THE COMMISSIONER OF INCOME TAX V. M/S SPICE TELECOMMUNICATIONS PVT LTD

ITA/7/2008

AI Insights

The case involves multiple Income Tax Appeals (ITAs) filed by the Commissioner of Income Tax and the Income Tax Officer against M/s Spice Telecommunications Pvt Ltd and M/s Hutchison Essar South Ltd concerning the applicability of Section 194C of the Income Tax Act, 1961, to transactions involving the supply of SIM/scratch cards. The primary legal question was whether these transactions constituted a 'works contract' under the Act, which would require tax deduction at source. The Tribunal and the First Appellate Authority had previously ruled in favor of the assessees, leading to the revenue's appeal to the High Court. The High Court, referencing a Supreme Court decision and the specific wording of Section 194C, concluded that the transactions did not fall under the definition of 'work' as required by the Act, particularly noting the absence of material supply by the assessees to the manufacturers.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 742704 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 11-04-2014
• Assessment Year: misc
• Other Referred Cases: CIT-XVII, Delhi \\u2013vs- Silver Oak Laboratories P. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHYTHANYA; VANI
• Assessee Lawyers: K V ARAVIND
• Keywords: Income Tax; Scratch card; Sim Card; TDS; Works contract
• Section: 201(1); 194C; 201(1A); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 11th DAY OF APRIL 2014 PRESENT THE HON’BLE MR. JUSTICE DILIP B BHOSALE AND THE HON’BLE MR. JUSTICE B MANOHAR ITA.NO.7/2008, ITA NO.731/2008 C/W ITA NOS.730/2008, 5/2008, 6/2008, 732/2008 IN ITA.NO.7/2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C.R.BUILDING QUEENS ROAD BANGALORE 2. THE INCOME-TAX OFFICER, (TDS) CIRCLE 16 (3), C.R.BUILDING, QUEENS ROAD, BANGALORE ... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND M/S SPICE TELECOMMUNICATIONS PVT LTD EMBASSY SQUARE, 148, INFANTRY ROAD BANGALORE 560021 ... RESPONDENT (BY SRI CHYTHANYA K K, ADV.,) ITA.NO.7/2008 IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-9-2007 PASSED IN ITA NO.1083/BNG/2006, FOR THE ASSESSMENT YEAR 2003-2004, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1083/BNG/2006,DATED 2 21-9-2007 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER,(TDS), WARD-16(3), BANGALORE. IN ITA.NO.731/2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX, (TDS) NO.59, HMT BHAVAN, 4TH FLOOR BELLARY ROAD, GANGANAGAR BANGALORE-560032 2. THE INCOME-TAX OFFICER (TDS) WARD-16(1), NO.59, HMT BHAVAN 4TH FLOOR, BELLARY ROAD, GANGANAGAR BANGALORE-560032 ... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND M/S HUTCHISON ESSAR SOUTH LTD 'PRESTIGE BLUE CHIP' GROUDN FLOOR BLOCK - I NO.9, HOSUR ROAD BANGALORE ... RESPONDENT (BY SRI VANI H, ADV.,) ITA.NO.731/2008 IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 15-2-2008 PASSED IN ITA NO.1102/BNG/2006, FOR THE ASSESSMENT YEAR 2004-2005, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1102/BNG/2006, DATED 15-2-2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-16(1), BANGALORE. IN ITA.NO.730/2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX (TDS) NO.59, HMT BHAVAN, 4TH FLOOR 3 BELLARY ROAD, GANGANAGAR BANGALORE-560032 2. THE INCOME-TAX OFFICER (TDS) WARD-16(1), NO.59, HMT BHAVAN 4TH FLOOR, BELLARY ROAD, GANGANAGAR BANGALORE-560032 ... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND M/S HUTCHISON ESSAR SOUTH LTD 'PRESTIGE BLUE CHIP' GROUND FLOOR BLOCK - I NO.9, HOSUR ROAD BANGALORE ... RESPONDENT (BY SMT VANI H, ADV.,) ITA.NO.730/2008 IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 15-2-2008 PASSED IN ITA NO.1101/BNG/2006, FOR THE ASSESSMENT YEAR 2003-04, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1101/BNG/2006, DATED: 15-2- 2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-16(1), BANGALORE. IN ITA.NO.5/2008 BETWEEN 1. THE COMMISSIONER OF INCOME-TAX C.R.BUILDING, QUEENS ROAD BANGALORE 2. THE DEPUTY COMMISSIONER OF INCOME TAX (TDS) WARD-16(3), C R BUILDING, QUEENS ROAD BANGALORE ... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND 4 M/S SPICE TELECOMMUNICATIONS PVT LTD EMBASSY SQUARE, 148, INFANTRY ROAD BANGALORE 560021 ... RESPONDENT (BY SRI K K CHYTHANYA, ADV.,) ITA.NO.5/2008 IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-9-2007 PASSED IN ITA NO.1085/BNG/2006, FOR THE ASSESSMENT YEAR 2005-2006, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1085/BNG/2006, DATED 21-9-2007 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER,(TDS), WARD-16(3), BANGALORE. IN ITA.NO.6/2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C.R.BUILDING, QUEENS ROAD BANGALORE 2. THE INCOME TAX OFFICER (TDS) WARD-16(3), C.R.BUILDING, QUEENS ROAD BANGALORE ... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND M/S SPICE TELECOMMUNICATION PVT LTD EMBASSY SQUARE, 148, INFANTRY ROAD BANGALORE 560021 ... RESPONDENT (BY SRI K K CHYTANYA, ADV.,) ITA.NO.6/2008 IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 21-9-2007 PASSED IN ITA NO.1084/BNG/2006, FOR THE ASSESSMENT YEAR 2004-2005, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1084/BNG/2006,DATED 21-9-2007 AND CONFIRM THE ORDER OF THE APPELLATE 5 COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER,(TDS), WARD-16(3), BANGALORE. IN ITA.NO.732/2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX (TDS) NO.59, HMT BHAVAN, 4TH FLOOR BELLARY ROAD, GANGANAGAR BANGALORE-560032 2. THE INCOME-TAX OFFICER (TDS) WARD-16(1), NO.59, HMT BHAVAN 4TH FLOOR, BELLARY ROAD, GANGANAGAR BANGALORE-560032 ... APPELLANTS (BY SRI K V ARAVIND, ADV.,) AND M/S HUTCHISON ESSAR SOUTH LTD 'PRESTIGE BLUE CHIP' GROUND FLOOR BLOCK - I NO.9, HOSUR ROAD BANGALORE ... RESPONDENT (BY SMT VANI H, ADV.,) ITA.NO.732/2008 IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 15-2-2008 PASSED IN ITA NO.1103/BNG/2006, FOR THE ASSESSMENT YEAR 2005-2006, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1103/BNG/2006, DATED 15-2-2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-16(1), BANGALORE. THESE ITAs. COMING ON FOR FINAL HEARING, THIS DAY, Dilip B. Bhosale J., DELIVERED THE FOLLOWING: 6 PC: We dispose of these six Income Tax Appeals filed by the revenue by this common judgment, since the substantial questions of law raised for our consideration are common and even the nature of business of the respondent-assessees is similar. The assessees are in the business of providing communication facilities and for that purpose they place order for supply of SIM/scratch cards according to their requirement and specifications. Admittedly, the assessees do not supply any material whatsoever to the manufacturers/suppliers of the cards. It is against this backdrop the revenue has raised the following substantial questions of law for our consideration: “i. Whether the Appellate Authorities were right in holding that the payment made for obtaining SIM card & scratch card used in the business of the assessee’s mobile service from suppliers/contractors, as per their requirement and specifications, does not constitute a “works contract” and the provisions of Section 194C of the Act are not applicable and no tax at source be deducted? ii. Whether the Appellate Authorities were right in not taking into consideration the provision of Section 194C of the Act which 7 contemplate that payments for carrying out any “work” in pursuance of a contract, including the supply of SIM/scratch cards as per the assessee’s specifications would attract the provision of Section 194C of the Act and consequently the order u/s.201(1) and u/s.201(1A) of the Act was justified?” 2. These appeals are directed against the order passed by the Income Tax Appellate Tribunal (for short ‘the Tribunal’) whereby the Tribunal refused to interfere with the order passed by the First Appellate Authority. The First Appellate Authority reversed the order passed by the Assessing Officer whereby it was held that the order to supply SIM/scratch cards along with printing of the assessees’ name and other particulars would amount to “work” since it requires specific job to be done by the specialised companies having such plant and machinery. The Assessing Officer further held that the work order placed by the assessees to the manufacturer/supplier is covered by the provisions contained in Section 194C of the Income Tax Act, 1961 (for short ‘the Act’) and TDS is 8 required to be made by the assessees while making payment to the suppliers. 3. Section 194C of the Act came to be substituted by the Finance (No.2) Act, 2009 w.e.f. 01.10.2009. By this amendment, for the first time Sub-Clause(e) of Clause (iv) in the Explanation appended to Section 194C of the Act was inserted. Sub-Clause(e) of Clause(iv) reads thus: “(iv) “work” shall include - (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.” Thus, the word “work” as occur in sub-section(1) of Section 194C has been explained to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. 9 4. Similar situation fell for the consideration of the Supreme Court in CIT-XVII, Delhi –vs- Silver Oak Laboratories P. Ltd. in Special Leave Appeal (Civil)No.18012/2009, decided on 11.11.2008. The Supreme Court considered Section 194C of the Act before amendment/substitution and after the amendment/ substitution by the Finance (No.2) Act, 2009 and disposed of the SLP by the following order: “On examining the terms and conditions and also on examination of the invoices, purchase orders as well as the challans indicating payment of excise duty, we are of the view that there is no material on record to indicate that the transaction in question is a “contract for carrying out works”. Hence, Section 194C of the Income Tax Act, 1961, [‘Act’ for short] is not attracted. Our attention, in fact , is invited to the amendment in Section 194C of the Act vide Finance (No.2) Act, 2009, with effect from 1st October, 2009, which defines “work” to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. In fact, it is clarified that the definition of the word “work” will not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer. However, this amendment came into force only with effect 10 from 1st October, 2009, which will not apply to the period in question in the present case(s). For the aforestated reasons, we find no reasons to interfere with the impugned judgments of the High Court. The special leave petitions are, accordingly, dismissed.” 5. In the present cases, admittedly, the assessees did not supply any material whatsoever to the manufacturer/supplier for the supply of SIM/scratch cards as per their requirement or specification and therefore, the transaction cannot be treated as a contract for carrying out works within the meaning of the word “work” used in sub-section(1) of Section 194C of the Act, before its amendment. After the amendment, it is clarified that the definition of the word “work” will not include the manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer. If we apply this provision, the case of the assessees would stand strengthen further. In other words, even if the first part of the amendment i.e., sub-clause(e) of Clause(iv) of Section 194C is applied, the case of the 11 assessees would not be covered by the said clause since the assessees did not supply any material to the manufacturers. However, we need not take recourse to the amendment. These appeals, in view of the aforesaid order of the Supreme Court, can be disposed of holding that placing of orders by the assessees, in these cases, to the manufacturers/suppliers to supply SIM/scratch cards as per their requirements cannot be treated as contract for carrying out works within the meaning of sub-section(1) of Section 194C of the Act as it existed prior to its amendment. Hence, we answer both the substantial questions of law against the revenue and in favour of the assessees and dispose of these appeals. No costs. Sd/- JUDGE Sd/- JUDGE TL "