPPLY CONTACT - 0.00 11 TOTAL SUPPLY PRICE (5+7+8) CENVATABLE 56,194,283 5.62 TOTAL SUPPLY PRICE (5+6+7+8) 61,194,283 6.12 SERVICES 12 UNLOADING, STORAGE, HANDLING, INSTALLATION, TESTING, COMMISSIONING & PAT ETC. 1 11,479,059.00 11,479,059 1.15 13 TRAINING - 0.00 14 SUPERVISION OF ERECTION & COMMISSIONING 0.00 15 SERVICE TAX INCL. ED. CESS EXTRA 1,567,132 0.16 16 TOTAL SERVICES PRICE (12) :: CENVATABLE 11,479,059 1.15 TOTAL SERVICES PRICE (12+13+14+15) 13,046,191 1.30 17 STORAGE CUM ERECTION INSURANCE AND CONTRACTOR ALL RISK INSURANCE. 0.00 18 TOTAL OF SUPPLY + CIVIL/STRUCTURAL WORK + SERVICES (13+18+23+24) 74,240,474 7.42 19 LESS EXPORT BENEFIT AVAILABLE 6,567,132 0.66 20 NET COST TO COMPANY (18 -19) 67,673,342 6.77 23. FROM A CAREFUL PERUSAL OF THESE CLAUSES, WE FIND TH AT THE CONTRACT WAS EXECUTED BETWEEN THE ASSESSEE AND M/S THERMOSYSTEMS PVT. LTD. FOR SUPPLY AND COMMISSIONING OF THE PROJECT (PLANT AND MACHINERY) FOR WHICH DIFFERENT STAGES FOR PAYMENTS WERE STIPULATED IN AN NEXURE 1. INSTEAD OF EXECUTING TWO CONTRACTS - ONE FOR SUPPLY AND THE OT HER FOR COMMISSIONING, :-28- : THE ASSESSEE HAS EXECUTED A COMPOSITE CONTRACT BUT COST OF THE EQUIPMENTS AND SPARES AND THE SERVICES IS SPECIFICALLY DIVISIB LE OR SEPARABLE AS MENTIONED IN ANNEXURE 1. THEREFORE, THIS CONTRACT CANNOT BE CALLED TO BE A COMPOSITE CONTRACT WHERE THE COST OF EQUIPMENTS AND SERVICES ARE INDIVISIBLE. OUR ATTENTION WAS INVITED TO THE ORDE R OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF POSCO ENGINEERING & CONSTRU CTION COMPANY LIMITED VS. ADIT, 148 ITD 527 (DEL) IN WHICH COMPOSITE CONT RACT WAS EXECUTED FOR SUPPLY OF EQUIPMENTS AND ITS COMMISSIONING, BUT THE COST OF EQUIPMENTS AND SERVICES WERE SEPARATELY MENTIONED IN THE CONTR ACT AND THE TRIBUNAL HAS HELD THAT TAX IS REQUIRED TO BE DEDUCTED ONLY O N OTHER SERVICE PORTION, HAVING HELD THAT SIMPLY BECAUSE THE SUPPLY OF EQUIP MENT AND THE RENDITION OF SERVICES IS TO ONE PART AND FOR A COMMON PURPOSE , THERE IS NO LOGIC IN TREATING THE ENTIRE AMOUNT AS ONE COMPOSITE PAYMENT ATTRIBUTABLE COMMONLY BOTH TO SUPPLY OF EQUIPMENT RENDERING OF S ERVICES, MORE SO WHEN THERE IS A SPECIFIC IDENTIFIABLE AMOUNT RELATA BLE TO THESE SEGMENTS. THE TRIBUNAL HAS FURTHER HELD THAT THERE IS NO QUAL ITATIVE DIFFERENCE BETWEEN TWO SITUATIONS, VIZ. (1) WHEN ONE CONTRACT IS MADE FOR TWO OR MORE WORKS SPECIFYING THE CONSIDERATION FOR EACH WORK SE PARATELY; AND (2) WHEN TWO OR MORE CONTRACTS ARE MADE FOR EACH SUCH WORK. 24. IN THE CASE OF HINDUSTAN DORR-OLIVER LIMITED, TWO S EPARATE CONTRACTS WERE EXECUTED ONE FOR SUPPLY AND OTHER FOR SERVIC ES. THEREFORE, THERE IS NO DISPUTE WITH REGARD TO THE NATURE OF CONTRACT. 25. OUR ATTENTION WAS ALSO INVITED, DURING THE COURSE O F HEARING OF THE APPEAL, TO THE JUDGMENT OF THE HON'BLE APEX COURT I N THE CASE OF ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES LTD. VS. DIREC TOR OF INCOME-TAX, 158 TAXMANN 258 IN WHICH IT HAS BEEN HELD THAT TO CONST RUE A CONTRACT, THE TERMS AND CONDITIONS THEREOF ARE TO BE READ AS A WH OLE. A CONTRACT MUST BE CONSTRUED KEEPING IN VIEW THE INTENTION OF THE PART IES. NO DOUBT THE :-29- : APPLICABILITY OF TAX LAWS DEPEND UPON THE NATURE OF CONTRACT, BUT THE SAME SHOULD NOT BE CONSTRUED KEEPING IN VIEW THE TAXING PROVISIONS. 26. AGAIN IN THE CASE OF CIT & ANOTHER VS. HYUNDAI HEAV Y INDUSTRIES CO. LTD., 161 TAXMANN 191, THEIR LORDSHIPS OF THE HON'B LE APEX COURT HAS HELD THAT CONTRACT IN QUESTION WAS DIVISIBLE IN TWO PORT IONS ONE BEING FABRICATION IN KOREA AND THE OTHER CONSISTING OF IN STALLATION IN INDIA AND THEREFORE ANY INCOME ARISING FROM THE ACTIVITY OF FABRICATION IN KOREA WAS NOT ASSESSABLE TO TAX IN INDIA AND TO THAT EXTENT T HE REVENUES RECEIVABLE UNDER THE ABOVE CONTRACT IN RESPECT OF THE ACTIVITY OF FABRICATION SHOULD BE EXCLUDED FROM THE PROFIT AND LOSS ACCOUNT TOGETHER WITH THE EXPENDITURE RELATING TO THE ACTIVITY OF FABRICATION. 27. IN THE LIGHT OF THE AFORESAID JUDGMENTS, ONE LEGAL POSITION HAS BEEN EMERGED THAT WHEREVER IN COMPOSITE CONTRACT THE COS T OF EQUIPMENTS AND COST OF SERVICES ARE DEVISABLE, NO TDS IS REQUIRED TO BE DEDUCTED ON THE COST OF EQUIPMENTS, AS IT IS A PURE CONTRACT FOR SA LE AND THE BALANCE PART I.E. COST FOR SERVICES, TDS IS REQUIRED TO BE DEDUCTED U NDER SECTION 194C OF THE ACT. WE ACCORDINGLY MODIFY THE ORDER OF THE LD. CI T(A) AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION OF TDS ON CONTRACT FALLING IN THE CATEGORY TYPE C AND IN ORDER TO HOLD THE ASSESS EE TO BE IN DEFAULT WITH RESPECT TO THE AFORESAID TDS, THE ASSESSING OFFICER IS REQUIRED TO VERIFY WHETHER DEDUCTEE HAS ALREADY PAID TAXES OR NOT, IF NOT, THE ASSESSEE IS TO BE HELD TO BE IN DEFAULT AND DEMAND TO BE RAISED UN DER SECTION 201(1) OF THE ACT BESIDES CHARGING OF INTEREST UNDER SECTION 201(1A) OF THE ACT. IF DEDUCTEE HAS PAID TAX, THE ASSESSEE SHALL NOT BE HE LD TO BE IN DEFAULT IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE P. LTD. VS. CIT, 293 ITR 226 (SC ) AND THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF JAGRAN PRAKASHA N LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX (TDS) 345 ITR 228 (ALLD) AND THE ASSESSEE SHALL ONLY BE LIABLE FOR INTEREST UNDER SECTION 201 (1A) OF THE ACT FOR DELAYED :-30- : PAYMENTS. ACCORDINGLY THESE APPEALS ARE DISPOSED O F IN TERMS INDICATED ABOVE. 28. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED A ND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED ON THE CAPTIONED PAGE. SD/ - SD/ - [ B. P. JAIN ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH AUGUST, 2015 JJ:02-0607 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR