Income Tax Appellate Tribunal - Jaipur
Sankalp International , Jaipur vs Assessee on 18 July, 2014
1
IN THE INCOME TAX APPELLATE TRIBUNAL
JAIPUR BENCH, JAIPUR
(BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA)
ITA No. 49, 50 & 51/JP/2012
Assessment years : 2006-07, 2008-09 & 2010-11
PAN : JPRS 02198A
M/s. Sankalp International vs. The ITO
F-944, Road No. 14, VKI Area TDS-2
Jaipur Jaipur
(Appellant) (Respondent)
Assessee by : Shri P.C. Parwal
Department by: Shri A.K. Khandelwal & Shri D.C. Sharma
Date of Hearing: 10-07-2014
Date of Pronouncement: 18-07-2014
ORDER
PER R.P. TOLANI, JM
These are three appeals filed by the assessee against three different orders of the ld. CIT(A)-III, Jaipur dated 17-10-2011 for the assessment years 2006-07, 2008-09 and 2010-11 respectively wherein the assessee has raised common grounds regarding non-deduction of TDS as under:- Ground No. 1, 1.1, 1.2 & 2
''Confirming the action of AO in holding that assessee's independent and separate contract with Enercon (India) Ltd. [in A.Y. 06-07 & 10-11] & Sulzon Group [in A.Y. 08-09 & 10-11] for supply of plant & machinery of windmill, for civil/electrical works and erection and commission of windmill, is a composite work contract liable for deduction of tax at source u/s 194C on entire value including the payment made for supply of plant & machinery.2
& Confirming the action of AO in holding that the advance payment to Suzlon Energy Ltd. and Enercon India Ltd. towards supply of Plant & machinery of windmill is liable to deduction u/s 194C (A.Y. 10-11) & Confirming the action of AO in holding that assessee is in default u/s 201(1) for not deducting tax at source u/s 194C on payment made for supply of plant & machinery. Raising demand of Rs. 8,26,060/- u/s 201(1) [A.Y. 10-11] & Confirming the action of AO in raising demand of Rs. 60,857/-, Rs. 42,977/- & Rs. 55,561/- for A.Y. 06-07, 08-09 & 10-11 respectively u/s 201(1A) on alleged non deduction of tax at source on supply value of plant & machinery
2.1 The brief facts of the case are that the assessee is alleged to have entered into turnkey project with M/s. Suzlon, a windmill supplier group of companies. The Revenue claims it to be a composite contract as against which the assessee claims that the windmills were purchased and entire deal of purchase of windmills consisted of purchasing of windmill by way of sale of goods from one entity of Suzulon Group. The erection and maintenance contract was from different entity of Suzulon Group. The assessee claims that the sale / supply of the part of the windmill was clear cut case of sale of goods to assessee. There is no liability of deduction u/s 194C of the Act on the sale of goods. The entity which assessee entered into agreement for erection and maintenance, the TDS has been deducted u/s 194C of the Act. 3 2.2 The Department however, held that the assessee ought to have deducted TDS from entire amount and consequently on the difference the assessee was held to be having not complied with TDS provisions and was deemed in default. Thus the interest demand for differential TDS was raised u/s 201 & 201(1A) of the Act. The AO accordingly raised the demand in all these years.
2.3 The ld. CIT(A) upheld the order of the AO in all these years by following common observations.
"In view of the above facts and circumstance and detailed deliberation, it is held that infact the appellant was having the sole intention of installing a turnkey project of 'Windmill', which was inclusive of supply of plants & equipments and also erection and installation of such project only. In view of the same all the separate orders of supply of equipments and service related aspects, are infact amounts to a single 'work contract' only. Accordingly, payments made towards such 'work contract' do fall under the ambit of sec. 194C of the Act. Accordingly, the separate work orders, placed for the supply of the equipments and erection of the plant etc., were found nothing but as a deliberate act of the part of the appellant to reduce its TDS liability by circumventing the relevant provisions of the law, through artificially dividing such work contract in piecemeal orders. Thus, it is concluded that the erection, installation and commissioning aspects of the 'Windmill' project are integral part of composite contract of such project, thus, the separate work orders placed in this regard are far all practical and technical purposes, forms the part of the single 'work contact' only. Accordingly, I find the AO is justified in 4 holding that the appellant was at fault u/s 201, while not deducting TDS u/s 194C of the Act, towards the payment made far machinery, parts and other materials, as otherwise deducted on the payment made towards service charges related to such composite 'work contract' of the appellant. However, in view of the ratio of Hon'ble Supreme Court given in the case of M/s Hindustan Coca Cola Beverage P. Ltd., the appellant's liability, i.r.o., non deduction of TDS u/s 201(1) was rightly held by the AO, as not enforceable as such. Accordingly, demand of Rs. 60,857/-, Rs. 42,977/- & Rs. 55,561/- for A.Y. 06-07, 08-09 & 10-11 respectively raised u/s 201(1A), towards interest aspect on such TDS default & demand of Rs. 8,26,060/- for A.Y. 10-11 raised u/s 201(1) is hereby confirmed."
2.4 Aggrieved, the assessee is before us.
2.5 The ld. Counsel for the assessee vehemently argued that the Department has assumed that there is a turnkey project of windmill whereas the fact of the matter is that the Suzulon Group has umbrella of different entities which deal in different type of activities. There are units which only deal in sale of windmill plants. There are entities which take the contract of installation of windmill. Likewise, there are entities which take contract for maintenance of the plants so that optimum electrical energy is produced. The assessee submitted sufficient evidence in the form of sale bills or purchase of windmill plants on which VAT was collected which clearly indicates the transactions depicted in these bills relating to sales and purchases as per the 5 provision of Section 194C of the Act do not apply. The relevant chart of cost for supply of plant and machinery and the contractual amount for erection and commissioning of the windmill is as under 1 2 3 4 5 6
No. A.Y. Name of Supplier Total Cost Cost for Cost for civil/electrical works supply of and for erection/commission of P&M of windmill windmill
1. 06-07 Enercon (India) Ltd. 3,85,00,000/- 3,39,00,000/- 46,00,000/-
2. 08-09 Suzlon Group 3,65,48,480/- 3,16,10,100/- 49,38,380/-
3. 10-11 Suzlon Group 3,47,02,143/- 2,66,48,000/- 80,54,143/-
17,55,000/- 17,55,000/- -
(Advance (Advance
payment) payment)
Enercon (India) Ltd. 1,29,00,000/- 1,29,00,000/- -
(Advance (Advance
payment) payment)
Thus the amount reflected in Column 5 of the above chart are purchases made by the assessee on which no TDS was deducted as it was not applicable. Likewise the amount in column no. 6 represents the value of contract for erection/ commissioning of windmill and electrical work thereon on which TDS is liable and the same has been paid by the assessee. The Department has held that because there was understanding with M/s.
Suzulon Group on the basis of which turn key project was set up. Therefore, the assessee ought to have deducted TDS on the entire amount which is not legally tenable. Reliance is placed as under:-
(1) M/s Vivek Pharmachem Vs. ITO in ITA No. 66 to 69/JP/12 dt.
25.05.2012 for A.Y. 05-06, 06-07, 08-09 & 10-11. This was followed in case of M/s Gem Craft Enterprises Pvt. Ltd. Vs. ITO in ITA No. 70 & 6 71/JP/12 dt. 25.05.2012 for A.Y. 05-06 & 06-07 (copy of order enclosed). In these cases also, AO held that assessee is liable to deduct tax at source on the total value of the composite contract for supply & erection of power plant. However, Hon'ble Tribunal held that though it is a single order but it has to be taken separate i.e. on account of supply of machinery & on account of cost of civil work/electrical work & erection work. The supplier has raised a separate bill in respect of supply of machines. The assessee has given 'C' Form to the supplier on account of purchase of machinery & on remaining amount assessee has deducted TDS i.e. on account of erection work & civil work contract. Assessee purchased the machinery & the supplier was supposed to erect the same at the factory premises of assessee after completing the civil & electrical work. Therefore, provisions of section 194C are not applicable on account of purchase of machinery.
(2) Rajasthan Rajya Vidhyut Utpadan Nigam Ltd., Chabara in ITA No. 474 & 525/JP/2009 dt. 23.10.2009 for A.Y. 07-08. This was followed in ITA No. 772/JP/10 dt. 25.02.2011 for A.Y. 05-06 to A.Y. 08-09. In these cases again, AO held that assessee is liable to deduct tax at source on the total value of the composite contract for supply & erection of power plant. However, Hon'ble Tribunal held that the primary object was to purchase the plant & the civil work/erection/commissioning was only incidental to the purchase of material by the appellant. The contract for supply of material is separable from the other part of the contract relating to carrying out civil work/erection/commissioning & therefore AO is directed to work out the short deduction of tax at source, if any by excluding the payment towards supply of machinery.
Further reliance is placed by the assessee as under:-
(i) Karnataka Power Transmision Corp. Ltd. vs. ITO 2011-
TIOL-772-ITAT-BANG.
(ii) Haryana Power Corporaton Ltd. vs. ITO 103 TTJ 584 (Del.)
(iii) Power Grid Corporation of India Ltd. vs. CIT, 108 ITD 340 (Hyd) In all these cases, it has been held that Section 194C of the Act is applicable for contract work and not for sale of goods. Even if the contract is a composite contract which prescribes various stages including sale part, 7 commissioning part and electrification part and each part is treated separately by the party. In these circumstances, each transaction is to be examined for the applicability of Section 194C of the Act. Merely because the word 'turnkey project' is referred to does not mean that intrinsic nature of the contract will be given go by. It is therefore, pleaded that the assessee has no liability qua the purchase and sale of machinery. Therefore, the demand raised is unjustified and deserves to be deleted. 2.6 The ld. DR on the other hand contends that the ld. CIT(A) has been reasonable in holding that the assessee was not liable for tax demand in view of Hon'ble Supreme Court judgment in the case of Hindustan Coca Cola Beverage (P) Ltd.. However, the liability of interest u/s 201(1A) was rightly raised. The order of the ld. CIT(A) is relied on. 2.7 We have heard the rival contentions and perused the materials available on record. It has not been disputed that the assessee acquired the windmill plant by way of different invoices. The amount referred to in column no. 5 of the above table represents the amount of the purchases of the machinery and column no. 6 represents the contract value liable for Section 194C. The assessee has not deducted TDS on the amounts mentioned at column no. 5 which is not a contract amount but it is the amount of purchases. We are unable to agree with the ld. DR that because 8 there was turnkey project, therefore, each and every part of the transactions comprised therein is liable for TDS u/s 194C of the Act. Various benches of ITAT as referred to above have held that in case of composite contract also, the portion of purchase of machinery is to be excluded while determining the liability u/s 194C of the Act. In view of these facts, material on record , arguments raised before us and the case laws cited, we hold that the assessee is not liable for deduction of tax u/s 194C on the amounts of purchase of windmill machinery. The consequent demand raised in this behalf is deleted. Thus the appeals of the assessee in all these years are allowed. 3.0 In the result, the appeals of the assessee are allowed. The order pronounced in open Court on 18th July, 2014.
Sd/- Sd/-
(T.R. MEENA) (R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Jaipur
Dated: 18th July, 2014
*Mishra
Copy forwarded to:-
1. M/s. Sankalp International, Jaipur
2. The ITO , TDS-2, Jaipur
3. The ld. CIT By Order
4. The ld. CIT(A), Jaipur
5..The ld. DR
6.The Guard File (ITA No. 49/JP/2012)
AR ITAT, Jaipur
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