Smt. Kannan Nachal, Bangalore V. CIT, Bangalore

ITA 757/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0696 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: CHYTHANYA K K
• Keywords: TDS
• Section: 40(a)(ia); 194C; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.757/BANG/2009 ASSESSMENT YEAR : 2006-07 SMT. KANNAN NACHAL, NO.6, 17 TH CROSS, BANASHANKARI II STAGE, BANGALORE 560 070. : APPELLANT VS. THE INCOME TAX OFFICER, WARD 4(2), BANGALORE. : RESPONDENT APPELLANT BY : SHRI CHYTHANYA K.K. RESPONDENT BY : SMT. V.S. SREELEKHA O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE AN INDIVIDUAL IS DI RECTED AGAINST THE ORDER OF THE CIT (A)-II FOR THE ASSESSMENT YEAR 200 6-07. 2. THE ASSESSEE, IN HER GROUNDS OF APPEAL, HAS RAIS ED NINE GROUNDS. THE GROUND NO.1 IS GENERAL IN NATURE WHICH DOESNT SURVIVE FOR CONSIDERATION. IN THE REMAINING GROUNDS, THE CRUX OF THE ISSUE IN ESSENCE IS LARGELY CONFINED TO ITA NO.757/BANG/09 PAGE 2 OF 11 UNDER THE PROVISIONS OF S.40(A)(IA), DISALLOWANCE COULD BE MADE ONLY WHEN SUCH EXPENDITURE FALLS WITHIN THE SCOPE O F CH.X VII-B AND WHEN THERE WAS NO OBLIGATION ON THE ASSESSEE TO DED UCT TAX AT SOURCE IN RESPECT OF PAYMENTS MADE U/S 194C, THE QU ESTION OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT DOESNT ARISE . 3. THE ASSESSEE WAS CARRYING ON THE BUSINESS OF MAN UFACTURING AND EXPORTING OF LEATHER GARMENTS. WHILE CONCLUDING TH E ASSESSMENT FOR THE AY IN DISPUTE, THE AO HAD DISALLOWED RS.30.33 LAKHS BEING PAYMENT OF LABOUR CHARGES ON THE GROUND THAT THERE WAS A DELAY IN PAYMENT OF RS.61953/- BEING TDS TO THE GOVERNMENT EXCHEQUER I. E., BEYOND THE DUE DATE OF FILING THE ROI. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE BEFORE THE LD. CIT (A) SEEKING REDRESSAL. TAKING INTO ACCOUNT THE LENGTH Y CONTENTIONS OF THE ASSESSEE, THE LD. CIT (A) HAD RAISED A VITAL QUESTI ON THAT WHETHER THE APPELLANT HAD COMPLIED WITH THE PROVIS IONS OF SECTION 40(A)(IA) OF THE ACT? AND HE HAD HIMSELF ANSWERED (OBSERVED) THUS: 3.4FROM A PLAIN READING OF THE AFORESAID SECT ION, IT IS CLEAR THAT (I) TAX SO DEDUCTED DURING THE LAST MONT H OF THE PREVIOUS YEAR IS REQUIRED TO BE DEPOSITED INTO THE GOVERNMEN T ACCOUNT ON OR BEFORE THE DATE SPECIFIED IN SUB-SECTION (1) 139 AN D (II) IN ANY OTHER CASE ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR . 3.5. IN THE INSTANT CASE, THE DATE SPECIFIED U/S 13 9(1) WAS 31/10/2006 WHEREAS THE TDS WAS ACTUALLY DEPOSITED INTO THE GOV ERNMENT ACCOUNT WAS ON 28/2/2007. IN THIS FACT, THE APPELL ANT FAILED TO SATISFY THE CONDITIONS LAID DOWN U/S 40(A)(IA)OF TH E ACT. THUS, THE AO WAS JUSTIFIED IN DISALLOWING THE SUM OF RS.30338 38/-. THE APPELLANTS CONTENTION IS THAT THE TDS WAS DEPOSITE D BEFORE FILING THE RETURN OF INCOME I.E., 30/3/2007 AND, THEREFOR E, THE CLAIM SHOULD BE ALLOWED. THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE AS THE TDS WAS PAID BEYOND THE SPECIFIED DATE AND WHICH IS AGAINST THE AMBIT AND INTENT OF SECTION 40(A)(IA). HENCE, THE SAME IS REJECTED. ITA NO.757/BANG/09 PAGE 3 OF 11 5. DISENCHANTED WITH THE FINDING OF THE LD.CIT(A), THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL BEFORE US. DURING THE COURSE HEARING, THE LD. A R HAD PRESENTED A EXTENSIVE SUBMISSION WH ICH, FOR THE SAKE OF CONVENIENCE, HAS BEEN BROUGHT OUT IN A CONDENSED MA NNER AS UNDER: (A) THE PROVISIONS OF S.194C(1) DO NOT APPLY TO THE ASS ESSEE BEING AN INDIVIDUAL; - THE PROVISION OF S.194C(1) AS IT STOOD FOR THE AY 0 6-07 WAS NOT APPLICABLE TO AN INDIVIDUAL (B) CLAUSE (K) TO S.194C(1) WAS INSERTED BY THE FINANCE ACT 2007 W.E.F. 1/6/2007. THE SAID CLAUSE (K) READS AS FOLLOWS: (K) ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PRO FESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF S.44AB DURING THE FINANCIAL YEAR IMME DIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE CONTRACTOR. (C) MEMORANDUM EXPLAINING THE CLAUSES OF THE FINANCE AC T, 2007, READS AS FOLLOWS: EXPANSION OF SCOPE OF THE PROVISIONS OF SECTION 194C: THE EXISTING PROVISIONS OF SUB-SECTION (1) OF S.194 C PROVIDE FOR DEDUCTION OF INCOME-TAX AT SOURCE FROM ANY SUM CRED ITED OR PAID TO THE RESIDENT CONTRACTOR FOR CARRYING OUT ANY WORK ( INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE GOVERNMENT, LOCAL AUTHORITIE S, STATUTORY CORPORATIONS, COMPANIES, CO-OPERATIVE SOCIETIES, S TATUTORY AUTHORITIES ENGAGED IN PROVIDING HOUSING ACCOMMODATION ETC., RE GISTERED SOCIETIES, TRUSTS, UNIVERSITIES AND FIRMS. THE RA TE OF TDS IS 1% IN RESPECT OF ADVERTISING CONTRACTS AND 2% IN OTHER CA SES. THE EXISTING PROVISIONS OF SUB-SECTION (1) OF S.194 C DO NOT PROVIDE FOR DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE BY AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY TO A CONTRACTOR; ACCORDINGLY, THE AMENDMENT PROPOSES TO INCLUDE ONLY SUCH INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GRO SS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUS E (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDIN G THE FINANCIAL ITA NO.757/BANG/09 PAGE 4 OF 11 YEAR IN WHICH SUM IS CREDITED OR PAID TO THE ACCOUN T OF THE CONTRACTOR; THE AMENDMENT ALSO PROPOSES THAT THE PROVISIONS OF THE SAID SUB- SECTION (1) SHALL NOT APPLY IN RESPECT OF PAYMENTS MADE TO A CONTRACTOR BY ANY INDIVIDUAL OR A MEMBER OF A HINDU UNDIVIDED FAMILY EXCLUSIVELY FOR THEIR PERSONAL PURPOSES. (D) THE AMENDMENT CLARIFY THAT ANY INDIVIDUAL MAKING PA YMENT (UP-TO 1.6.2007) OF CONTRACTOR WAS SPECIFICALLY NOT COVERE D U/S 194C (1); - THE PURPOSE FOR EXPANDING THE SCOPE OF THE SUB-SECT ION HAS BEEN EXPLAINED IN THE MEMORANDUM AND IT HAS BEEN CL EARLY PROVIDED THAT THE EXPANDED SUB-SECTION WOULD APPLY ONLY PROSPECTIVELY W.E.F. 1.6.2007; (E) THE BOARDS CIRCULAR NO.3/2008 DATED: 12.3.2008 CON TAINING THE EXPLANATORY NOTE TO THE PROVISIONS OF FINANCE ACT 2 007 READS AS UNDER: 54.2. THE EXISTING PROVISIONS OF SUB-SECTION (1) O F S.194 C DID NOT PROVIDE FOR DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE BY AN INDIVIDUAL OR A HUF TO A CONTRACTOR. .. 54.5. THE FINANCE ACT, 2007, HAS SUBSTITUTED THE SA ID SUB-SECTION (1) TO INCLUDE IN ITS AMBIT SUCH INDIVIDUAL OR A HUF WH OSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PRO FESSION CARRIED ON EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE ( A) OR CLAUSE (B) OF S.44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECED ING THE FY IN WHICH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE CONTRACTOR. THIS AMENDMENT SHALL NOT APPLY IN RESPECT OF PAYMENTS MA DE TO A CONTRACTOR BY ANY INDIVIDUAL OR A MEMBER OF HUF EXC LUSIVELY FOR THEIR PERSONAL PURPOSES. (F) THE PROVISIONS OF CLAUSE (K) OF S.194C(1) ARE APPLI CABLE ONLY FROM 1/6/2007 . ACCORDINGLY, THE ASSESSEE WAS NOT THE SPECIFIED PERSON U/S 194C (1) WHO WAS LIABLE TO DEDUCT TAX AT SOURCE FOR THE AY 2006- 07. (G) S.194C(2) WAS ALSO NOT APPLICABLE TO THE ASSESSEE B EING AN INDIVIDUAL WHO WAS NOT A CONTRACTOR MAKING PAYMENT TO A SUB-CO NTRACTOR; - THE ASSESSEE BEING NOT A CONTRACTOR MAKING PAYMENT TO A SUB- CONTRACTOR. THERE WAS NO ANY RELATIONSHIP OF CONTR ACTOR AND SUB-CONTRACTOR BETWEEN THE PRESENT ASSESSEE AND THE VENDOR. ITA NO.757/BANG/09 PAGE 5 OF 11 THUS, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX A T SOURCE FROM THE PAYMENT MADE TO THE VENDOR U/S 194C(2); (H) DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE AC T: THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT CAN BE MA DE ONLY WHEN THERE WAS LIABILITY TO DEDUCT THE TAX AT SOURCE UND ER CH. XVII-B OF THE ACT. ONCE THE LIABILITY WAS ESTABLISHED; IF ANY DE FAULT WAS MADE BY THE ASSESSEE IN DEDUCTING THE TAX AT SOURCE IN ACCO RDANCE WITH CH. XVII-B OF THE ACT OR AFTER DEDUCTING, THE SAME HAS NOT BEEN PAID TO THE ACCOUNT OF THE GOVERNMENT BEFORE FILING THE ROI , THE DISALLOWANCE IS JUSTIFIABLE; - ONCE THE APPLICABILITY OF THE SECTION IMPOSING THE RESPONSIBILITY TO DEDUCT TAX CEASES; THE PROVISIONS OF S.40(A)(IA) WHICH FOLLOWS THE S.194C(1), 194C (2) O F THE ACT CANNOT BE INVOKED. - RELIES ON THE FOLLOWING CASE LAWS: - SD PHARMACY PVT. LTD. V. DCIT (2009) 41-A BCAJ 470 ITAT, COCHIN - COMPETENT FILMS PVT. LTD. V. ITO (23009) TIOL 273 ITAT, DELHI - KOTAK SECURITIES LTD. V. ADDL. CIT (2008) 25 SOT 44 0 (MUM) - DCIT V. VENKAT SHOES PVT. LTD. (2009) TIOL 241 IT AT, MADRAS - ACIT V. RATIONAL SOFTWARE CORPORATION (I) PVT. LTD. (2009) TIOL 10 ITAT, BANGALORE - CIT V. INDIA PISTON LTD. (2007) 295 ITR 550 (MAD) (I) THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOUR CE UNDER CH. XVII- B OF THE ACT. THERE WAS NO RESPONSIBILITY CAST ON THE ASSESSEE TO DEDUCT TAX AT SOURCE. S. 40(A)(IA) DEALS WITH A SI TUATION OF NON- PAYMENT OF TAX WHICH WAS DEDUCTIBLE AND NOT A SITUA TION OF NON- PAYMENT OF TAX WHICH WAS DEDUCTED THOUGH NOT DEDUCT IBLE; (J) THERE EXIST TWO CONDITIONS WHICH HAVE TO BE FULFILL ED TO DISALLOW THE EXPENDITURE U/S 40(A)(IA) OF THE ACT, VIZ., (I) THE RE SHOULD BE AN OBLIGATION TO DEDUCT THE TAX AT SOURCE UNDER CH. XV II-B; AND (II) THE TAX HAS NOT BEEN DEDUCTED OR THE SAME HAS BEEN DEDU CTED BUT FAILED TO PAY TO THE GOVERNMENT ACCOUNT WITHIN THE SPECIFIED TIME; (K) IN CIRCULAR NO.1/2007 DATED: 27.4.2007, WITH REFERE NCE TO CLARIFICATION ON AMENDED PROVISIONS OF S.194-I AND S.194-J AND THE CONSEQUENT IMPLICATION OF S.40(A)(IA) HAS STATED: ITA NO.757/BANG/09 PAGE 6 OF 11 SUB-CLAUSE (IA) MAKES IT CLEAR THAT A DISALLOWANCE IS ATTRACTED ONLY WHEN TAX IS DEDUCTIBLE AT SOURCE UNDER CH. XVII-B A ND IT IS NOT DEDUCTED OR NOT PAID TO GOVERNMENT ACCOUNT. (L) NATURE OF THE ACTIVITY AND THE CLASSIFICATION OF TH E SAME FOR THE PURPOSE OF DEDUCTION UNDER THE ACT: - THE EXPENDITURE NECESSARY TO EARN THE INCOME HAS TO BE ALLOWED U/S 28 ITSELF. SECTION 28 TAXES THE PROFIT EARNED BY THE BUSINESS WHICH CAN BE WORKED OUT ONLY AFTER ALLOWIN G EXPENDITURE NECESSARY TO EARN SUCH PROFIT. IN OTHE R WORDS, THE PROFIT OR GAIN COULD BE COMPUTED ONLY AFTER DEDUCTI NG FROM SALE PROCEEDS THE DIRECT COST INCURRED IN RELATION TO SUCH SALE. THEREFORE, THE COST INCURRED TO PURCHASE THE RAW MA TERIAL SHOULD BE DEDUCTED U/S 28 TO ARRIVE AT THE REAL PRO FITS OF THE BUSINESS. - RELIES ON THE FOLLOWING CASE LAWS: (I) CIT V. SIR S.M.CHITNAVIS (1932) 6 ITC 453 (PC) (II) CIT V. MEHSNA DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LTD. (2005) 145 TAXMAN 355 (GUJ HC) (III) CIT V. INDIA PISTONS LTD (2006) 282 ITR 632 (MAD) (M) THE SUM PAID BY THE PRESENT ASSESSEE TO THE SU PPLIER WERE NOT FOR CARRYING OUT WORK BUT FOR THE SUPPLY OF PROCESSED ANIMAL SKINS. IT WAS A CASE OF OUTRIGHT PURCHASE OF PROCESSED ANIMAL SKIN. THE PROVISIONS OF S. 194C ARE NOT APPLICABLE TO OUTRIGH T PURCHASE; - THE VENDOR OF THE ASSESSEE HAD MADE ARRANGEMENTS TO CARRY OUT THE SAID ACTIVITIES THROUGH PROCESSOR AND SUPPL Y THE PROCESSED LEATHER TO THE ASSESSEE AS PER SPECIFICAT IONS OF THE ASSESSEE. THE ASSESSEE HAD PAID LABOUR CHARGES IN ADDITION TO THE MATERIAL CHARGES PAID BY HIM TO THE VENDOR. TH E LEATHER WAS SOLD BY THE ASSESSEE ONLY AFTER THE SAME WAS PR OCESSED BY THE PROCESSOR. SUCH TRANSACTION WAS TRANSACTION OF SALE AND NOT CONTRACT OF WORK; - CASE LAWS ON WHICH RELIANCE IS PLACED: (I) CIT V. GIRNAR FOOD AND BEVERAGE LTD. (2008) 306 ITR 23 (GUJ) (II) CIT V. DY. CHIEF ACCOUNTS OFFICER, MARKFED KHANNA BRANCH (2008) 304 ITR 17 (P & H) (III) JAIPUR VIDYUT VITRAN NIGAM LTD. DCIT (2009) 123 TTJ (JP) 888 ITAT, JAIPUR A BENCH. ITA NO.757/BANG/09 PAGE 7 OF 11 (N) THOUGH THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE, HAD CHOSEN TO DEDUCT TAX AT SOURCE AND REMITTED THE SAM E TO THE GOVERNMENT EXCHEQUER WITH INTEREST WITHOUT A STATUT ORY OBLIGATION FOR WHICH SHE CANNOT BE PENALIZED AND THAT THE DISA LLOWANCE OF RS.30.33 LAKHS REQUIRES TO BE DELETED. 5.1. ON THE OTHER HAND, THE LD. D.R. WAS OF THE FIR M VIEW THAT THE LD. CIT(A) HAD GONE INTO THE ROOT OF ISSUE, DELIBERATED COMPREHENSIVELY AND ARRIVED AT A CONCLUSION IN A JUDICIOUS MANNER WHICH REQUIRES TO BE SUSTAINED. 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AN D ALSO PERUSED THE RELEVANT RECORDS. WE HAVE CAREFULLY GONE THROUGH T HE LENGTHY WRITTEN SUBMISSION MADE BY THE LD. A R WHICH COUPLED WITH V ARIOUS JUDICIAL PRONOUNCEMENTS TO SUPPORT HIS STAND ON THE ISSUE. 6.1. ON A CAREFUL CONSIDERATION OF THE ISSUE IN QUE STION, WE ARE OF THE UNANIMOUS VIEW THAT THE CRUX OF THE ISSUE IS TWO-FO LD, VIZ., (I) WHETHER THE PROVISIONS OF S.194C (1) OF THE ACT ARE APPLICABLE IN THE CASE OF THE ASSESSEE, BEING AN INDIVIDUAL AS IT ST OOD PRIOR TO 1.6.2007? & (II) WHETHER THE AMENDED PROVISIONS OF S.194C(1)(K) ARE APPLICABLE FOR THE ASSESSMENT YEAR 2006-07 IN QUESTION? 6.2. WE HAVE GONE THROUGH THE FINANCE ACT, 2007 WHE REIN THE AMENDMENT OF SECTION 194C HAS BEEN DETAILED. FOR C ONVENIENCE, THE RELEVANT PORTION OF WHICH IS EXTRACTED AS UNDER: FINANCE ACT 2007 54. AMENDMENT OF SECTION 194C. - IN SECTION 194C OF THE INCOME-TAX ACT, FOR SUB-SECTION (1), THE FOLLOWING SUBSECTION SHALL BE SUBSTITUTED WITH EFFECT FROM THE 1ST DAY OF JUNE, 2007 , NAMELY: ITA NO.757/BANG/09 PAGE 8 OF 11 '(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO A NY RESIDENT (HEREINAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND .. (K) ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WH OSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE ( A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDIN G THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT O F THE CONTRACTOR, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF TH E CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO - (I) ONE PER CENT. IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT. OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN: PROVIDED THAT NO INDIVIDUAL OR A HINDU UNDIVIDED FA MILY SHALL BE LIABLE TO DEDUCT INCOME-TAX ON THE SUM CREDITED OR PAID TO TH E ACCOUNT OF THE CONTRACTOR WHERE SUCH SUM IS CREDITED OR PAID EXCLU SIVELY FOR PERSONAL PURPOSES OF SUCH INDIVIDUAL OR ANY MEMBER OF HINDU UNDIVIDED FAMILY.' 6.3. ON A CAREFUL READING OF THE PROVISIONS OF S.19 4C (1) OF THE ACT, WE ARE OF THE CONSIDERED VIEW THAT THE SAID PROVISIONS WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE BEING AN INDIVIDUAL AS THE SECTION STOOD FOR THE ASSESSMENT YEAR 2006-07 WHICH IS UNDER DISPUTE. FU RTHER, CLAUSE (K) TO S.194C(1) WAS BROUGHT ON THE STATUTE THROUGH THE FI NANCE ACT, 2007 REFERRED SUPRA, W.E.F. 1/6/2007 ONLY WHICH IS IN NO WAY APPLICABLE TO THE ASSESSMENT YEAR 2006-07. FURTHER, THE ASSESSEE HAD MADE THE PAYMENT TO THE S UPPLIERS FOR NOT FOR HAVING CARRIED OUT ANY WORK, BUT, FOR THE SUPPLY OF THE PROCESSED ANIMAL SKINS. IT WAS RATHER NOTHING BUT AN OUTRIGHT PURCH ASE OF PROCESSED ANIMAL SKINS FOR MAKING LEATHER GOODS ETC., OF COURSE, THE SUPPLIERS WOULD HAVE ITA NO.757/BANG/09 PAGE 9 OF 11 MADE ARRANGEMENTS TO CARRYOUT THE PROCESSING OF THE ANIMAL SKINS THROUGH PROCESSORS AND TO SUPPLY THE PROCESSED LEATHER GOOD S TO THE ASSESSEE AS PER HER SPECIFICATIONS. SUCH PROCESSING CAN BE TER MED AS TRANSACTION OF SALE BUT CANNOT BE CALLED AS CONTRACT OF WORK. 6.4. WE ARE DRAWING STRENGTH FROM THE FINDINGS OF ( I) THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. GIRNAR FOOD AND B EVERAGE LIMITED REPORTED IN (2008) 306 ITR 23 WHEREIN, THE HONBLE COURT REASONED THAT THE TRIBUNAL WHILE PASSING THE IMPUGNED ORDER HAS PLACED RELIANCE ON THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 715 WHER EIN IT IS STATED BY THE BOARD THAT IN A CASE OF SALE NO DEDUCTION UNDER SEC TION 194C OF THE ACT IS REQUIRED. ON GOING THROUGH ALL THE THREE CIRCULARS IT IS APPARENT THAT WHERE THE CONTRACT IS FOR SUPPLY OF MATERIALS, VIZ., SALE OF MATERIALS IT CANNOT BE TERMED TO BE A CONTRACT FOR WORK AND LABOUR AND IS NOT AMENABLE TO THE PROVISIONS OF SECTION 194C OF THE ACT . AND (II) THE HONBLE P & H HIGH COURT, IN THE CASE OF CIT V. DEPUTY CHIEF ACCOUNTS OFFICER, MARKFED REPORTED IN (2008) 304 ITR 17, WAS PLEASED TO OBSER VE THAT THERE IS NO DISPUTE THAT THE MAIN PURPOSE OF THE ASSESSEE TO BU Y PACKING MATERIAL IS TO OBTAIN GOODS FOR THE PURPOSE OF PACKING OF ITS FINI SHED PRODUCTS. THE FACTUM OF SUCH PACKING MATERIAL CARRYING SOME PRINTED WORK CAN ONLY BE REGARDED AS THE WORK EXECUTED BY THE SUPPLIER INCIDENTAL TO THE SALE TO THE ASSESSEE. THE RAW MATERIAL FOR THE MANUFACTURING OF SUCH PACK ING MATERIAL WAS NOT SUPPLIED BY THE RESPONDENT. THUS, IT WAS A CASE OF SALE AND NOT A CONTRACT FOR CARRYING OUT ANY WORK ITA NO.757/BANG/09 PAGE 10 OF 11 6.5. IN AN OVERALL CONSIDERATION OF THE FACTS AND C IRCUMSTANCES OF THE ISSUE, WE ARE OF THE FIRM VIEW THAT (I) THE PROVISIONS OF S.194C(1) DO NOT APPLY TO THE CAS E OF THE PRESENT ASSESSEE BEING AN INDIVIDUAL FOR THE ASSESSMENT YEA R UNDER DISPUTE; (II) THE AMENDED PROVISIONS OF S.194C(1)(K) BROUGHT ON T HE STATUTE APPLICABLE PROSPECTIVELY W.E.F. 1.6.2007 & (III) THE ASSESSEE WAS UNDER NO OBLIGATION TO DEDUCT TAX WHILE MAKING THE PAYMENT(S), WE QUOTE FROM THE FINDING OF THE HO NBLE GUJARAT HIGH COURT REFERRED SUPRA THAT ON GOING THROUGH AL L THE THREE CIRCULARS IT IS APPARENT THAT WHERE THE CONTRACT IS FOR SUPPLY OF MATERIALS, VIZ., SALE OF MATERIALS IT CANNOT BE TER MED TO BE A CONTRACT FOR WORK AND LABOUR AND IS NOT AMENABLE TO THE PROVISIONS OF SECTION 194C OF THE ACT; AND (IV) SINCE THE ASSESSEE WAS UNDER NO OBLIGATION TO DEDUC T TAX, HER CASE DOESNT FALL WITHIN THE AMBIT OF S.40(A)(IA) OF THE ACT. 6.6. TO CONCLUDE, WE ARE OF THE UNANIMOUS VIEW THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING THE S UM OF RS.30,33,838/-. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF NOVEMBER, 2009. SD/- SD/- (GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 27 TH NOVEMBER, 2009. DS/- ITA NO.757/BANG/09 PAGE 11 OF 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.