THE DCIT, CIRCLE - 3(1),(TDS), Vijayawada V. The Chief Engineer (O & M)/AP GENCO.,

ITA 735/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9628 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 26-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.S. ARAVINDHAKSHAM
• Assessee Lawyers: M. CHANDRAMOULESWARA RAO
• Keywords: TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 194C; 201(1); 201; 208; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI G. MANJUNATHA, HONBLE ACCOUNTANT MEMBER ITA NO S . 734 TO 737 / VIZ /201 3 (ASST. YEAR S : 20 0 5 - 0 6 TO 2008 - 09 ) DCIT, CIRCLE - 3(1)(TDS), VIJAYAWADA. V . CHIEF ENGINEER (O & M)/ APGENCO , RAYALASEEMA THERMAL POWER PROJECT, V.V. REDDY NAGAR, KADAPA DISTRICT. T AN NO. HYDR 02587 E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M. CHANDRAMOULESWARA R A O - CA . DEPARTMENT BY : SHRI R.S. ARAVINDHAKSHAM - DR DATE OF HEARING : 2 0 / 1 0 /201 6 . DATE OF PRONOUNCEMENT : 23 / 12 /201 6 . O R D E R PER V. DURGA RAO , JUDICIAL MEMBER THESE ARE THE APPEAL S FILED BY THE REVENUE AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) , VIJAYAWADA , DATED 30 /0 9 /201 3 FOR THE ASSESSMENT YEAR S 200 5 - 0 6 TO 2008 - 09 . SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE - RAYALASEEMA THERMAL POWER PROJECT, KADAPA , A UNIT OF M/S. A.P. GENCO LTD. , IS ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY . THE ASSESSEE FOR 2 ITA NOS. 734 TO 737/VIZ/2013 THE PURPOSE OF CONSTRUCTION OF ANOTHER POWER STATION, IT HAD ENTERED INTO TWO AGREEMENTS, ONE FOR SUPPLY OF MATERIALS REQUIRED FOR THE POWER PLANT (HEREINAFTER REFERRED TO AS SUPPLY CONTRACT) AND SECOND FOR THE PURPOSE OF ERECTION AND COMMISSIONING OF THE PLANT (HEREINAFTER REFERRED TO AS ERECTION CONTRACT ) WITH M/S. BHEL, NEW DELHI ON 27/ 12/2003 . THERE WAS A SURVEY IN THE CASE OF THE ASSESSEE . D URING THE COURSE OF SURVEY, IT IS FOUND TH A T THE ASSESSEE HAS DEDUCTED TDS ONLY IN RESPECT OF ERECTION CONTRACT AND NO T ON SUPPLY CONTRACT. ON PERUSAL OF THE AGREEMENTS, THE ASSESSING OFFICER NOTED TH A T THOUGH THE ASSESSEE HAS ENTERED INTO TWO CONTRACTS, BUT ONLY FOR THE SAKE OF CONVENIENCE , BOTH THE CONTRACTS ARE ESSENTIALLY A SINGLE COMPOSITE CONTRACT , THE ASSESSEE HAS TO DEDUCT TDS EVEN IN THE CASE OF SUPPLY CONTRACT ALSO. ACCORDINGLY, HE RAISED A DEMAND UNDER SECTION 201(1) OF THE ACT BY NOTING AS UNDER: - 2.3 .. THAT UNLESS THE PLANT HAS BEEN SUCCESSFULLY ERECTED AND COMMISSIONED AND UNLESS THE ABOVE GUARANTEE PARAMETERS HAVE BEEN ACH IEVED, THE TITLE TO THE MATERIAL WOULD NOT PASS ON TO THE ASSESSEE AND IN THE EVENT OF THE ASSESSES REJECTING THE DEFECTIVE PLANT, THE TITLE THERE OF WOULD VEST WITH M/S.BHEL HE FURTHER OBSERVED THAT AS CA N BE SEEN FROM THE TITLE CLAUSES IN BOTH THE CONTRACTS, THEY ARE REFERRING TO TITLE RELATING TO THE SAME MATERIAL BUT PRESCRIBED TWO DIFFERENT POINTS OF TIME AT WHICH THE TITLE TO THE MATERIAL PASSES TO THE ASSESSEE, FIRSTLY, ON DISPATCH OF MATERIAL FROM TH E CONTRACTORS WORKS AND SECONDLY, WHEN THE PLANT IS COMMISSIONED AND HANDED OVER TO THE ASSESSEE. THEREFORE, IF THESE TITLE CLAUSES APPEARING IN BOTH THE CONTRACTS ARE VIEWED IN THE BACKGROUND OF THE OTHER PROVISIONS CONTAINED IN BOTH THE CONTRACTS RELATIN G TO 'SUCCESSFUL COMMISSIONING OF THE PLANT'' TAKING OVER THE PLANT' AND 'REJECTION OF DEFECTIVE PLANT' THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT THE TITLE CLAUSE IN THE SUPPLY CONTRACT, I.E, VESTING OF THE TITLE ON DISPATCH OF MATERIAL IS NOT ABSOLUTE AND DOES NOT OPERATE INDEPENDENTLY BUT IS SUBJECT TO THE TITLE CLAUSE CONTAINED IN THE ERECTION CONTRACT WHICH STATES THAT 3 ITA NOS. 734 TO 737/VIZ/2013 THE TITLE PASSES ONLY ON COMMISSIONING AND HANDING OVER OF THE PLANT TO THE ASSESSEE. THE AO REJECTED THE APPELLANT'S CONTENTION THAT SALE OF MATERIAL TOOK PLACE AND THAT THE TITLE OVER THE MATERIALS PASSED ON THE APPELLANT ON DISPATCH OF MATERIALS STATING THAT UNLESS THE CONDITION REGARDING THE COMMISSIONING AND HANDING OVER OF THE PLANT IS FULFILLED, THE SALE IS NOT CONCLUDED. THE AO REJECTED THE APPELLANT CONTENTION THAT BOTH THE CONTRACTS ARE MUTUALLY EXCLUSIVE STATING THAT THESE CONTRACTS ARE NOT INDEPENDENT BUT MUTUALLY DEPENDENT ON EACH OTHER FOR THE REASON THAT THE TITLE TO THE MATERIAL IS LINKED TO SUCCESSFUL ERECTION AND COMMIS SIONING OF THE PLANT. THE AO FURTHER HELD THAT THE CASE LAWS RELIED UPON BY THE APPELLANT ARE HOT APPLICABLE TO THE PRESENT CASE SINCE THE FACTS AND CIRCUMSTANCES AND VARIOUS CLAUSES IN THE CONTRACTS IN THOSE CASES ARE DISTINGUISHABLE FROM THOSE OF THE INS TANT CASE. 3 . BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), VIJAYAWADA . IT WAS SUBMITTED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE DECISION OF THE HON'BLE ITAT, VISAKHAPATNAM IN THE CASE OF NTPC SIMHADRI SUPER THERMAL POWER PROJECT (VSP), VISAKHAPATNAM IN ITA NOS. 68, 101 & 69/V/2012 DATED 22/07/2013 . 4 . THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE HAS OBSERVED THAT THE SUPPLY CONTRACT ENTERED BY THE ASSESSEE IS IN THE NATURE OF CONTRACT OF SALE AND SECTION 194C HAS NO APPLICATION. ACCORDINGLY , HE DIRE CTED THE ASSESSING OFFICER TO DELETE THE DEMAND RAISED UNDER SECTION 201(1) & 201(1A) OF THE ACT. 5. BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT 4 ITA NOS. 734 TO 737/VIZ/2013 THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NTPC SIMHADRI SUPER THERMAL POWER PROJECT (VSP), VISAKHAPATNAM (SUPRA) AND ALSO RELIED ON THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. KARNATAKA POWER TRANSMISSION CORPORATION LTD . REPORTED IN (2012) 208 TAXMAN 73 (KAR.) 6 . ON THE OTHER HAND , DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESS ING OFFICER. 7 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . 8 . IN THIS CASE , THE ASSESSEE HAD ENTERED INTO TWO SEPARATE CONTRACTS I.E. SUPPLY CONTRACT & ERECTION CONTRACT . THE ASSESSEE HAS DEDUCTED TDS ON THE ERECTION CONTRACT, BUT NOT ON THE SUPPLY CONTRACT ON THE GROUND THAT SECTION 194C HAS NO APPLICATION. THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NTPC SIMHADRI SUPER THERMAL POWER PROJECT (VSP), VISAKHAPATNAM (SUPRA) AND HELD THAT SUPPLY CONTRACT ENTERED BY THE ASSESSEE IS IN THE NATURE OF CONTRACT OF SALE , THE PROVISIONS OF SECTION 194C HAVE NO APPLICATION. THE COMMISSIONER OF INCOME TAX (APPEALS) BY FOLLOWING THE SAME, DIRECTED THE ASSESSING OFFICER TO DELETE THE DEMAND RAISED UNDER SECTION 201(1) & 201(1A) OF THE ACT . THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREUNDER: - 5. I HAVE CAREFULLY GONE THROUGH THE ORDER OF THE ASSESSING OFFICER, SUBMISSIONS MADE BY THE APPELLANT. I HAVE ALSO GONE THROUGH THE ORDER OF THE JURISDICTIONAL HON'BLE ITAT, 5 ITA NOS. 734 TO 737/VIZ/2013 VISAKHAPATNAM BENCH, VISAKHAPATNAM IN THE CASE OF NTPC, SIMHADRI SUPER THERMAL PO WER PROJECT (VSP), VISAKHAPATNAM IN ITA N OS.68, 101 & 69/V/2012 DATED 22/ 7/2013 AND FOUND THAT, IN THIS CASE ALSO, THE ASSESSING OFFICER PASSED ORDERS BY TREATING BOTH THE SUPPLY CONTRACT AND WORKS' CONTRACT AS TWO COMPONENTS OF A COMPOSITE CONTRACT AND TR EATED THE APPELLANT AS IN DEFAULT U/S.201(1) AND 201(1A) OF THE ACT AND ON FIRST APPEAL, THE LEARNED CIT(A) HAS AFFIRMED THE VIEW OF THE ASSESSING OFFICER. HOWEVER, THE HON'BLE ITAT H AS SET ASIDE THE ORDERS OF THE L EARNED CIT(A) AND DIRECTED THE A.O. TO DE LETE THE DEMAND S RAISED U/S. 201(1) AND 201(1A) OF THE ACT , BY CONCLUDING THAT THE 'SUPPLY CONTRACT' ENTERED INTO BY THE APPELLANT IS IN THE NATURE OF 'CONTRACT OF SALE' AND HENCE THE PROVISIONS OF SEC.194C SHALL NOT APPLY TO IT. 5.1 SINCE THE FACTS PREVAILED IN THE APPELLANT'S CASE ARE IDENTICAL TO THE FACTS OF THE ABOVE CASE, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE JURISDICTIONAL HON'BLE ITAT, THE APPEALS ARE DECIDED IN FAVOUR OF THE APPELLANT FOR ALL THE FIVE ASSESSMENT YEARS 2004 - 05, 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09 AND THE AO IS DIRECTED TO DELETE THE DEMANDS RAISED IN THE HANDS OF THE APPELLANT. 6. IN THE RESULT, APPEALS FOR A.YS. 2004 - 05, 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09 ARE ALLOWED. 9. RECENTLY , THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA POWER TRANSMISSION CORPORATION LTD. (SUPRA) HAS CONSIDERED THE VERY SAME ISSUE AND OBSERVED THAT WHEN IN A COMPOSITE CONTRACT, IF AN INVOICE IS RAISED, SEPARATELY MENTIONING THE VALUE OF THE MATERIAL SUPPLIED, NO DEDUCTION IS PERMISSIBLE UNDER SECTION 194C . IN CASE WHERE THREE SEPARATE AGREEMENTS ENTERED INTO AND ONE SUCH AGREEMENT IS AGREEMENT FOR SUPPLY OF MATERIAL AND BECAUSE THE SAID AGREEMENT IS A PART OF A COMPOSITE TRANSACTION. SECTION 194C CANNOT BE PRESSED INTO SERVICE TO DEDUCT TAX AT SOURCE . THE WHOLE OBJECT OF INTRODUCING THE SECTION IS THAT IT SHOULD DEDUCT TAX IN RESPECT OF PAYMENTS MADE FOR A WORKS CONTRACT. NO DEDUCTION IS PERMISSIBLE IN RESPECT OF CONTRACT FOR 6 ITA NOS. 734 TO 737/VIZ/2013 SUPPLY OF MATERIAL FOR CARRYING OUT WORK . IN THE PRESENT CASE , THE ASSESSEE HAS NOT DEDUCTED THE TDS IN RESPECT OF SUPPLY OF MATERIAL FOR CARRYOUT THE WORK. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NTPC SIMHADRI SUPER THERMAL POWER PROJECT (VSP), VISAKHAPATNAM (SUPRA) AND ALSO THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA POWER TRANSMISSION CORPORATION LTD. (SUPRA) , WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) , WHICH IS HEREBY CONFIRMED AND THE GR O UND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 10 . SO FAR AS, ITA NO S . 735 , 736 & 737 /VIZ/2013 FOR THE ASSESSMENT YEARS 2006 - 07 , 2007 - 08 & 2008 - 09 RESPECTIVELY , ARE CONCERNED, THE FACTS INVOLVED IN ITA NO. 734/VIZ/2013 ARE SIMILAR TO THE FACTS INVOLVED IN ITA NOS. 735, 736 & 737/VIZ/2013 , H ENCE, OUR FINDINGS IN THE PRECEDING PARAGRAPHS ARE APPLICABLE MUTATIS MUTANDIS TO THESE APPEALS ALSO. 11. IN THE RESULT, APPEAL S FILED BY THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 R D DAY OF DECEMBER , 201 6 . S D / - S D / - ( G. MANJUNATHA ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 3 R D DECEMBER , 201 6 . VR/ - 7 ITA NOS. 734 TO 737/VIZ/2013 COPY TO: 1 . THE ASSESSEE. CHIEF ENGINEER (O & M)/ APGENCO, RAYALASEEMA THERMAL POWER PROJECT, V.V. REDDY NAGAR, KADAPA DISTRICT. 2 . THE REVENUE. DCIT, CIRCLE - 3(1)(TDS), VIJAYAWADA. 3 . THE CIT, VIJAYAWADA . 4 . THE CIT(A), VIJAYAWADA . 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., VISAKHAPATNAM