Income Tax Appellate Tribunal - Ahmedabad
Balsara Home Products Ltd. vs Income Tax Officer on 29 October, 2004
Equivalent citations: (2005)94TTJ(AHD)970
ORDER
S.K. Yadav, J.M.
1. Both these appeals have been filed by the assessee against two separate orders dt. 14th July, 2004, passed by the CIT(A) for asst. yr. 2003-04, wherein confirmation of the action of ITO (TDS) in raising demand of Rs. 34,75,447 and in levying interest of Rs. 7,51,621 by way of TDS on purchases of preprinted packing material like tubes, cartons, corrugated boxes, etc. has been opposed. Since these appeals pertain to the same assessee and the issue is common, these were heard together and are being decided by this common order for the sake of convenience.
2. The AO noticed that the assessee had during the period from 1st April, 2002 to 31st March, 2003, credited the amount of Rs. 16,54,97,495 to various parties on account of printing of packing materials of the company, which were got printed according to the specification of the assessee. As provided under the provision of Section 194C of the Act, carrying out the work includes "service contract" and work done by any person includes "service rendered" to others. However, it was found that no deduction of tax was made on the amounts credited to various parties for printing on flexible films, plastic laminated tubes, boxes and cartons, wrappers, etc. as per specifications by the assessee. The assessee was liable to deduct tax at source under Section 194C of the Act in view of Circular No. 715, dt. 8th Aug., 1995, issued by the Central Board of Direct Taxes, New Delhi, A show-cause notice dt. 22nd Dec., 2003 was, therefore, issued and served upon the assessee to offer its explanation. The assessee was also asked to state as to why action under Sections 201(1) and 201(1A) should not be initiated for non-deduction of TDS under Section 194C of the IT Act on the amount of Rs. 16,54,97,495 credited to various parties. In response to show-cause notice, the assessee vide their letter dt. 12th Jan., 2004 submitted that the payment made of Rs. 16,54,97,495 is not towards the printed packing material but it is towards supply of raw material/packaging materials supplied by the suppliers under the "contract of sale". Such contract of sale is outside the purview of Sections 192-194 of the Act. It is wrongly alleged that printed flexible films, plastic laminated tubes, printed boxes and cartons, printed wrappers, etc. were printed according to the specifications of their, company. In fact the raw materials are manufactured by the suppliers and sold to them under the purchase orders placed by them from time to time. The printing on the raw materials supplied by the suppliers is incidental to the manufacture of the raw materials supplied by the supplier. The payment made to supplier is under a contract of sale it is not a service contract. The assesses used to place purchase order for purchase of the raw materials with printing thereon. The printing of raw materials cannot be segregated as separate contract of printing materials/printed materials. Besides, various contentions were raised by the assessee but the same were rejected and AO made addition under Sections 201(1) and 201(1A) of the Act, Matter was carried in appeal before the first appellate authority who also confirmed the same.
3. The stand of assessee before us is that the assessee is doing contract work but assessee places purchase order for purchase of raw materials with printing thereon. The printing of raw materials cannot be segregated as a separate contract of printing material/printed materials. The assessee submitted that the provisions of Section 191 have been amended by insertion of Explanation by Finance Act, 2003, w.e.f. 1st June, 2003, and accordingly the tax cannot be recovered from the company in respect of period prior to June, 2003, because the same is not retrospective. The assessee relied on the decision of Hon'ble Bombay High Court in the case of BDA Ltd. v. ITO (TDS) in Tax Appeal Nos. 44 of 2003 & 1 of 2004, and submitted that a similar issue has been decided in favour of assessee in that case, wherein supply of printing and packing material to M/s Wadilal Dairy International Ltd. was held to be a contract for sale and not a works contract. On the other hand, the learned Departmental Representative supported the orders of authorities below. After considering the rival submissions and going through the material on record, we are not inclined to agree with the findings of CIT(A). We find that Hon'ble Bombay High Court has decided the case of BDA Ltd. (supra) vide its order dt. 8th March, 2004. It is pertinent to mention that it is specifically mentioned that this period is prior to insertion of Explanation to Section 191 by Finance Act, 2003, which is effective from 1st June, 2003. In the facts and circumstances of the case, AO is directed accordingly.
4. The next issue is regarding confirmation of levying interest of Rs. 7,51,621 on the plea that company failed to deduct the amount of Rs. 34,75,447 by way of TDS on purchases of pre printed packing material like tubes, cartons, corrugated boxes, etc. This issue is consequential to issue in ground No. 1 which has been decided in favour of assessee. AO is directed accordingly.
5. In the result, both the appeals of assessee are allowed.