ITO,TDS-1, Nashik V. Kirloskar Oil Engines Ltd, Nashik

ITA 725/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7610 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Keywords: TDS; Set aside
• Section: 133A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER S.NO . ITA NO. ASSTT.YEAR 1. 725/PN/09 2006-07 2. 726/PN/09 2007-08 3. 727/PN/09 2008-09 INCOME-TAX OFFICER, TDS-1, NASHIK .. APPELLANT VS. KIRLOSKAR OIL ENGINES LTD., A-11/1 M.I.D.C. AMBAD, .. RESPONDENT NASHIK PAN AAACP 3590P APPELLANT BY : SHRI A.S. SINGH RESPONDENT BY : SHRI C.H. NANIWADEKAR ORDER PER BENCH: THE CAPTIONED THREE APPEALS BY THE REVENUE ARE DIR ECTED AGAINST A COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS)-II, NASHIK DATED 25.03.2009 PERTAINING TO THE ASSESSMENT YEARS 2006-07 TO 2008-09, WHICH IN TURN HAVE ARISEN FROM THE RESPECTIVE ORDER S PASSED BY THE ASSESSING OFFICER DATED 9.6.2008 UNDER SECTION 201( 1)/201(1A) READ WITH SECTION 194C OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FOR THE AFORESAID ASSESSMENT YEARS. IN ALL THE APPEALS, A C OMMON POINT HAS BEEN RAISED BY THE REVENUE, AND THE FACTS AND CIRCUMSTAN CES ARE IDENTICAL IN ALL THE YEARS. 2. THE SOLITARY GRIEVANCE OF THE REVENUE IS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN TREATING TH E PURCHASE OF THE SPECIFIED ITEMS AS PER SPECIFICATIONS FROM VARIOUS VENDORS AS CONTRACT FOR ITA NOS 725-727/PN/09 KIRLOSKAR OIL ENGINES LTD, NASHIK 2 SALE INSTEAD OF WORKS CONTRACT IN PURSUANCE OF T HE TERM ANY WORK AS PER SECTION 194C OF THE ACT. 3. THE PERTINENT FACTS, IN BRIEF, ARE THAT THE ASSE SSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE MANUFACTURE AND SALE OF INTE RNAL COMBUSTION ENGINES, GENERATOR SETS, BIMETAL STRIPS AND BEARING S. IT IS HAVING MANUFACTURING UNITS AT PUNE, NASHIK, AHMEDNAGAR AND KAGAL. THERE WAS A SURVEY UNDER SECTION 133A OF THE ACT IN RESPECT O F NASHIK FACTORY PREMISES OF THE ASSESSEE COMPANY BY THE T.D.S. WING , NASHIK, ON 03.03.2008. THE ASSESSING OFFICER (TDS) WAS OF THE OPINION THAT THE PURCHASE OF COMPONENTS BY SUPPLY OF DRAWINGS, DESIG NS AND SPECIFICATIONS WOULD CONSTITUTE A WORKS CONTRACT, AND THE ASSESSEE WAS LIABLE TO DEDUCT TAX UNDER SECTION 194C OF THE ACT ON SUCH PAYMENTS. THE ASSESSEE HAD NOT DEDUCTED SUCH TAX AND HE TREATED T HE ASSESSEE IN DEFAULT AND ACCORDINGLY PASSED ORDERS UNDER SECTION 201 AND 201(1A) READ WITH SECTION 194C OF THE ACT FOR THE IMPUGNED ASSESSMENT YEARS. 4. BEING AGGRIEVED, ASSESSEE PREFERRED APPEALS BEFO RE THE COMMISSIONER OF INCOME-TAX (APPEALS). THE COMMISSI ONER OF INCOME-TAX (APPEALS) AFTER CONSIDERING THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE, CONCLUDED IN PARAGRAPH 9.4 OF HIS CONSOLI DATED ORDER AS UNDER: 9.4 THERE IS NO WRITTEN AGREEMENT IN THE INSTANT CASE AND THERE IS ONLY A PURCHASE ORDER. BUT THE A.O TREATED THE TRANSACTI ONS IN THE NATURE OF WORKS CONTRACT IN THE ABSENCE OF ANY SALE AGREEME NT. THERE IS NO BASIS OR LOGIC FOR THIS TREATMENT BY THE A.O. THE A.O HAS NOT APPRECIATED THE PURCHASE ORDER AS AN AGREEMENT FOR THE PURPOSE OF T HESE TRANSACTIONS. BUT THERE ARE NO CONDITIONS IN THE SAID PURCHASE OR DER. THERE IS NO OTHER MATERIAL OR EVIDENCE ALSO TO SHOW THAT THREE WERE A NY RESTRICTIONS OR CONDITIONS WHICH ARE AFFECTING THE CONTRACT IN ANY FORM TO BE CONSIDERED AS WORKS CONTRACT. THERE ARE NO RESTRICTIONS EVEN ON THE VENDORS IF THE GOODS ARE REJECTED HENCE THE A.OS IMPRESSION THAT THE MATERIAL COULD NOT BE USED AS SCRAP AND HAD TO BE DESTROYED IF REJ ECTED IS OF NO RELEVANCE. THE VENDORS HAVE FULL FREEDOM IN CASE TH E GOODS ARE REJECTED. FURTHER, THE DOMINANT INTENTION OF THE PARTIES IN T HE SAID TRANSACTIONS HAS TO BE UNDERSTOOD. A PERUSAL OF THE TRANSACTIONS REV EALS THAT THERE IS NO DOMINANT INTENTION OF THE APPELLANT TO GET THE GOOD S MANUFACTURED ACCORDING TO THE SPECIFICATIONS AND DESIGNS BUT ONL Y TO PURCHASE TO SAME. IT IS ALSO SEEN THAT THE VENDORS WERE NOT EXC LUSIVELY MANUFACTURING THE GOODS FOR THE APPELLANT COMPANY A ND THEY HAVE VARIOUS PURCHASERS FOR THEIR PRODUCTS. IN VIEW OF T HIS DETAILED DISCUSSION, I AM OF THE CONSIDERED OPINION THAT IT IS NOT A STR ONG CASE FOR CONSIDERING THE PURCHASES AS TRANSACTIONS UNDER WORKS CONTRACT . THEREFORE, THE ORDERS PASSED BY THE A.O ARE CANCELLED. ITA NOS 725-727/PN/09 KIRLOSKAR OIL ENGINES LTD, NASHIK 3 AGAINST THE AFORESAID DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, APPEARI NG FOR THE REVENUE, CONTENDED THAT THE COMMISSIONER OF INCOME- TAX (APPEALS) WAS NOT JUSTIFIED IN TREATING THE PURCHASES OF THE SPEC IFIED ITEMS AS PER SPECIFICATIONS FROM VARIOUS VENDORS AS CONTRACT FO R SALE INSTEAD OF WORKS CONTRACT AS HELD BY THE ASSESSING OFFICER. HE ACC ORDINGLY PLEADED THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEAL S) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE AFFIRMED. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APP EALS) WAS JUSTIFIED IN HOLDING THAT THE TRANSACTIONS INVOLVED ARE NOT A ST RONG CASE FOR CONSIDERING THE PURCHASES AS TRANSACTIONS UNDER WORKS CONTRACT . THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE ISSUE INVOLVED I N THE INSTANT CASE IS COVERED BY THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V GLENMARK PHARMACEUTICALS LTD. 324 ITR 199 (BO M). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT THE ISSUE INVOLVED IN THE INSTANT APPEALS STANDS SQ UARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE JUDG MENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GLENMARK PHARMACEU TICALS LTD. (SUPRA), WHEREIN IT WAS HELD AS UNDER: THE SUBMISSION THAT THE CONTRACT IS NOT A CONTRACT OF SALE BECAUSE SPECIFICATIONS ARE PROVIDED TO THE MANUFACTURER BY THE PURCHASER CANNOT BE ACCEPTED. THAT HAS NOT BEEN THE UNDERSTANDING OF THE LAW AT ANY POINT OF TIME. THE FACT THAT THE PURCHASER PROVIDES SPEC IFICATIONS TO THE MANUFACTURER HAS NEVER BEEN CONSTRUED EVEN BY THE R EVENUE TO BE A CIRCUMSTANCE WHICH SHOULD LEAD TO THE INFERENCE THA T THE CONTRACT IS NOT A CONTRACT OF SALE. FIRSTLY, THE CIRCULARS ISSUED BY THE CBDT RIGHT SINCE 29 TH MAY, 1972 CONSISTENTLY TOOK THE POSITION THAT FURNI SHING OF SPECIFICATIONS TO THE MANUFACTURER OF GOODS BY THE PURCHASER WOULD NOT DETRACT FROM A CONTRACT BEING REGARDED AS A CONTRACT FOR SALE SO L ONG AS THE PROPERTY IN THE GOODS PASSES UPON DELIVERY. THE CONSIDERATION W HICH WAS REGARDED BY THE REVENUE AS HAVING RELEVANCE WAS WHETHER THE MATERIAL WAS SUPPLIED TO THE CONTRACTOR BY THE GOVERNMENT, OR, A S THE CASE MAY BE, BY A SPECIFIED PERSON. WHERE THE MATERIAL IS PROVIDED BY THE PURCHASER AND THE WORK OF FABRICATION OF MANUFACTURE IS CARRIED O UT BY THE CONTRACTOR, THE AGREEMENT WOULD, IT WAS CLARIFIED, CONSTITUTE A CONTRACT FOR WORK. ON ITA NOS 725-727/PN/09 KIRLOSKAR OIL ENGINES LTD, NASHIK 4 THE OTHER HAND, WHERE A MANUFACTURER PRODUCES GOODS TO THE SPECIFICATIONS OF THE PURCHASER AND THE PROPERTY PA SSES TO THE PURCHASER ONLY UPON DELIVERY, THE CONTRACT WOULD BE REGARDED AS A CONTRACT OF SALE IF THE RAW MATERIAL IS SOURCED BY MANUFACTURER AND IS NOT SUPPLIED TO HIM BY THE PURCHASER. SECONDLY, THE CONSISTENT VIEW WHI CH HELD THE FIELD IN SEVERAL HIGH COURTS WAS THAT CONTRACTS WHERE (I) PR OPERTY PASSES TO THE PURCHASER UPON THE DELIVERY OF THE GOODS; AND (II) THE RAW MATERIAL WAS SOURCED BY THE MANUFACTURER AND WAS NOT SUPPLIED BY THE PURCHASER DO NOT FALL WITHIN THE SCOPE AND AMBIT OF SECTION 194C . RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF TH E HONBLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND ACCORDINGL Y AFFIRM HIS DECISION. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THE ISSUE U NDER CONSIDERATION. THE REVENUE FAILS ON THIS GROUND. 8. IN THE RESULT, THE CAPTIONED APPEALS FILED BY TH E REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 9TH DAY OF FEB RUARY, 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PA NNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 09 TH FEBRUARY, 2011 COPY TO:- 1) KIRLOSKAR OIL ENGINES LTD, NASHIK 2) THE ITO TDS-1, NASHIK 3) THE CIT (TDS) PUNE 4) THE CIT (CEN) PUNE. 5) THE DEPARTMENTAL REPRESENTATIVE, B BENCH, ITAT,PUNE BY ORDER TRUE COPY ASST. REGISTRAR, I.T.A.T., PUNE B