Income Tax Appellate Tribunal - Bangalore
Karnataka Power Transmission ... vs Assessee
Page 1 of 109 1 ITA Nos.112 to 115 &
162 to 165/Bang/2010
THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SHRI GEORGE GEORGE K, J.M. AND
SHRI A MOHAN ALANKAMONY, A.M.
ITA Nos.112 to 115 & 162 to 165/Bang/2010
(Asst. years 2006-07 to 2009-2010)
Karnataka Power Transmission Corporation Ltd.,
Bangalore Major Works (S) Division,
Ananda Rao Circle, Bangalore-9. - Appellant
vs
The Assistant Commissioner of Income-tax,
Circle-16(2), Bangalore. - Respondent
Appellant By : Shri Chythanya, K.
Respondent By : Shri G V Gopala Rao, CIT-I
ORDER
PER BENCH :
These eight appeals instituted by KPTCL, Bangalore Major Works (S) Division - a State Government Public Sector Company - are directed against the consolidated order of the Ld. CIT (A)-LTU, Bangalore, in ITA Nos: 2, 12 to 14/W 18(1)/CIT(A) LTU/09-10 dated: 30.10.2009 for the assessment years 2006-07 to 2009-10.
I. ITA Nos:112 to 115/10 - AYS: 2006-07 to 2009-10 -
u/s. 201 of the Act:
2. The assessee had raised as many as nineteen identical grounds for the AYs under dispute in an illustrative and narrative manner. On a close scrutiny of the same, the cruxes of the issues emerged are that -Page 2 of 109 2 ITA Nos.112 to 115 &
162 to 165/Bang/2010 "1. the CIT (A) was not justified in sustaining the action of the AO (TDS) in treating the assessee 'as assessee in default' and demanding the tax on the basis that the assessee ought to have deducted the TDS in respect of payments made to the contractors towards supply of materials"
2. that the CIT(A) had failed to appreciate that the assessee cannot be regarded as an 'assessee in default' u/s 201(1) as there was no obligation on the assessee to deduct TDS under any of the provisions of the Act; &
3. without prejudice, the CIT(A)-LTU ought to have appreciated that the recipients having paid the taxes on the amounts received from the assessee, the assessee was under no obligation to pay the tax under section 201(1) of the Act."
II. ITA Nos:162 - 165/10 - AYS: 2006-07 to 2009-10 - u/s. 201 (1A)of the Act:
3. Likewise, the assessee had raised three identical grounds for the AYs under challenge, out of which, ground No.1 being general and no specific issue involved, it has become non-consequential. In the remaining grounds, the issues raised are reformulated as under:
1. the CIT (A) was not justified in sustaining the action of the AO (TDS) in treating the assessee as 'in default' and demanding the interest on tax; &
- that he was not justified in upholding the stand of the AO in levying interest u/s 201 (1A) of the Act when the assessee's case doesn't fall within the sphere of s.201(1) of the Act.Page 3 of 109 3 ITA Nos.112 to 115 &
162 to 165/Bang/2010
4. As the issues raised in these AYs being identical pertaining to the same assessee, they were heard, considered together and disposed off in this common order for the sake of convenience and clarity.
5. Briefly stated, the assessee was a State Government Public Sector company carrying on the business of transmission of electricity from electricity generating points to various electrical sub-stations in the State through the network of transmission lines and sub-stations. The assessee's premises were subjected to an operation u/s 133A of the Act on 30.9.2008 to verify the compliance with the TDS provisions. During the course of survey, it was noticed that the assessee had entered into agreements with various contractors for setting up of electrical sub-stations. The sub-
stations were established in order to segregate the load of one station or to improve the reliability of power supply and to meet the increasing demand for power supply. It was noticed by the Revenue during the verification of the agreements that the assessee had entered into separate agreements for supply of materials, erection and for civil work portion etc., It was, further, noticed that when the assessee was deducting tax at source while making payments on civil work and erection portion, however, no TDS was effected on payments towards supply of material portion. During the course of proceedings u/s 201(1) and 201(1A) of the Act, as the AO was of the view that the assessee ought to have deducted tax at source on the supply of material portion also, it was required to explain such inaction on the part of the assessee.
5.1 Brushing aside the assessee's explanation, the AO went ahead in concluding that after a detailed reasons recorded in the impugned orders Page 4 of 109 4 ITA Nos.112 to 115 & 162 to 165/Bang/2010 under challenge, that the assessee should have deducted tax at source on the supply portion also which it had failed to do so, the assessee was treated as 'assessee in default' and, accordingly computed the taxes as well as interest thereon u/s 201(1) and u/s 201(1A) of the Act respectively for the assessment years under dispute.
6. Agitated, the assessee took up the issues with the Ld. CIT (A)-LTU for solace. After due consideration of the lengthy contentions put-
forth by the assessee's A.R., perusing the observations made by the AO in his impugned orders under challenge, analyzing the provisions of s.194C of the Act, extensively quoting the rulings in the cases of (i) Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC), (ii) Brij Bhushan Lal's case (1976) 115 ITR 524 (SC), (iii) State of Himalchal Pradesh v. Associated Hotels of India Ltd. (1972) 29 STC 474 (SC), (iv) State of Gujarat (Commissioner of Sales-tax, Ahmedabad) v. Variety Body Builders 38 STC 176 (SC), due perusal of Tender Notification floated by the assessee and also considering the case laws on which the assessee had placed strong reliance, the Ld. CIT (A) had observed thus:
"4.12.(vi) (c) (On page 30) From the facts stated above, it can be seen that the contract itself specified the material and work with estimated cost of supply as well as work and labour. Thus, supply and work are distinct and identifiable. In the instant case, the appellant floated a tender and there is no separation of supply, erection and installation as well as civil works. Only after awarding the tender, the appellant entered into agreement with the contractor for supply, civil works and erection. Thus, the facts of the case law Page 5 of 109 5 ITA Nos.112 to 115 & 162 to 165/Bang/2010 cited are distinguishable and is of no assistance to the appellant's case.
4.13. In the written submissions, the appellant further stated that it is not the case of the AO that the contractor has failed to fulfill the tax obligation and that the Government was deprived of tax due, relying on the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT (2007) 293 ITR 226 (SC) where the payee had already paid the tax on the income which was the subject matter of short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor. This issue has already been discussed in paras 4.4.1 and 4.2 supra and as there is no merit in the appellant's submission in view of the provisions of section 194C of the Act. Hence, the objections in this regard are rejected.
4.14. Here, the last position of the special term in regard to the payment of the amount due under the contract also makes clear that it is only when the component parts are fitted into position at the sub-station that an equipment would be treated as complete and this equipment has to be to the satisfaction of the appellant and it is then to be handed over by the contractor to the appellant and then alone would be remaining 10 per cent would be payable by the appellant to the contractor. It is, therefore, clear that the contract is one single and indivisible contract and the erection and installation of the equipment is as much fundamental part of the contract as the fabrication and supply. In the circumstances and in view of the discussion made above, my considered opinion is that the contract was a contract for work and labour and not a contract for supply. I, therefore, do not find infirmities in the AO's findings and, therefore, the same is confirmed. "Page 6 of 109 6 ITA Nos.112 to 115 &
162 to 165/Bang/2010
7. Aggrieved with the findings of the Ld. CIT (A)-LTU for the AYs under challenge, the assessee has come up with the present appeals.
8. During the course of hearing, the spirited, extensive but marathon submissions made by the Ld. A R are summarized as under:
I. With regard to the applicability of the provisions of section 194C:
The aforesaid section could be summarized as follows:
Any person (being a Specified Person) responsible for paying any sum to any resident contractor for carrying out any work, is required to deduct tax of such sum on the income comprised therein;
Specified person is defined under clauses (a) to (l) of Explanation (i) to section 194C, tax shall be deducted at the time of credit to the account of the contractor or at the time of payment, whichever is earlier,
1. Accordingly, any person paying any sum to any resident contractor for carrying out any work or part of the work is required to deduct the tax at source.
In other words, tax is required to be deducted under section 194C, only if some work or part of the work is carried out by the contractor.
2. For the purpose of the section 194C, the statute does not define the term 'work' but recognizes certain transactions as 'work'.
3. In this regard, we may examine the meaning of the term 'work'. The meaning of the term 'work' in various dictionaries are as under:
"In Webster's New Dictionary, 'work' has been defined as 'work', Exertion directed to produce or accomplish something; labour; toil; productive or operative activity; as, to make a machine do work; activity undertaken in return for payment, as in wages; that on which exertion or labour is expended, a product of Page 7 of 109 7 ITA Nos.112 to 115 & 162 to 165/Bang/2010 activity of labour; as, a literary work; needlework or embroidery; an engineering structure, as a bridge or dock; workmanship; as, to do good work; a task or undertaking; as, one's life's work; a deed or act;
In Encyclopedia Britannica, the word 'work' has been defined as Work, in physics, measure of energy transfer that occurs when an object is moved over a distance by an external force at least part of which applied in the direction of the displacement. If the force is constant, work may be computed by multiplying the length of the path by the component of the force acting long the path. Work done on a body is accomplished not only by a displacement of the body as a whole from one place to another, but also, for example, by compressing a gas, by rotating a shaft, and even by causing invisible motions of the particles within a body by an external magnetic force. In Oxford English Dictionary, the word 'work' has been defined as something to be done, or something to do; what a person (or thing) has or had to do; occupation, employment, business, task function.
Stroud's Judicial Dictionary, 5th edition, the definition of "work" culled out from diverse decisions has been stated as follows:
"The word 'work' may be used in two senses; it may mean either the labour which a man bestows upon a thing, or the thing upon which the labour is bestowed."
As per New Shorter Oxford English Dictionary (1993) the term 'work' means as "perform, conduct to completion and put into practice".
Page 8 of 109 8 ITA Nos.112 to 115 &162 to 165/Bang/2010 In section 194C, the emphasis is on 'any sum ... for carrying out work (including supply of Labour for carrying out any work)'. Therefore, applying the meaning of work as noted above, the words 'for carrying out etc' cannot mean to include supply of goods.
4. With regard to 'work', the following case laws were relied:
(i) Birla Cements Works vs. CBDT & Ors., 248 ITR 216 (SC);
(ii) Khaitan & Co. vs. CIT (2007) 12 SOT 120 (Del-ITAT);
(iii) Bombay Goods Transport Association vs. CBDT [1994] 76 Taxman 334 (Bom.);
(iv) V.M. Salgaocar & Bros. Ltd. vs. ITO, [1999] 104 Taxman 29 (Kar.);
(v) Calcutta Goods Transport Association vs. Union of India (1996) 219 ITR 486 (Cal);
(vi) The East India Hotel Ltd vs. CBDT [2010] 320 ITR 526 (Bom) II. As regards the nature of contract between Appellant and the contractor i.e. is it 'contract for supply' or 'contract of work':
- It is submitted that, whether the transaction between Appellant and the its contractor a 'contract for work' or a 'contract for supply' has to be determined in the light of the decision of the Constitution Bench of the Supreme Court in the case of State of Himachal Pradesh vs. Associated Hotels of India Ltd. AIR 1972 SC 1131: 29 STC 474 (SC), at page 479 observed as under:Page 9 of 109 9 ITA Nos.112 to 115 &
162 to 165/Bang/2010 "The difficulty which the courts have often to meet with in construing a contract of work and labour, on the one hand, and a contract for sale, on the other, arises because the distinction between the two is very often a fine one. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel (Halsbury's Laws of England, 3rd edition, vol. 34, 6-7)".
The Hon'ble Supreme Court in the aforesaid case at page 481 held as under:
"From the decisions earlier cited it clearly, emerges that such determination depends in each case upon its facts and circumstances. Mere passing of property in an article or Page 10 of 109 10 ITA Nos.112 to 115 & 162 to 165/Bang/2010 commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale".
It is submitted that, the aforesaid decision, although rendered in the context of sales tax, has been used even by the CBDT for the purpose of interpretation of section 194C in its Circular No. 681. Further, the aforesaid decision has been used by the Hon'ble tribunal and Hon'ble other courts for the purpose of interpretation of the aforesaid section. The aforesaid decision makes it unequivocally clear that when parties enter into two separate contracts, one for material and one for labour, the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale. In such case, the provisions of section 194C could apply only to the labour contract and not to the materials contract.
Page 11 of 109 11 ITA Nos.112 to 115 &162 to 165/Bang/2010
- The Hon'ble Supreme Court in the case of State of A.P. vs. Kone Elevators (India) Ltd. (2005) 3 SCC 389 considering the case of installation of lifts held that the contract is a "contract for sale".
- In the case of Andhra Pradesh State Road Transport Corporation vs. DCIT (2002) 74 TTJ 531 (Hyd.-ITAT), the Hon'ble Bench has held as follows:
"......There may be many common characteristics in both the contract, some neutral in a particular contract and yet certain clinching terms in a given case may fortify the conclusion one way or the other. All that will depend upon the facts and circumstances of each case. This question to be answered is not an easy and has perplexed the jurists all over. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of the property in and the delivery of the possession of a chattel as a chattel to the buyer. Where the dominant object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed and in anything that can properly become the subject of sale, neither the ownership of materials is conclusive although such factors may be relevant and be taken into consideration in ascertaining and determining whether the contract in question is in pith and substance a contract for work and labour or one for the sale of chattel. These principles have enunciated and culled out from Halsbury Laws of England, 3rd Edn., Vol. 34, 6-7."Page 12 of 109 12 ITA Nos.112 to 115 &
162 to 165/Bang/2010
- Certain guidelines have been laid down by the Apex Court in the case of P.S. Company vs. State of Andhra Pradesh 56 STC 283 to determine the true construction of a contract so as to determine in turn as to whether transaction covered by that contract is one of sale or of work and labour. Though these guidelines cannot be termed as infallible tests yet they provide valuable help and insights to arrive at correct decision. These guidelines are as under:
(1) The essence of the contract or the reality of the transaction as a whole has to be taken into consideration in judging whether the contract is for a sale or for work and labour.
(2) If the thing to be delivered has any individual existence before the delivery, as the sole property of the party who is to deliver it, then it is a sale.
(3) If the main object of the contract is the transfer from A to B, for a price, of the property in a thing in which B had no previous property, then the contract is a contract of sale.
(4) Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour.
(5) If the bulk of the material used in the construction belongs to the manufacturer who sells the end-product for a price that will be a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not one for work and labour.Page 13 of 109 13 ITA Nos.112 to 115 &
162 to 165/Bang/2010 (6) A contract where not only work is to be done but the execution of such work requires goods to be used, may take one of three forms:
(a) the contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price;
(b) it may be a contract for work in which the use of materials is accessory or incidental to the execution of work; or
(c) it may be a contract for supply of goods where some work is required to be done as incidental to the sale;
Where a contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and the other for work and labour.
The second type of work is clearly a contract for work and labour not involving sale of goods.
While the third type is contract for sale where the goods are sold as chattels and some work is undoubtedly done, but it is done merely as incidental to the sale.
The issue relating to the nature of contract regarding manufacture and supply of ships came for consideration before the Hon'ble Supreme Court in the case of Hindustan Shipyard Ltd. vs. State of Andhra Pradesh (2000) 119 STC 533 (SC). In this case, the Hon'ble Court had laid down the following test:
"14. The principles deducible from the several decided cases may be summed up as under:Page 14 of 109 14 ITA Nos.112 to 115 &
162 to 165/Bang/2010
1. It is difficult to lay down any rule or inflexible rule applicable alike to all transactions so as to distinguish between a contract for sale and a contract for work and labour.
2. Transfer of property of goods for a price is the linchpin of the definition of sale. Whether a particular contract is one of sale of goods or for work and labour depends upon the main object of the parties found out from an overview of the terms of the contract, the circumstances of the transactions and the custom of the trade. It is the substance of the contract document/s, and not merely the form which has to be looked into. The Court may form an opinion that the contract is one whose main object is transfer of property in a chattel as chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale, then it is a sale. If the primary object of the contract is the carrying out, of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour. [see para 14(2)].
3. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. [see para 14(3)].
4. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour.
However, the test is not decisive. It is not bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which have to be weighed. If the major component of the end product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main Page 15 of 109 15 ITA Nos.112 to 115 & 162 to 165/Bang/2010 components into the end products, the skill and labour are only incidentally used, the delivery of the end product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail the skill and labour of the seller though some material or components may be incidentally used during the process of the end product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour."
In the aforesaid decision the Apex Court in para 15 of the judgment observed as under:
"There may be three categories of contracts:
(i) The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price;
(ii) It may be a contract for work in which the use of the materials is ancillary or incidental to the execution of the work; &
(iii) It may be a contract for supply of goods where some work is required to be done as incidental to the sale.
The first contract is a composite contract consisting of two contracts one of which is for the sale of goods and the other is for work and labour. The second is clearly a contract for work and labour not involving sale of goods. The third is a contract for sale where the goods are sold as chattels and the work done is merely incidental to the sale."
1. It is submitted that, in the instant case, 80% to 85% of the total consideration is towards the supply of materials and only 20% to 15% is towards erection and civil works.
Page 16 of 109 16 ITA Nos.112 to 115 &162 to 165/Bang/2010
2. Further, it is submitted that, the erection work and civil work are carried on in furtherance to the supply of material. In other words, erection work and the civil works are incidental to supply of materials. The substance of the agreement or arrangement between the parties is to supply the materials and not carrying out the work. Installation or erection work and civil construction work can only be regarded as ancillary to the contract of supply.
3. Therefore, it is submitted that, the entire arrangement encompassing supply, erection and civil portion is to be regarded as a contract for supply of equipment on the basis that erection and civil portion of only ancillary and subservient to the supply portion. Applying the dominant test theory as canvassed and accepted in the aforesaid decisions, it is submitted that where the Respondent contends that, the entire arrangement between the Appellant and its contractors is regarded as one indivisible contract, the same should be regarded as a supply contract. In such case, the Appellant's case falls as the third category of contracts discussed in the above decision. Accordingly, it is submitted that Appellant is not liable to deduct tax at all in respect of even the civil portion and erection portion.
4. Even otherwise, if erection portion and civil portion are considered as of equal significance as supply portion, as per the above decision, the Appellant's case falls in the first category of contracts, i.e. composite contracts. As decided in the aforesaid case, where a contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and the other for work and labour. In such case, it is natural that the provisions of section 194C would apply only to the latter contract and not to be former one.
- relies on the following CBDT circulars:.
Page 17 of 109 17 ITA Nos.112 to 115 &
162 to 165/Bang/2010
(i) Circular No. 295 dated 06.03.1981;
(ii) Circular No. 681, dated 08.03.1994, has also laid down certain guidelines, the relevant excerpts read as follows:
"(vi) The provisions of this section will not cover contracts for sale of goods--
(a) Since contracts for the construction, repair, renovation or alteration of buildings or dams or laying of roads or airfields or railway lines or erection or installation of plant and machinery are in the nature of contracts for work and labour, income-
tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor.
(b) Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section.
Circular No. 715, dated, 08.08.1995, the relevant question and answer reads as follows:
Page 18 of 109 18 ITA Nos.112 to 115 &162 to 165/Bang/2010 Q 15: Whether section 194C would apply in respect of supply of printed material as per prescribed specifications?
Ans: Yes.
Thus, there was a conflict between Circular No. 681 and
715. The same was brought to the notice of the CBDT and in this regard, the CBDT issued Circular No. 13 of 2006, dated 13.12.2006, which reads as follows:
1. Representations have been received in the Board seeking clarification on the applicability of section 194C on such transactions, where the assessee has outsourced certain work relating to fabrication or manufacturing of article or thing in accordance with the specifications given by the assessee. Circular No. 681, dated 8-3-1994 of the Board clarifies in para 7(vi) that the provisions of section 194C would not apply to contracts for sale of goods and further clarifies that where the property in the article or thing so fabricated passes from the fabricator-contractor to the assessee only after such article or thing is delivered to the assessee, such contract would be a contract for sale and so outside the purview of section 194C. However, in reply to question No. 15 in Circular No. 715, on the subject of applicability of section 194C, in respect of contract or supply printed material as per prescribed specifications, it has been said that such contracts would also be covered under section 194C. It has been represented that the views expressed in these two circulars, to the extent as pointed out above, are in contradiction to each other.
The matter has been examined by the Board and it is considered that exclusive reliance on Question/Answer No. 15 of Circular No. 715, without taking into account the principles laid down in Circular No. 681 is not justified. Before taking a decision on the applicability of TDS under section 194C on a contract, it would have to be examined whether the contract in question is a 'contract for work' or Page 19 of 109 19 ITA Nos.112 to 115 & 162 to 165/Bang/2010 a 'contract for sale' and TDS shall be applicable only where it is a 'contract for work'.
It is, therefore, clarified that the provisions of section 194C would apply in respect of a contract for supply of any article or thing as per prescribed specifications only if it is a contract for work and not a contract for sale as per the principles in this regard laid down in para 7(vi) of Circular No. 681, dated 8-3-1994.
While looking into the aspects as envisaged in the CBDT's clarification in Circular No. 681.
Paragraph 7 (vi) (a) provides that, "......Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor".
As per the above paragraph, in order that section 194C is attracted, it is necessary that the ownership of goods remains at all times with the contractee.
Paragraph 7 (vi) (b) provides that, "Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section".
Page 20 of 109 20 ITA Nos.112 to 115 &162 to 165/Bang/2010 As per the aforesaid paragraph, when the contractor undertakes to supply any article or thing fabricated according to the specifications given by the specified person and the property in such article or thing passes to the specified person only after such article or thing is delivered, the contract will be a contract for sale. Therefore, the case of Appellant falls within Paragraph 7 (vi) (b) and not within Paragraph 7 (vi) (a).
The Ld. CIT (A) is not justified in stating that, 'there is no transfer of property in the equipments by the manufacturer to the customer as a chattel', despite the fact that, transfer of the title in respect of equipment and materials supplied by the contractor to the Appellant takes place in favour of Appellant pursuant to the terms of the Contract by way of negotiation of dispatch documents. He is not justified in ignoring the relevant clauses in the 'Instruction to Bidders' and wrongly stating that the property gets transferred to the Appellant only after the equipments, materials, component parts are fitted and installed at the works site premises.
In this regard, the relevant extracts of the 'Instruction to Bidders' issued by the KPTLC for inviting bids, which read as follows: (Refer page 15 of the order) 37.3 For contractor supplied equipments/materials 37.3.1 Transfer of the title in respect of equipment and materials supplied by the contractor to the KPTCL pursuant to the terms of the Contract shall pass on to the KPTCL with negotiation of dispatch documents.
............................................................................................................ 37.3.4 In order to enable the contractor to carry out its obligation under the contract such as receipt at site, storage, erection, testing, etc, the owner (KPTCL) shall hand over (wherever applicable) the goods to the contractor Page 21 of 109 21 ITA Nos.112 to 115 & 162 to 165/Bang/2010 against an Indemnity Bond in the format enclosed as Annexure VIII & IX. The contractor shall be fully responsible for the safety of the goods while the same are under its custody as above.
37.4 The Contractor shall be fully responsible for the safety of all the Equipments/Materials while the same are under his custody as above until "Taking Over of the Stations and Transmission Lines" by the Owner in accordance with clause 9.0 of Section-V, Special Conditions of Contract-SCC, volume-I. It is clear from the 'Instruction to Bidders' that, the transfer of the title in respect of equipment and materials supplied by the contractor to the Appellant takes place in favour of Appellant pursuant to the terms of the Contract by way of negotiation of dispatch documents.
As the title to equipments and materials already passed on to the Appellant and Appellant having become the owner of equipments and materials, issues the same to the contractors for carrying out civil works or erection works at the site location. For issuing such goods to the contractor, he has to execute an indemnity bond in favour of Appellant. This proves that, the title to equipments and materials gets transferred in favour of Appellant much earlier to the commencement of the erection and civil works.
As soon as the work is awarded by Appellant to the contractor, the contractor supplies the equipment to the Appellant and the property in goods gets transferred at that point of time only. It is only later Appellant hands over the equipment to the contractors for using them in the erection and civil work portions. Therefore, the contract relating to supply of equipment is a separate and distinct 'contract for sale' and the case of Appellant falls within the Paragraph 7 (vi) (b) of the above circular.
Page 22 of 109 22 ITA Nos.112 to 115 &162 to 165/Bang/2010 For the purpose of section 194C, the term 'work' has been defined in Explanation (iv). The sub-clause (e) deems contract manufacturing as work. However, the latter part of the aforesaid sub-clause clearly excludes 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. On a close scrutiny, the aforesaid exclusion applies not only to manufacturing but also to supplying when such supply is according to be requirement or specifications of the customer and for such supply, the supplier has used material purchased from a person other than the customer. It is submitted that, the case of Appellant, squarely covered by the aforesaid exception for the reasons that the contractor has undertaken to supply to Appellant the equipment as per the specifications of Appellant and for the purpose of such supply, contractor has not used materials bought from Appellant. Applying the aforesaid exception, it could be said that the activity carried out by contractor for Appellant cannot be regarded as work at all.
Even though, the aforesaid provision was newly introduced by the Finance Act 2009, even prior to the aforesaid amendment, contract manufacturing was never considered as work. By virtue of the aforesaid amendment, although contract manufacturing is now deemed to be work, when the supply is according to specifications of the customer and for the purpose of supply, the supplier has not used the materials of customer, such supply is not to be regarded as work.
In the case of CIT vs. M/s. Glenmark Pharmaceuticals Ltd (2010) 324 ITR 199, the Bombay High Court has held the "work" as defined in the newly recast section 194C is clarificatory and hence retrospective in operation. According to the Bombay High Court, even before section 194C was Page 23 of 109 23 ITA Nos.112 to 115 & 162 to 165/Bang/2010 recast, unless the contract involved use of goods supplied by the contractee, there cannot be "work" as understood by the Courts and the Department through its various circulars. The Honourable High Court held as follows:
"Hence, what has weighed in the introduction of clause (e) to the Explanation was ongoing litigation on the question as to whether TDS was deductible on outsourcing contracts. Clause (e) was introduced "to bring clarity on this issue : or in other words, to remove the ambiguity on the question. Clause (e) as introduced contains a positive affirmation that the expression "work" will cover manufacturing or supplying a product, according to the requirement or specification of a customer, by using material purchased from such a customer. Clause (e) has placed the position beyond doubt by incorporating language to the effect that the expression "work" shall not include manufacture or supply of a product according to the requirement or specification of a customer by using material which is purchased from a person other than such customer. In other words, the circumstance that requirements or specifications are provided by the purchaser is not regarded by the statute as being dispositive of the question as to whether a contract constitutes a contract of work or sale. What is of significance is whether material has been purchased from the customer, who orders the product. When the material is purchased from the customer who orders the product, it constitutes a contract of work while on the other hand, where the manufacturer has sourced the material from a person other than the customer, it would constitute a sale. What is significant is that in using the words which clause (e) uses in the Explanation, Parliament has taken note of the position that was reflected in the circulars issued by the Central Board of Direct Taxes since May 29, 1972. The judgment of the Supreme Court in Associated Cement gave an expansive definition to the expression "work" and rejected the attempt of the assessee in that case to restrict the expression "work" to "works contract". Both before and after the Page 24 of 109 24 ITA Nos.112 to 115 & 162 to 165/Bang/2010 judgment of the Supreme Court the expansive definition of the expression "work" co-existed with the Revenue's understanding that a contract for sale would not be within the purview of section 194C. The Revenue always understood section 194C to mean that though a product or thing is manufactured to the specifications of a customer, the agreement would constitute a contract for sale, if (i) the property in the article or thing passes to the customer upon delivery; and (ii) the material that was required was not sourced from the customer/purchaser, but was independently obtained by the manufacturer from a person other than the customer. The rationale for this was that where a customer provides the material, what the manufacturer does is to convert the material into a product desired by the customer and ownership of the material being of the customer, the contract essentially involves work of labour and not a sale. Parliament recognized the distinction which held the field both administratively in the form of circulars of the Central Board of Direct Taxes and judicially in the judgments of several High Courts to which a reference has been made earlier. Consequently, the principles underlying the applicability of section 194C as construed administratively and judicially in decided cases, find statutory recognition in the Explanation. The Explanation, therefore, as the Memorandum explaining the clauses of the Finance Bill of 2009 states, was in the nature of a clarification. Where an explanatory provision is brought to remove an ambiguity or to clear a doubt, it is reflective of the law as it has always stood in the past. Where, as in the present case, an Explanation is introduced statutorily to adopt an understanding of the law both in the form of the circulars of the Central Board of Direct Taxes and in judicial decisions, Parliament must be regarded as having intended to affirm that intent. In the present case, the intent has held the field for over three decades."Page 25 of 109 25 ITA Nos.112 to 115 &
162 to 165/Bang/2010 The newly recast section 194C (3) also recognizes exclusion of value of material if the same is mentioned separately in the invoice. Even though, the aforesaid subsection relates to the work mentioned in Explanation
(iv) (e), there is no reason why such exclusion of value of material cannot be made in respect of any other type of work. The aforesaid subsection in principle accepts the logic of exclusion of value of material.
Therefore, the supply portion of the contract being purely for supply of equipment does not require deduction of tax at source.
III. As regards, treating the work order as a composite contract:
The CIT(A) is not justified in treating supply contract, erection contract and civil engineering contract separately entered into as a composite contract for work.
In this regard, the comments of the AO, which read as - (In page 7 of the Order) The assessee's contract is a Composite Contract for establishing sub-station
13. For construing this contract, one Tender Notification dated 21/4/2006 may be perused. The notification is issued for 'Establishing substation and construction of 60KV lines'. The perusal of notification clearly show that no separate notifications are issued for 'supply', 'construction' and 'erection' part of the contract. The assessee has floated a tender for entire work as an indivisible contract. ......Page 26 of 109 26 ITA Nos.112 to 115 &
162 to 165/Bang/2010 Accordingly, the AO concluded the agreement between the Appellant and its contractor a composite contract on the basis that, Appellant has not issued separate notification for 'supply', 'construction' and 'erection'.
(In page 10 of the Order)
14. Column 8 of the above Tender Notification on 'Bid documents' show that the documents accompany tender notification are divided into 'commercial requirements', 'technical requirements', and 'bid proposal sheets'. There are no divisions of the contract into 'supply', 'construction' and 'erection'. The entire bid process is a composite bid process for the commencement, issue, receipt and opening of bids.
15. In the above, circumstances, assessee company's contention of contract being 'divisible contract' is not borne out by the other terms of the contract.
As per the aforesaid paragraphs, the Respondent concludes that the contract entered between Appellant and contractors is composite contract on the basis that, the bidding process invited by Appellant is a composite bidding process.
In this regard a reference may be made to the relevant extracts of the 'Instruction to Bidders' issued by the Appellant, which read as follows:
(Refer page 5 of the order) 14.1 As indicated in Clause 35.2 of section ITB of the Bid Documents, in case of Award of Contract, a Divisible Contract covering the entire scope of the Partial/ Total Turnkey Package will be entered into with the successful bidder, there shall be three separate contracts as under:
i) For Supply of Goods; ii) For Erection works; & ( iii) For Civil Engineering works.(Refer page 19 & 20 of the order) Page 27 of 109 27 ITA Nos.112 to 115 & 162 to 165/Bang/2010 F. Award of Contract 35.0 Award Criteria:
35.1 The Owner will award the contract to the successful bidder whose bid has been determined to be substantially responsive and has been determined as the lowest evaluated bid, provided further that the bidder is determined to be qualified to perform the contract satisfactorily. The owner shall be the sole judge in this regard.
35.2 In case of award of contract, a Divisible contract covering the entire scope of the Partial/ Total Turnkey package will be entered into with the successful bidder, there shall be three separate contracts as under:
(i) For Supply of Goods; (ii) For Erection works; & (iii) For Civil Engineering works. (Refer page 22 of the order) 7.0 Construction of the Contract:
7.1 Notwithstanding anything stated elsewhere in the Bid Documents, the contract to be entered into will be treated as a DIVISIBLE CONTRACT resulting into three separate contracts, one for supply of goods, the second for erection and the third for civil engineering works covering the Entire Scope of the Partial/Total Turnkey Package.
The CIT (A) was not justified in treating the separate contracts as a composite contract merely on the basis of a clause in the 'Contract Agreement (Supply Portion)' that the contractor is also responsible for the performance of the erection portion and civil works portion. He has failed to appreciate that, merely making the contractor responsible for performance of erection portion and civil works portion will not by itself make Supply portion any less a supply contract. He is not justified in failing to appreciate that assumption of overall responsibility is a Page 28 of 109 28 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contractual matter which by itself would not alter the essence of the transaction of supply.
The CIT (A) was not justified in treating the separate contracts expressly entered as such as a composite contract merely on the basis that all the contracts have been awarded through a single bidding process, that merely because the bidding process is a composite one it cannot be concluded the contract is a composite contract.
It is also submitted that, the AO has stated that, Appellant has neither issued separate tender notification nor divided the contract into supply, construction and erection, which is factually incorrect. The CIT(A) or the AO has failed to appreciate that, the Appellant had never intended to treat the contract as composite contract.
- As per the terms of the 'Instructions to Bidders' as retreated above, the Appellant has clearly laid out that once the contractor is found to be a successful bidder, the entire scope of the contract is divided into 3 separate contracts, i.e. for supply of materials, erection and civil engineering works;
- Further, the terms of the 'Instructions to Bidders' also state that, the contract entered by Appellant with contractors has to be treated as a divisible contract resulting into three separate contracts;
- Without prejudice to the above, a composite project could be regarded as divisible contracts in as much as that it is permissible for Page 29 of 109 29 ITA Nos.112 to 115 & 162 to 165/Bang/2010 Appellant to split the contract into supply contract, erection contract and civil contract;
- It is an accepted practice for the parties to the contract to enter into a consolidated contract with the split up of consideration for various elements viz., supply of materials, erection services and civil construction service. This may be observed from a number of judicial pronouncements with one of the most followed judgments of Supreme Court in the case of State of Madras vs. Richardson Cruddas Ltd., (1968) 21 STC 245. It goes to say that if there is a split of consideration towards material and labour, it cannot be said that the entire contract is an indivisible works contract;
- The above cited judgment of the Apex Court followed its own decision in the case of Pandit Banarasi Das Bharat vs. State of Madhya Pradesh (1958) 9 STC 388. The following are the excerpts of the same:
"The expression 'sale of goods' in Entry 48 of List II of Sch. VII to the Government of India Act, 1935 has the same meaning which it has in the Sale of Goods Act, 1930. In a building contract there is no sale of materials as such, and it is, therefore, ultra vires the powers of the Provincial Legislature to impose tax on the supply of materials. When a question arises as to whether a particular works contract could be charged to sales tax, it will be for the authorities under the Act to determine whether the agreement in question is, on its true construction, a combination of an agreement to sell and an agreement to work, and if they come to the conclusion that such is its character, then it will be open to them to proceed against that part of it which is a Page 30 of 109 30 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contract for the sale of goods, and impose tax thereon. The prohibition against imposition of tax is only in respect of contracts which are single and indivisible and not of contracts which are a combination of distinct contracts for sale of materials and for work, and nothing shall bar the sales tax authorities from deciding whether a particular contract falls within one category or the other and imposing a tax on the agreement of sale of materials, where the contract belongs to the latter category."
Even though, the above decision was rendered much before the 46th Amendment to the Constitution enabling the State to levy sales tax on works contract and therefore not relevant in the context in so far as it goes to say that there is no tax on works contract, its other observations regarding a contract being a combination of distinct contracts for sale of materials and for work are very relevant. Its observations that the sales tax authorities shall not proceed to take a single contract necessarily as such but it will be competent for them to examine the nature of the contract and if the circumstances permit, to split the same as that relating to sale of goods and that relating to work are also equally relevant.
- The Supreme Court in the case of Builders Association of India vs. Union of India (1989) 73 STC 370 observed at page 400 as follows:
"After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy Page 31 of 109 31 ITA Nos.112 to 115 & 162 to 165/Bang/2010 sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above......"
A reference may be made to one of the decisions in the case of State of Tamil Nadu vs. Titanium Equipment and Anode Manufacturing Corporation Ltd., reported in (1998) 110 STC 43 (Madras). This was the case of contract for design, engineer, manufacture, supply and supervision of installation and commissioning. The Tribunal held that the contract is indivisible. The Madras High Court reversing the decision of the tribunal held that the contract was clearly a divisible contract, one for the supply of the titanium anodes and another for supervision and installation and undertaking recoating maintenance. The price payable for the supply of material was distinct from the consideration payable for the supervision of installation and commissioning and for recoating maintenance. The parties themselves had no doubt as to the nature of the arrangement they had entered into and had specifically provided for the payment of the excise duty, sales tax and all other statutory levies by the buyer.
The Hon'ble Constitutional Bench of Supreme Court in the case of Bharat Sanchar Nigam Ltd. and Another vs. Union of India and Others [2006] 145 STC 91 [SC] has held as follows:
"All the clauses of article 366[29A] serve to bring transactions where one or more of the essential Page 32 of 109 32 ITA Nos.112 to 115 & 162 to 165/Bang/2010 ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchases and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly [See [1958] 9 STC 353 [SC]] Ltd. The amendment especially allows specific composite contracts, viz., works contracts [clause [b]], hire- purchase contracts [clause [c]], and catering contracts [clause [f] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.
In the case of Siemens India Limited v. State of Kerala (Ker.) [2003] 132 STC 418 (Ker.), the Kerala High Court observed as follows:
"In an earlier writ petition filed by the petitioner challenging Explanation 4(c) to section 2(xxi) of the Kerala Act, the court had held that by a deeming provision, the State Government could not change the character of the sale. After declaring that Explanation 4(c) to section 2(xxi) of the Kerala Act had to be read down and does not apply to inter- State sales, the court directed the assessing authority to reconsider the matter. Similarly in this case, the contract was not indivisible. It contained two parts: the supply order and the service order. The Tribunal was not correct in holding that there was only one contract. The price was also shown separately. The right of the buyer to inspect the goods before they were transported was also preserved. So also, the goods were insured. When the goods were in transit, the petitioner transferred the title to the property to CBZL."
In the case of Larsen & Toubro Ltd. vs. Commr. of C.T. (A.P.) [2003] 132 STC 272 (AP), the Hon'ble Court considered the case of a Public Page 33 of 109 33 ITA Nos.112 to 115 & 162 to 165/Bang/2010 Limited Company engaged in manufacturing, fabrication, supply, erection and commissioning of various projects. The nature of work carried out by the appellant is a works contract. During the assessment years 1986-87 and 1987-88 the appellant had entered into a contract with Visakhapatnam Steel Plant and other public sector undertakings. The contract entered into by the appellant for designing, manufacturing, fabrication, installation and commissioning specified project is composite in nature. The appellant, in order to discharge the obligation arising out of the contract into with various contractees, has manufactured specified goods in their factory at Bombay, which is within the State of Maharashtra, and also purchased certain goods from outside the State as well as from the local registered dealers. The contracts specified separate prices for supply of various items required for execution of the project as well as the commissioning and installation charges.
The manner and method to be followed by the appellant in the above case in execution of the works contract are as under:
(a) Goods/equipments described in the contract of specific nature are manufactured in their Powai (Mumbai) Factory and dispatched directly in favour of contractee after inspection and approval by them. The turnover is liable for declaration in the State of Maharashtra as provided under section 3(a) of the Central Sales Tax Act, 1956.
(b) Appellant also purchases goods/equipments from outside the State vendors and effect transfer of documents of title in favour of contractee. Such turnovers are claimed exemption being transit sales, not liable to be taxed in view of section 6(2) read with section 3(b) of CST Act.Page 34 of 109 34 ITA Nos.112 to 115 &
162 to 165/Bang/2010
(c) For the above nature of transaction pertaining to contracts, contractees furnished "C" forms to the appellants and the same will be filed during assessment proceedings.
(d) Appellants undertake installation/erection of such goods/ equipments, which are handed over by the contractees along with other goods required for commissioning the project.
The High Court observed as follows:
"...... In view of the law laid down in various decisions referred to above, in particular, Gannon Dunkerley's case [1993] 88 STC 204 (SC), it is difficult for us to appreciate the stand taken on behalf of the department as to how this contract could be presumed as a deemed sale within the State of Andhra Pradesh. Though the learned Special Government Pleader for Taxes submitted that it is an indivisible contract, we are afraid, this submission may not be appropriate, having regard to the fact that there are two facets of the contract, one is supply of goods and the other is installation of machinery with the labour of the appellant and as such this contract is a divisible contract.
When the above decision was challenged before the Supreme Court, their Lordships S.N. Variava and H.K. Sema, JJ., dismissed the State's special leave petition against the judgment and order dated 10-7-2003 of the Andhra Pradesh High Court in S.A.Nos.54-55 of 1997 and T.R.C.No.14 of 1999 reported in (2003) 132 STC 272 whereby the High Court allowed the appellant's appeal against the order of Commissioner of Commercial Taxes and held that the contract for manufacturing, fabrication, supply, erection and commissioning of project Page 35 of 109 35 ITA Nos.112 to 115 & 162 to 165/Bang/2010 was divisible and that the supply of goods and equipment for project manufactured or purchased outside State was an inter State transaction and not an intra-State transaction taxable under the Andhra Pradesh General Sales Tax Act, 1957 (in the case of Commissioner of Commercial Taxes v. Larsen & Toubro Ltd: S.L.P (Civil) No.22445- 22447 of 2003).
The Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd vs. DIT (2007) 288 ITR 408 (SC) held that the fact that the contract has been fashioned as a turnkey contract by itself may not be of much significance. Where the project is a turnkey project, the contract may also be a turnkey contract, but the same by itself would not mean that even for the purpose of taxability the entire contract must be considered to be an integrated one so as to make the appellant to pay tax in India. The taxable events in execution of a contract may arise at several stages in several years. The liability of the parties may also arise at several stages. The obligations under the contract are distinct ones. The supply obligation is distinct and separate from the service obligation. The price for each of the component of the contract is separate. Similarly offshore supply and offshore services have separately been dealt with. The prices in each of the segment are also different. The very fact that in the contract, the supply segment and service segment have been specified in different parts of the contract is a pointer to show that the liability of the appellant there under would also be different. Further, the Supreme Court went on to hold that a turnkey contract may involve supply of materials used in the Page 36 of 109 36 ITA Nos.112 to 115 & 162 to 165/Bang/2010 execution of the contract for price as also for use of the materials by works and labour but the same may not have any relation with the taxability part of it.
The Supreme Court in the case of ITO vs. Sriram Bearings Ltd (1987) 224 ITR 724, held that where the two parts of a contract, which are interdependent, could not be treated as one, when the consideration and the services are distinct.
In the case of CIT vs. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC), the Hon'ble Court held that the installation permanent establishment came into existence only after the transaction stood materialized. The installation permanent establishment came into existence only on conclusion of the transaction giving rise to the supplies of the fabricated platforms. The installation permanent establishment emerged only after the contract with the ONGC stood concluded. It is emerged only after the fabricated platform was delivered in Korea to the agents of the ONGC. Therefore, the profits on such supplies of fabricated platforms cannot be said to be attributable to the permanent establishment. Applying this analogy, it may be stated that the question of carrying out any work could arise only after the sale of equipment is completed. In other words, any work for the purpose of section 194C could begin only after the supply portion is completed and therefore, the question of applying the aforesaid section on the supply portion does not arise.Page 37 of 109 37 ITA Nos.112 to 115 &
162 to 165/Bang/2010 In the case of CIT vs. Best and Co. P. Ltd. (1966) 60 ITR 11 (SC), the Hon'ble Court ruled that when a composite consideration may have to be split although such splitting may pose difficulties. In the above case, as compensation for transfer of the agency, the assessee was paid certain amounts calculated on the basis of the agreement between the parties. The assessee claimed that the amounts received were capital in nature. The Supreme Court held that the compensation agreed to be paid was not only in lieu of loss of agency but also for the assessee accepting a restrictive covenant for a specified period, the restrictive covenant was an independent obligation which came into operation only when the agency was terminated, and that part of the compensation attributable to the restrictive covenant was a capital receipt and hence not taxable. Referring to the decision in Gillanders Arbuthnot & Co. Ltd. vs. CIT (1964) 53 ITR 283, the Supreme Court held that, that part of the compensation attributable to the restrictive covenant was a capital receipt, not assessable to tax. The Supreme Court left to the determination of the assessing authorities as to how the compensation was to be apportioned. In that case, the Supreme Court observed as under:
"If the compensation paid was in respect of two distinct matters, one taking the character of a capital receipt and the other of a revenue receipt, we do not see any principle which prevents the apportionment of the income between the two matters. The difficulty in apportionment cannot be a ground for rejecting the claim either of the Revenue or of the assesssee. Such an apportionment was sanctioned by courts in Page 38 of 109 38 ITA Nos.112 to 115 & 162 to 165/Bang/2010 Wales v. Tilley (1943) 11 ITR (Suppl.) 69 (HL); Carter v.Wadman (1846)28 TC 41 (CA) and T.Sadasivam v. CIT (1955) 28 ITR 435 (Mad.) in the present case apportionment of the compensation has to be made on a reasonable basis between the loss of the agency in the usual course of business and the restrictive covenant".
The other case laws relied to support the aforesaid view:
• Sarvaiya & Co., vs. State of Maharastra (1976) 38 STC 86 (Bom) • Commissioner of Sales tax, Maharastra State, Bombay vs. Walchandnagar Industries (1985) 58 STC 89 (Bom).
• Commissioner of Sales tax vs. Steel Plant Pvt. Ltd. (1995) 99 STC 532 (Bom) • State of Madras vs. Gannon Dunkerly & Co. (Mad.) Ltd. (1958) 9 STC 353 SC • State of Gujarat vs. Elecon Engineering Co. (1993) 90 STC 74 (Guj.) From the perusal of the above decisions, it is permissible to divide a composite contract.
In order to divide the composite or turnkey contract, the essential attributes are as follows:
The liability of the parties to the contract arises at several stages.
The obligations under the contract are distinct ones. The supply obligation is distinct and separate from the service obligation.
The price for each of the component of the contract is separate. In other words, the price payable for the supply of material is distinct from the consideration payable for the erection and civil construction.Page 39 of 109 39 ITA Nos.112 to 115 &
162 to 165/Bang/2010 In the instant case, the Appellant has awarded the work order for the contractor, under three different segments:
(i) Supply portion; (ii) Erection portion; and (iii) Civil works portion;
- The terms in respect of each of the aforesaid portion are clear and the consideration for each of the portion is separate;
- The terms between the parties are amply clear in respect of the obligations to be discharged by the contractors and in respect of payment towards the work order;
- In respect of supply portion, the parties to the contract are clear about the materials to be supplied, the quantity of materials to be supplied and the rate at which the materials would be supplied. In the case of erection portion and civil works portion, the parties to the contract are clear about the works to be performed by the either of the parties;
Accordingly, the aforesaid three portions of the work order were independent of each other.
In this regard, a reference is made to the comments of the AO, which read as follows: (Refer Paras 19 & 20 in page 26 & 29 of the Order)
19. In view of the above, the most important test for determining as to whether payments made in pursuance to contract are liable to deduct tax at source or not is to scrutinize the contract between the KPTCL and the contractor. Perusal of para 3.5 of the contract makes it absolutely clear that, the contract between the KPTCL and Contractor is Page 40 of 109 40 ITA Nos.112 to 115 & 162 to 165/Bang/2010 a single composite contract and hence u/s. 194C, payments made in pursuance to this contract are liable to deduct tax at source. ......
20. It may not be out of place to mention that, above mentioned para 3.5 is also part of the each of the Agreements, which are separately for 'Supply Portion', 'Civil Work' and 'Erection' between the KPTCL and Contractor.
1. A reference may be made to one of the clauses in the 'Contract Agreement (Supply Portion)', which reads as follows:
It is expressly agreed to by the Contractor that notwithstanding the fact that the Contract is termed as Supply Contract, for convenience of operation of the other Contracts namely Erection Contracts and Civil Contracts are also the integral parts of the contract on single source responsibility basis and the Contractor is bound to perform the total Contract in its entirety and non- Performance of any part or portion of the Contract shall be deemed to be a breach of the entire-Contract.
2. The said clause in the 'Contract Agreement (Supply Portion)' clarifies that, the contractor is also responsible for the performance of the erection portion and civil works portion. It does not mention that all portions of the work order are inter- related or integrated with one another. By merely making the contractor responsible for performance of erection portion and civil works portion will not by itself make Supply portion any less a supply contract. Assumption of overall responsibility is a contractual matter which by itself would not alter the essence of the transaction of supply. In the following cases, although the applicant was made overall responsible for even the work awarded to subcontractors, it has been held that the site of the subcontractors cannot be regarded as site of the applicant:
Page 41 of 109 41 ITA Nos.112 to 115 &162 to 165/Bang/2010 In the case of Pintsch Bamag (Dt: 11-9-2009) 2009-TIOL-23-ARA-
IT, the Hon'ble Authority for Advance Ruling has ruled as under:
7. The contention of the Revenue is that the sub-
contractor is undertaking various activities which constitute the core of the contract work entrusted to the applicant. All the activities undertaken by the sub-contractor are on behalf of the applicant and in connection with the execution of the contract between the applicant and TPT. It is pointed out that the sub-contractor is a nominee of the applicant and the delegation of work to the sub-contractor for its own convenience should not influence the decision on the question whether the applicant has a PE in India. In other words, the Revenue wants to treat the workshop or place of manufacture of the sub-
contractor as part of the permanent establishment of the applicant itself. If the duration of the work done by the sub- contractor at the workshop or the factory is taken into account, the duration will be much beyond six months which is the period stipulated in Clause (i) of Article 5.2 of the Treaty. That is why the Revenue has taken this stand.
9. The more crucial question that needs to be considered now is whether the work place set up by the sub-
contractor to carry out the works entrusted to him by the applicant can be treated as the work place and the permanent establishment of the applicant. Does the fact that the sub-contractor is only a nominee of the applicant in carrying out the work which would have been otherwise performed by the applicant transform the sub- contractor's workshop into the PE of the applicant? In my view, the answer could only be in the negative unless the sub-contractor is treated as a dependent agent of the applicant as distinct from an independent agent. It is not possible Page 42 of 109 42 ITA Nos.112 to 115 & 162 to 165/Bang/2010 to hold that the place of manufacture of the sub- contractor situated far away from the installation site should notionally be regarded as part of the applicant's permanent establishment. The language of the opening para of Article 5 itself furnishes a key to the correct understanding of the concept of PE. The fixed place of business referred to in para 1 of Article 5 is qualified by the words "through which the business of an enterprise is .....carried on". In the present case, the enterprise is the "applicant". On a plain reading of the opening para of Article 5 and the nature of relationship between the applicant and sub- contractor, it cannot be concluded that the business of the applicant is being carried on through the sub- contractor's workshop. The concept of PE conveys the idea that the enterprise's presence has to be "visible" through an establishment in the other country. The objective presence of the foreign enterprise in the other country as reflected in a fixed place of business is the real criterion for determining the existence or otherwise of PE in that country. In this context, reference may be made to Mr. Arvid A. Skaar's book on Permanent Establishment, Chapter 9 (titled - "The tax- payer's physical presence: The place of business test").
11.1. The context in which the passage occurs is important. The said passage, as I understand it, covers a situation where a building site has been set up by the main contractor and the services of the sub-contractor are also deployed in aiding the execution of the building project. Apparently, it applies to a situation where there is conjoint effort of both the contractor and the sub-contractor at the building site. In such a case, the building site of the contractor and sub-contractor is inseparable. Here, the fact situation is entirely different. The entirety of work of fabrication and assembly is carried out by Page 43 of 109 43 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the sub-contractor at the workshop set up by him at a place for away from installation site and run by him independent of any control of the applicant. Such a place of business of sub-contractor cannot be regarded as the PE of applicant. In any case, the language of section 5(1) being clear and as the concept of PE does not take in the establishment of an independent contractor or agent, the contention of the Revenue must fail.
11.2. The fact that the applicant is not relieved of the liabilities and obligations under the contract by reason of sub-contract and the fact that the applicant has to furnish performance security to TPT does not have much of bearing on the aspect whether the sub-contractor's establishment shall be deemed to be the PE of the applicant.
In the case of Hyosung Corporation, In Re [2009] 314 ITR 343 (AAR):
(2009) 181 Taxman 270 (AAR-New Delhi), the facts of the case are that, in the year 2005, Power Grid Corporation of India Ltd. (hereafter referred to as 'POWERGRID') invited bids for the execution of the works related to 800KV/400KV Tehri Pooling Station Package associated with Koteshwar Transmission System. For the sake of brevity, the same has been described by the applicant as "400KV GIS Package". The applicant who submitted the bid, became the successful bidder. As per the terms and conditions of bid, the foreign bidder was authorized to assign the whole or part of the contract to an independent contractor subject to the approval of Power Grid. In view of such provision, the applicant, pursuant to the understanding reached with L&T, requested Power Grid to award the Off-Shore Contract to it and the On-Shore Supply and Services Contract to be performed in India to L&T. This Page 44 of 109 44 ITA Nos.112 to 115 & 162 to 165/Bang/2010 proposal was preceded by a Memorandum of Understanding dated 8-8-
2005 between the applicant and the L&T. As per para 12(c) of the MoU, the applicant was permitted to assign any portion of the Contract either in full or in part to L&T, in which event L&T will be permitted to work as an independent contractor and the customer, namely, Power Grid will enter into a separate contract with L&T. Thus, L&T was nominated as the assignee in respect of certain works in case the bid of applicant was accepted. L&T in its letter dated 8-8-2005 addressed to Power Grid confirmed this understanding and consented to work as an independent contractor as per the terms and conditions offered by Power Grid. By the Letter of Award dated 24-3-2006, (for short 'LoA') Power Grid accepted the bid proposal submitted by the applicant and awarded to the applicant the Off-Shore Contract covering all the works to be performed outside India including supply of all Off-Shore equipment and materials on CIF Indian port of disembarkation basis, (vide para 2.1 of LoA). In the LoA, Power Grid referred to the applicant's bid proposal and the post-bid discussions and stated that the On-Shore supply contract and On-Shore Services contract including civil works, training in India etc., has been awarded to the applicant's assignee, namely, L&T India as per its letter of the same date. Further, it was made clear in the LoA: "Notwithstanding that the award of work under three separate contracts in the aforesaid manner, you shall be overall responsible to ensure the execution of all the three contracts to achieve successful completion of the entire scope of work under 800KV/400KV Tehri Pooling Station Package associated with Koteshwar Transmission System and its taking over by Power Grid". The Page 45 of 109 45 ITA Nos.112 to 115 & 162 to 165/Bang/2010 total contract price payable to the applicant was specified as 6,935,389 US $. After the LoA was issued, a Deed of Assignment was executed by and between the applicant and the L&T on 8-5-2006. A formal contract in terms of the LoA was entered into between Power Grid and the applicant on 27-10-2006. Power Grid also entered into the contracts with L&T on the same day. One of the questions before the Authority for Advance Ruling was that, "whether the amounts received/receivable by the applicant i.e., Hyosung Corporation from Power Grid Corporation of India Limited ("PGCIL") for off-shore supply of equipments, materials, etc., are liable to tax in India under the provisions of the Act and India-Korea Tax Treaty?" The Honourable Authority for Advance Ruling ruled as follows:
"None of the above terms and stipulations, in our view, gives rise to formation of Association of Persons in the matter of execution of the contracts. Mere collaborative effort and the overall responsibility assumed by the applicant for the successful performance of the project is not, in our view, sufficient to constitute an AOP in the eye of law.... The first and foremost feature that assumes importance is that Power Grid awarded separate contracts to both the contractors - the first to the applicant and the other two to L&T. The assignment which was in terms of the MoU paved the way for such separate contracts and the same was accepted and acted upon by Power Grid. Each party performs the obligations under the respective contracts awarded to them separately and receives the monies payable under the contracts independent of each other. L&T, which was not a party to the bid, is recognized as an independent contractor in various documents. L&T is entitled to raise the bills for the Page 46 of 109 46 ITA Nos.112 to 115 & 162 to 165/Bang/2010 work carried out by it separately and such bills shall be payable by Power Grid directly to L&T without recourse to the applicant (vide para 3 of Assignment Deed). Thus, the individual identity of each party in doing the part of work entrusted to it is preserved, notwithstanding the coordination between the two and the overall responsibility of the applicant. It cannot therefore be said that the two contractors have promoted a joint enterprise with a view to earn income. ......
The applicant being the supplier of crucial equipments imported from abroad and possessed of necessary expertise in the field was entrusted with the supervisory responsibilities especially at the stage of testing and commissioning. On the one hand, it is meant to ensure that the equipments supplied by the applicant were blemish-less. Secondly, Power Grid very much relied on the applicant to render all the necessary technical assistance and guidance to L&T - a contractor brought into the picture by the applicant and to oversee its performance at all crucial stages. By incorporating various safeguards in the contract, Power Grid took the necessary precautions to see that notwithstanding the split up of contract into three, the applicant and L&T would act in harmony and maintain requisite coordination for the timely and successful completion of project. Such a role assigned to the applicant by Power Grid was in the overall interest of the project. It is an arrangement conceived of and agreed to by the parties keeping in view the overall objective of successful commissioning of the project. The clauses in the Agreement referred to by the revenue will have to be viewed in that background and in that light. The limited involvement of the applicant in the Page 47 of 109 47 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contracts of L&T including the coordination and supervisory role entrusted to it falls short of the attributes of an AOP.
The special stipulations referred to supra, viz., applicant being required to give performance guarantee not only in respect of its own contract but also in respect of L&T's contract and the vicarious liability for breach attached to the applicant in respect of all the three contracts were not in furtherance of a joint venture and a common design to produce income. But, these obligations and responsibilities were specially introduced by Power Grid while dealing with the contracting parties on principal-to-principal basis in the overall interest of the Project. It is worthy to note that L&T in its turn gave a counter guarantee to the applicant for the reason that the applicant furnished the guarantees in respect of the contracts related to L&T also. Thus, the distinct identity of each Party was throughout maintained. The requisite cohesion, unity of action and above all, the common objective of sharing the revenue or profit are very much lacking in the present case.
The Hon'ble AAR in Joint Stock Company Foreign Economic Association "Technopromexport", In re, (2010) 322 ITR 409 (AAR), referred to the para 10.1 of the decision of the Hyosung Corporation, In Re [2009] 314 ITR 343 (AAR), which is as under:
10.1 The above events would indicate that the title to goods stood transferred to Power Grid outside the territory of India. The title passed on to Power Grid well before the goods reached the Indian Port or the territorial waters of India. The bill of lading contains the name of Power Grid as Page 48 of 109 48 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the consignee. The documents were presented to the applicant's banker for negotiation soon after the goods were shipped FOB and bill of lading was issued. Two days later, the amount equivalent to 70 per cent of the value was transferred to the applicant's account on the same day. This modus operandi is in accordance with para 2.4.4 of the LOA. The bill of entry which was prepared about 15 days after shipment also shows Power Grid as the importer. Even in the insurance policy taken by the applicant Power Grid has been named as the beneficiary. The customs duty was paid by or on behalf of Power Grid before the goods were taken delivery. These facts unerringly lead to the conclusion that in accordance with the contractual stipulations, the transfer of title to the equipment and materials took place while the goods were outside the territory of India. The events match with the nomenclature--"offshore supply contract" and the express stipulation that the transfer of title to equipment and materials shall pass on to Power Grid at FOB port of shipment with the negotiation of shipping documents. It is worthy of note that the applicant has not reserved the right of disposal during transit or otherwise. The fact that the applicant is not relieved of the responsibility for loss or damage to the goods until the final take over and acceptance of the goods and that the goods are left in the custody of the applicant till the stage of erection and installation are not inconsistent with the Power Grid having already become the owner of equipment well before the goods reached the Indian port. These are special safeguards which Power Grid wanted to have keeping in view the operational exigencies and overall obligations of the applicant under the contract. It is trite that risk need not pass simultaneously with the title to goods. There could be special stipulation between the parties in this behalf. As rightly pointed out by the learned counsel for the applicant, the applicant, by taking care of goods at the site in India till installation, assumed the capacity of a bailee. As regards the stipulation that the supplier shall continue to be responsible for the quality and performance of the goods Page 49 of 109 49 ITA Nos.112 to 115 & 162 to 165/Bang/2010 until the final take over on testing of the equipment, it cannot be construed to be a condition which postpones the transfer of title to the goods till that time. It is more in the nature of warranty provision in the contract.
Therefore, it is submitted that, despite the aforesaid overall responsibility clause, it is impermissible to treat the three separate contracts, i.e. (i) Supply of materials, (ii) Erection Contract and (iii) Contract for civil work as one single contract. When parties have agreed on certain terms, unless it is proved sham, the agreed terms have to be respected as held by the Supreme Court in the case of CIT vs. Motors & General Stores (P) Ltd. (1967) 66 ITR 692 (SC).
Relies on the following decisions with regard to TDS obligation in respect of composite contracts:
In the case of Power Grid Corporation of India Ltd. vs. ACIT [2007] 112 TTJ 654 (Hyd.-ITAT), the facts of the case are that, the assessee is a Central Government undertaking engaged in the activity of transmission and power distribution of electricity to various constituents across the country. During the year under consideration, the assessee was involved in three projects for which contracts were awarded to different contractors. The assessee awarded contracts to various parties to construct/execute the transmission line/sub-station. The categories of contracts entered into by the appellant with various contractors for the above purpose are pure supply contract, pure erection contract and Supply-cum-erection contracts (but with separate agreements in respect of supply portion). The Hon'ble Bench has held as follows:Page 50 of 109 50 ITA Nos.112 to 115 &
162 to 165/Bang/2010 "In this case, as already stated, the assessee entered into contracts with various contractors for supply of conductors, insulators, transmission towers and sub-stations. The contracts were not only to supply equipment, but also by way of separate contract to erect the transmission towers and also the sub-stations. The contract, though contained in the same document in some cases are in two parts. Simply because the supply and erection parts of the contract were entered into with the same party in some cases and in some other cases, were in two separate parts in the same agreement the nature of each part of the contract will not alter....... .
.... In the present case, where the contract of supply and erection is given to the same party, the value of the erection contract as can be seen from the annexure is lesser than the value of the supply contract. It cannot therefore control the interpretation of the contract, specifically when the property in the goods has passed ex-works on delivery and not on the theory of accretion. The assessee took possession of the goods and the title passed on to it as a chattel prior to commencement of the erection portion of the contract.
....... If the facts of the present case are tested by applying the principles laid down by the jurisdictional High Court and the Hon'ble Supreme Court, the obvious answer that would emerge is that this is a "supply contract" and not "works contract". The nature of a contract as to whether it is 'contract for sale' or "works contract" will depend on the terms of the contract and its execution. In the present case, the contractors have to fabricate towers as per tested quality of conformity Page 51 of 109 51 ITA Nos.112 to 115 & 162 to 165/Bang/2010 with International Standard-(IS) : 2062. Further the contractor has been given the option to use other equivalent grade of structural steel angle sections and plates conforming to latest International Standards. The contractor fabricates and manufactures the tower with steel sections as per International Standards. The material is that of "the supplier" and not of "the purchaser". The "supplier" does not work on the material supplied by the "purchaser". There is no accretion of material to the purchaser, part by part, unit by unit. The rest of the equipment such as insulators, conductors, transformers, circuit breakers, etc., are standard equipments. The relevant technical specification is specified by the 'purchaser'. The title in the goods passes as a chattel on delivery though certain obligations are still necessarily to be performed by the "supplier". Though the assessee claims that the design specification are not unique in the sense that the same specifications are used by many other concerns, to our mind, this is not a relevant test. The issue is as to the time and situs of passing of the property and as to whether the property passes "brick by brick"
on the theory of accretion or as a chattel qua chattel. The mere fact that the supplier has to perform many other obligations cast on it by virtue of the contract after delivery of goods does not change the nature of transaction. The 'supply' portion of the contract are the predominant object and intention of the parties. Erection is relatively minor portion as compared to the supply portion. If the erection portion cannot be taken as the main object of these contracts, title in goods was transferred as movables prior to erection. If equipment are manufactured as per the design, engineering, etc., specified by the Page 52 of 109 52 ITA Nos.112 to 115 & 162 to 165/Bang/2010 customer, it would not result in a works contract especially when all the material belong to the supplier, even though it produced a tailor-made product. The erection portion being subsequent to passing of title by execution of the supply portion, it cannot be said that the erection portion controls the supply portion, though the fulfilment of the conditions of the erection contract has a bearing on the fulfilment of the condition of supply portion of the contract, and though in some cases both the contracts are in the same document. The scope and object of each part of the contract is different. Though the supply portion and erection portion dovetail into each other, the erection portion does not control the supply portion and the supply contract does not become a works contract, just because there is an obligation cast on the supplier to erect the equipment which by that time has become the property of the purchaser. The title in the goods in respect of equipment/material to be supplied as per the terms of contract is to be transferred "ex-work" on dispatch as movable property. The critical test to be applied is as to when the title in the goods is transferred. Thus as the title in the goods were passed on to the assessee, before the commencement of the works or erection contract and as admitted by the assessee had treated these goods as its property and entered the same as such in its stock register before issuing the same for erection, it is a contract of sale and section 194C has no application. On erection portion as admitted TDS is made.
A plain reading of the section 194C along with CBDT circular referred above and applying the same to the facts of this case, where we find Page 53 of 109 53 ITA Nos.112 to 115 & 162 to 165/Bang/2010 that the supplier does not work or process the material supplied by the purchaser and that the seller supplied goods the title in which passed on to the purchaser/assessee, as a chattel, on delivery ex-work dispatch and as the assessee has already deducted tax at source from the erection portion of the contract treating it as a separate contract, we have to hold that section 194C is not applicable to the supply contract in question."
In the case of Senior Accounts Officer (O&M), Haryana Power Generation Corporation Limited vs. ITO (2006) 103 TTJ 584 (Delhi- ITAT), the facts of the case are that, the appellant had two thermal plants - one at Faridabad and another at Panipat. The Panipat Thermal plant entered into an agreement with M/s. BHEL for designing, engineering, manufacturing, supply, erection, testing and commissioning for retrofit of ESPs. The Honourable Income Tax Appellate Tribunal, Delhi Bench has held as follows:
"...... A bare perusal of the components of the consideration for the contract would clearly show that the primary or the dominant intention of the appellant was to purchase the material namely, two ESPs for its power plant at Panipat. Freight and insurance payable in respect of its supply and the cost of material constituted a major portion of the contract value. The cost of spares will also fall in this category As rightly contended by the learned counsel for the Appellant, before installing the plant, it was necessary to dismantle the existing plant and also to do the necessary civil work for erecting the new plant. This by itself would not mean that the contract in question Page 54 of 109 54 ITA Nos.112 to 115 & 162 to 165/Bang/2010 was a composite contract for the erection and commissioning of the plant together with the materials required for such commissioning of the plant. As held by the Hon'ble Supreme Court in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd. 29 STC 474 (SC) in the case of a composite contract, one has to find out the primary object of the transactions and the intention of the parties while entering into it. On the facts of this case we find that the primary object of the appellant was to purchase the plant in question and the civil work, erection and commissioning was only incidental to purchase the material by the appellant. In other words, the contract for supply of the equipments and the contract for erection and commissioning of the plant are two separable contracts, though there is only one common purchase order. Therefore, we are of the view that the revenue authorities were not justified in considering the gross payments made by the appellant to BHEL for the purpose of determining the tax deductible at source by the appellant. We have also perused the decision of the Rajkot Bench of the ITAT in the case of Essar Oil Ltd. (supra). We are of the view that the facts of the aforesaid case are clearly distinguishable from the facts of the present case. It was a case where the contract was for construction of a refiner and the contractor was to supply the material to be used for construction. In the present case, the supply of the power generator was an independent transaction and its erection was only ancillary or incidental to the purchase of the power generator. We are also of the view that in each case the terms of the contract need to be analyzed before coming to the conclusion whether it was a composite contract or not. As already stated, in the present case, the contract, insofar as it relates to supply of the material, freight insurance and supply of spare parts, is clearly separable from Page 55 of 109 55 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the other part of the contract relating to carrying out civil work, commissioning and erection of the power generators.
In view of the discussion above, we direct the Assessing Officer to work out the short deduction of tax at source, if any, by excluding the payments towards supply of machinery, spare parts as well as freight and insurance."
In the case of Somani Iron & Steel (P.) Ltd. vs. ITO (Luck.) (2003) 86 ITD 750 (Luck.-ITAT), the Hon'ble Bench has held as follows:
"32. Likewise, details of other electrical equipments have also been given in the Annexure to the above mentioned agreement. A perusal of these details indicates that each item or equipment has been mentioned with minute details and specifications.
36. The second contract, which is for installation of 220/33 KV Electric supply sub-station inclusive of power transformer and Auxiliary transformer is dated 22-9-1992, which is available at pages 174 to 213 of the paper book. The main features of this contract are also similar to the first agreement. Hence we are not required to repeat the same.
50. After considering the entire relevant material including the agreements, the vouchers and payment bills and also considering the nature of equipments supplied and ancillary work of supervision, designing etc. done by the supplier company, we are of the opinion that the composite character of the transactions involved in the three agreements was that of sale of goods. On perusal of the bills filed by the assessee which are available in the paper book at Page 56 of 109 56 ITA Nos.112 to 115 & 162 to 165/Bang/2010 pages 242 to 368, it is found that these basically relate to supply of material by the said company and disclose the price of net sale relating to various parts, equipments and goods. The sale bills also include the amount of sales tax and excise duty etc. A reference, in this regard, may be made to the bill dated 30-3 -1994 (page 331), bill dated 31-10-1994 (page 332) bill dated 10-11-1994 (page 335) and other bills available from pages 335 to 368. In most of these bills, the amount of sales tax and excise duty has been shown separately and has been included which shows that the bills relate to sale of goods and for such sales, the sales tax and excise duty etc. was paid by the purchaser. If the total amount paid by the assessee is also examined and considered, then it is found that only a negligible or insignificant, part of the amount is for the supervision charges or other ancillary activities not actually relating to price of goods sold and supplied to the assessee by the supplier company. It may also be pointed out that the civil work and some of the mechanical and electrical work also done by the assessee company though under supervision of the supplier company as per the terms of agreement. This also shows that the entire work was not done by the assessee. In any case, on consideration of the entirety of the facts and circumstances and the composite character of the agreements, dominant or predominant nature of contracts is found to be that of sale and not of work of contract.
51. If the ratio laid down in the case of Hindustan Shipyard Ltd. (supra) is applied to the facts of the present case, it is found that the supply of the material was the essence of the contract and the services and other materials provided by the supplier company were only incidental to the contract of supply of goods. As held in the case of Hindustan Shipyard Page 57 of 109 57 ITA Nos.112 to 115 & 162 to 165/Bang/2010 Ltd. (supra), the bill of material used in the installation of the plants etc. was on account of supply of the equipments. Thus, the agreements entered into by the assessee were basically agreements for sale and supply of goods and the supervision work and other activities were merely incidental to sale of goods. The transactions included in the three agreements, therefore, were not contracts for work or contracts of work.
Thus, on the basis of the above mentioned facts and analysis of the relevant judicial decisions, it is found that the agreements were agreements for sale and not for carrying out work so as to attract the provisions of section 194C.
58. In view of the above referred reply also, it is clear that the entire work of installation was not carried out by the company, rather the company provided the equipments, supplied the same and also undertook to install the same at the premises of the assessee, but the civil work, etc. was carried out by the assessee. So, it cannot be said that the work done by G.E.C. India Ltd. was on 'turnkey job basis'. Under these circumstances, in our opinion, the Id. Commissioner (Appeals) was not justified in taking the contract/or setting up of project on turnkey basis. The Id. Commissioner (Appeals) has laid much emphasis on the affidavit of Shri R.K. Somani, Managing Director of the assessee company filed before the Hon'ble High Court in a writ petition and has tried to draw inference from that affidavit that the work was in the nature of turnkey project. The Id. Sr. DR has also made reference to that affidavit. In our opinion, it is extraneous material filed in different context and cannot be a valid and relevant criterion for deciding the nature of contract, particularly, in view of the main features or salient Page 58 of 109 58 ITA Nos.112 to 115 & 162 to 165/Bang/2010 features, which have been recorded, by us in the body of this order.
59. Thus, in the totality of the circumstances, including the substance and the form of agreement, as well as the mode of payment, it is held that the work done by the company (GEC India Ltd.) was not on the basis of turn key project, rather the work was for supply of goods. Hence, we are unable to concur with the findings recorded by the Id. Commissioner (Appeals) which are reversed by us. Consequently, Issue No. 3 is also decided against the revenue by holding that the agreements entered into by the assessee and the suppliers were not for doing the work on 'turnkey project' basis."
In the case of Andhra Pradesh State Road Transport Corporation vs. DCIT [2001] 119 Taxman 73 (Hyd.) (Mag.): (2002) 74 TTJ 531 (Hyd.- ITAT), the facts of the case are that, assessee-Andhra Pradesh State Road Transport Corporation, is a corporation established under the state enactment. The assessee is in the business of providing transport services to the public in the state and for that purpose, it owns fleet of buses. It purchases chassis and after the purchase of chassis hands over the same to the fabricators for constructing the body building upon the chassis. The Hon'ble ITAT, Hyderabad Bench has held as follows:
"...... the inescapable conclusion is that the contract entered into by the appellant-corporation with its fabricators was a contract for purchase/sale of bus bodies and cannot be construed as a contract of work and labour simplicitor. The dominant object and intention between the parties was to construct and sell as purchase the bus bodies in terms of the requirements and specifications indicated by the Page 59 of 109 59 ITA Nos.112 to 115 & 162 to 165/Bang/2010 appellant-corporation and deliver them duly fitted on the chassis supplied. Whole exercise involved resulted into purchase and sale of bus bodies in fact. Merely because specifications are provided by the appellant- corporation to suit the bus bodies according to appellant's requirements, does not alter the basic crux and character of the contract, which in the instant case is nothing but the contract of sale and purchase. The materials involved in the construction of the bus bodies were to be procured by the fabricators and thereafter bus bodies were to be constructed and to be fitted on the chassis supplied by the appellant- corporation. At no point of time, appellant had any property or ownership in the material used in bus body building or in the bus body itself unless these were delivered to the appellant and approved by the appellant for final use. Property in the bus bodies was to pass on acceptance of bus bodies by the appellant. Purchase of any item which is constructed as per agreed specifications would involve labour and skill but these two elements by themselves alone are not enough to turn the transaction of sale into transaction of "work". Object and end result of the entire process through which that transaction passes shall be looked into. In the case before us, we are of the considered view in the backdrop of the object and end-result of the contract, that it was a contract of sale ultimately and finally. ......"
Therefore, it was submitted that -
(i) Three separate contracts entered into between Appellant and contractors cannot be regarded as one single indivisible contract;
- The contract for supply does not come within the sweep of section 194C;
Page 60 of 109 60 ITA Nos.112 to 115 &162 to 165/Bang/2010
- Even if all the three contracts are taken together, the supply portion constituting more than 80% of the total value, the entire arrangement is in respect of supply of equipment and erection and civil works are only incidental and ancillary to the supply contract applying the dominant test theory. Accordingly, section 194C would not apply to all the three contracts.
(ii) As regards allegation that there is collusion between the appellant and contractors for the tax evasion:
- Firstly, there is no liability on the Appellant to deduct tax at source in respect of the sums paid to the contractors towards purchase of equipment and secondly, Appellant cannot be held as an 'assessee in default' when the payee has paid tax in respect of the sums received by the Appellant. Further, it is also submitted that both the AO and the Ld CIT(A) have not held that the work order or the tender awarded by the Appellant to its contractor is a bogus or a sham transaction;
- Such being the case the lower authorities are not justified in not accepting the averments of the Appellant made before them;
- Further, both the AO and the Ld. CIT(A) have failed to appreciate that the Appellant is a state government public sector undertaking, that, as the public entities do not have any motive to conceal income the question of collusion for evasion of tax does not arise.
1. The Hon'ble Bombay High Court in the case of CIT vs. West Coast Paper Mills Ltd, ITA No. 389/2008, has held that the Tribunal has considered that aspect of the matter in the light of the material on Page 61 of 109 61 ITA Nos.112 to 115 & 162 to 165/Bang/2010 record and has recorded the finding that it is not a sham and bogus transaction. One of the grounds considered for recording that finding is that when the other party is a statutory body the question of evasion of tax does not arise, and therefore, according to the Tribunal, inference of collusion cannot be drawn. Hence, no question of law arises and that the Supreme Court dismissed the Department's SLP against the above judgment - (2010) 322 ITR (St.) 9.
2. In the case of Competent Authority & Ors. vs. Smt. Bani Roy Chowdhury & Ors., (1981) 131 ITR 578, the Hon'ble Calcutta High Court has observed that, where the transferor or the transferee is the Government or a statutory body there cannot be any scope for such collusion between the parties. The untrue statement about the agreed consideration is made only for the purpose of evasion of tax. When Government or any statutory body is a party to the transfer, the question of evasion of tax does not arise.
3. In the case of J Roy McDermott Eastern Hemisphere Ltd. v. JCIT [ITA No. 8084/Mum./2004, dt. 22-3-2010] (Mum.-ITAT) [2010] 190 Taxman (BN - iv) Part 2, it was held that it is for the revenue authorities to establish beyond a reasonable degree of doubt that there is an abuse of treaty provisions by so artificially contriving the affairs as to wrongfully entitle the assessee to treaty benefits. Unless that exercise is conducted, it cannot be open to disregard the claim of the assessee by simply making vague and generalized claims about artificial Page 62 of 109 62 ITA Nos.112 to 115 & 162 to 165/Bang/2010 splitting of contracts and about the sham arrangements to defeat the treaty provisions.
As regards, once the recipient has paid tax on the income there is no obligation on the Appellant:
- Without prejudice to the above, the Learned Commissioner (Appeals) ought to have appreciated that the recipient having paid the tax on the amount received from the Appellant there was no obligation on the part of the Appellant to pay the tax under section 201 (1).
- that s. 191 reads as follows:
In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-
tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct.
Expln.--For the removal of doubts, it is hereby declared that if any person, including the principal officer of a company,--
(a) who is required to deduct any sum in accordance with the provisions of this Act; or
(b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within Page 63 of 109 63 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the meaning of sub-section (1) of section 201, in respect of such tax.
- Accordingly, if no tax is deducted in accordance with the Chapter XVII at the time of payment of income, income tax shall be paid by the recipient directly.
- Explanation to section 191 provides that, any person who is required to deduct any sum in accordance with the Act or by an employer under section 192 (1A), does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax and where the assessee has also failed to pay such tax directly, then, such person shall be deemed to be an 'assessee in default' for the purpose of section 201 (1).
- In other words, any person shall be regarded deemed to be an 'assessee in default' for the purpose of section 201 (1) only if he has not deducted, or after so deducting fails to pay, or does not pay, the whole or any part of the tax and where the assessee has also failed to pay such tax directly.
- that, both the conditions viz., failure of the person responsible to perform his obligation and non-payment of tax by the payee directly should be cumulatively satisfied so as to treat the person responsible as the assessee in default.
- Relies on the case laws:
(a) Circular No. F. No. 275/201/95-IT(B), dated 29-1- 1997;
(b) Hindustan Coca Cola Beverages P Ltd., vs. CIT 293 ITR 226 (SC)
(c) CIT vs. Adidas India Marketing (P) Ltd (2006) 157 Taxman 519 (Delhi) Page 64 of 109 64 ITA Nos.112 to 115 & 162 to 165/Bang/2010
- A perusal of section 191 shows that where income-tax has not been deducted in accordance with the provisions of Chapter XVII, income-tax is to be paid by the assessee directly, i.e. the payee. It is to be borne in the mind that the tax being deducted at source by the assessee is the tax on the income of the deductee and not on the income of the assessee-deductor. Therefore, what section 191 provides for is that in case the deductor fails to make the requisite deduction of tax at source, the deductee would be liable to pay income-tax on the amount received by him as income.
Section191 does not cast a dual and simultaneous obligation on both the deductor and the deductee to pay tax on the said income in the hands of the deductee. Tax on the said income in the hands of the deductee is to be paid only once; primarily by the deductor and upon his failure, by the deductee. If the tax is deducted at source and paid by the deductor, the deductee gets credit for it and the amount deducted is treated as his income as per sections 198 and
199."
- Mahindra & Mahindra Ltd. vs. DCIT (2009) 122 TTJ (Mumbai) (SB) 577
- In the case of ITO, Bangalore vs. M/s. Intel Tech India Pvt. Ltd (Dated: April 09, 2009), 2009-TIOL-355-ITAT- BANG, the Hon'ble ITAT, Bangalore Bench has held as follows:
"Hence, in the instant case, the deductor was required to deduct the tax at source and therefore, the deductor was an assessee in default. Since a deductee has filed the return and has disclosed the transaction in the return of income and that shows no tax was payable on such transaction, the default will end on the date when the deductee has filed the return. Hence, the deductor will be liable to interest u/s 201(1A) up to 1st November, 2004. However, there will be no deduction Page 65 of 109 65 ITA Nos.112 to 115 & 162 to 165/Bang/2010 u/s 201 since the deductee has filed the return and has disclosed the transaction and no tax is payable as per the return on such transaction by the deductee. Hence, order of learned CIT (A) in canceling the demand u/s 201 is upheld. However, it is held that the deductor will be liable to pay interest on the amount of tax to be deducted from the date of deduction till November 1, 2004."
- In the case of ITO vs. Alfred Allan Advertising 8 SOT 312 (Delhi), the Hon'ble ITAT, Delhi Bench has held that, Explanation to section 191, inserted with effect from 1-6-2003, was clarificatory and, therefore, would apply for the financial years involved in the instant appeals.
- that when the contractors have paid the income tax directly, the Appellant cannot be treated as an 'assessee in default' and no recovery of tax may be made from the Appellant.
As regards, levy of interest under section 201 (1A):
- The Ld CIT (A) was not justified in upholding the action of the AO in levying interest under section 201 (1A), when the case of the Appellant does not fall within the scope of section 201 (1) of the Act,.
- Without prejudice to the above, the liability to interest cannot run post payment of tax by the payee.
Relies on the case laws:
(i) CIT v. Eli Lilly and Co. (India) P. Ltd. [2009] 312 ITR 225 [SC];Page 66 of 109 66 ITA Nos.112 to 115 &
162 to 165/Bang/2010
(ii) CIT vs. Trans Bharat Aviation [P] Ltd. [2010] 320 ITR 671 (Delhi-HC);
(iii) CIT v. Karnataka Urban Infra. Dev. Fin. Corp.: S.L.P. (Civil) No. 11995 of 2009 [2009] 317 ITR (St.) 5, Their Lordships S.H. Kapadia and Aftab Alam JJ, dismissed the Department's special leave petition against the judgment dated August 4, 2008 of the Karnataka High Court in ITA No. 467 of 2004 whereby the High Court held that the explanation of the assessee that the tax was not deducted under bona fide belief that the amount spent towards accommodation and conveyance of non-resident consultants was not required to be treated as a part of their income and there was no intention to violate the provisions of section 195 was acceptable and set aside the order levying penalty under section 201 (1) but confirmed the order levying interest under section 201 (1A) of the Income- tax Act. The Supreme Court observed that the dismissal order would not prevent the Department from taking steps under section 220 read with section 156 of the Act.
(iv) ITO, Bangalore vs. M/s. Intel Tech India Pvt Ltd (Dated: 9- 4.2009) 2009-TIOL-355-ITAT-BANG;
(v) TRO, Bangalore vs. M/s. Bharat Hotels Ltd (Dated: 27.2.
2009) 2009-TIOL-243-ITAT-BANG;
Therefore, the submissions were that -
- Three separate contracts entered into between Appellant and contractors cannot be regarded as one composite contract;
- The contract for supply does not come within the sweep of section 194C;
- Even if all the three contracts are taken together, the supply portion constituting more than 80% of the total value, the entire arrangement is in respect of supply of equipment and erection and civil works are only incidental and ancillary to the supply contract Page 67 of 109 67 ITA Nos.112 to 115 & 162 to 165/Bang/2010 applying the dominant test theory. Accordingly, section 194C would not apply to all the three contracts;
- Reimbursement to contractor towards the compensation for cutting of trees or loss of crops to the farmers or landlords does not falling within the preview of section 194C;
- The payments made towards survey work cannot be treated as fee for professional or technical services so as to make TDS under section 194J;
- The sums paid towards testing charges do not fall either under section 194C or 194J;
- When the contractors have paid the income tax directly the Appellant cannot be treated as an 'assessee in default' and recover the tax on the same income altogether once again from the Appellant; &
- Appellant being a public entity, there cannot be collusion between the statutory bodies with the intention to evade tax;
8.1. On the other hand, the Ld. D R was zealous in his urge that the assessee had grossly failed to deduct tax at source while making payments for the supply of materials which was unearthed during the course of survey conducted in its premises. The sequence of events have since been deliberated upon in detail in the order of the AO which has been judiciously sustained by the Ld. CIT (A) for well-knitted reasons recorded in his impugned order which is under challenge. It was, therefore, passionately pleaded that the orders of the authorities below require to be upheld in too.
9. We have meticulously considered the rival submissions, conscientiously perused the relevant records and also voluminous paper book Page 68 of 109 68 ITA Nos.112 to 115 & 162 to 165/Bang/2010 furnished by the Ld. A R during the course of hearing to strengthen his sustained arguments on the issues.
9.1. We shall venture to address the issues chronologically in the following paragraphs:
(i) On verification of the separate agreements entered into by the assessee for supply of materials, erection and for civil work etc., the AO noticed that while deducting TDS for making payments on civil works and erection portion, but, the assessee had failed to do so with regard to supply of materials portions. Brushing aside the assessee's explanation, the assessee was -
(i) treated as 'assessee in default';
(ii) computed tax on payments made towards supply portion; &
(iii) charged interest u/s 201(1A) of the Act on the taxes so computed.
(ii) On his part, the Ld. CIT (A), after elaborately discussing the issues at length, opined - in a nutshell - that "4.14...............It is therefore clear that the contract is one single and indivisible contract and the erection and installation of the equipment is as much fundamental part of the contract as the fabrication and supply..." and, thus, concurred with the stand of the AO on twin points, namely, computation of tax on the payments made towards supply portion (without effecting TDS) and interest thereon u/s 201(1A) of the Act.Page 69 of 109 69 ITA Nos.112 to 115 &
162 to 165/Bang/2010
(iii) Stoutly rebutting the Revenue's philosophy, the assessee had advanced its submissions (as recorded supra in a summarized manner), namely: (i) applicability of the provisions of s.194C of the Act (ii) contract for supply or 'contract of work' Applicablity of the provisions of s.194C of the Act:
Section 194C specifies that any person responsible for paying any sum to any contractor for carrying out any work was required to deduct tax at source. In sec.194C, the very emphasis is any person responsible for paying any sum ....for carrying out any work (including supply of labour for carrying out any work). However, applying the meaning of the word 'work' doesn't mean to include supply of goods or materials as portrayed by the Revenue in its impugned order.
Let us have a quick look at the judicial pronouncements on the word 'work' as envisaged in s.194C of the Act:
(i) Birla Cements works v. CBDT & Ors. - 248 ITR 216 (SC):
While dealing with the issue, the Hon'ble Supreme Court had considered the scope and ambit of s. 194C of the Act, validity of Circular No.681 and also taking cue from its earlier decision in the case of Associated Cements Co. Ltd. reported in (1993) 201 ITR 435 (SC) and ruled that -
"The key words in section 194C are 'carrying out any work'. The word 'work' is to be understood in the limited sense as product or result. The carrying out of work indicates doing something to conduct the work to completion or an operation which produces such result."Page 70 of 109 70 ITA Nos.112 to 115 &
162 to 165/Bang/2010
(ii) Khaitan & Co., v. CIT (2007) 12 SOT 120 - ITAT-DEL:
It has been observed by the Hon'ble Delhi Bench of the Tribunal that "Thus, 'carrying out any work' is the substance for making the payment relating to such work, liable for deduction of tax at source under section 194C of the Act. For carrying out any work, manpower is sine quo non and without manpower, it cannot be said that work has been carried out. Under section 194C each and every work/service is not covered, hence, the nature of work done or service performed is required to be seen" and concluded that -
"9...............We can reasonably conclude that while providing package of facilities to the assessee-firm, M/s.Khaitan Services Ltd. did not carry out any work nor provided any labour nor engaged any contractor etc., for carrying out any work, therefore, not covered in any way under the provisions of section 194C and also not covered within the meaning of word 'work' as explained by the Hon'ble supreme Court in the case of Associated Cement Co. Ltd. (supra) Thus section 194C does not have any obligation in respect of the payment made by the assessee-firm to M/s.Khaitan Services Ltd.
(iii) Bombay Goods Transport Association v. CBDT (1994) 76 Taxman 334(Bom):
It was ruled by the Hon'ble Bombay High court that "To attract section 194C, it is, therefore, necessary that the payment should be made 'for carrying out any work'. If this condition is fulfilled, then and then only the next condition becomes relevant, i.e., such work should be carried out in pursuance of a contract between the contractor and the person concerned.Page 71 of 109 71 ITA Nos.112 to 115 &
162 to 165/Bang/2010 The word 'contract' is a word and wide import and includes agreements, oral, or written".
(iv). The Hon'ble jurisdictional High Court in its wisdom in the case of V.M.Salgaocar & Bros. Ltd. v. ITO (1999) 104 Taxman 29 (Kar) had averred that "The word 'work' refers and comprehends the activities of the workmen and not the operation in the factory or on machines. It is the physical force which has comprehended in the word work'."
(v) In the case of The East India Hotel Ltd vs. CBDT [2010] 320 ITR 526 (Bom.-HC), it was held that -
" the argument of the revenue that the service contracts between the petitioner hotel and its customers is covered under section 194C of the Act cannot be accepted because, neither such a contract constitutes 'work' within the meaning of section 194C of the Act nor those contracts are covered under service contracts specifically included by way of Explanation III to section 194C of the Act. If the contention of the revenue that the word 'any work' in section 194C is very wide enough to include all types of work is accepted, then it would mean that even the hair cutting work done by a barber would be a 'work' covered under section 194C and the person making payment to the barber would be covered under section 194C. Such a wider interpretation is uncalled for, especially when the revenue itself had considered since inception that section 194C is restricted to the works done by contractors / sub- contractors".
With due respects to the rulings of the judiciaries cited supra, we are of the considered view that only when the activity qualifies to be regarded as 'work' the provisions of section 194C have come into play. For Page 72 of 109 72 ITA Nos.112 to 115 & 162 to 165/Bang/2010 an activity to be regarded as 'work' there shall be an activity carried out by the human intervention for completing such work. However, in the present case, in so far as the supply portion of materials was concerned, we find that there was no human intervention so as to categorize it as 'work' as the Revenue has been trying to project it.
9.2. We shall now move on to visualize as to whether the nature of contract between the assessee and the contractor - was it 'contract for supply of materials' or 'contract of work'?. The only yardstick to determine as to whether the transaction between the assessee and its contractor a 'contract for work' or a 'contract for supply' was un-mistakenly the judicial view on the matter.
(i) The Constitution Bench of the Hon'ble Supreme Court in the case of State of Himachal Pradesh vs. Associated Hotels of India Ltd. AIR 1972 SC 1131: 29 STC 474 (SC) had observed thus -
"The difficulty which the Courts have often to meet with in construing a contract of work and labour, on the one hand, and a contract for sale, on the other, arises because the distinction between the two is very often a fine one. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed Page 73 of 109 73 ITA Nos.112 to 115 & 162 to 165/Bang/2010 end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel (Halsbury's Laws of England, 3rd edition, vol. 34, 6-7)".
The Hon'ble Court had further (on page 481) held thus :
"From the decisions earlier cited it clearly, emerges that such determination depends in each case upon its facts and circumstances. Mere passing of property in an article or commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the court would have to find out what were the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale".Page 74 of 109 74 ITA Nos.112 to 115 &
162 to 165/Bang/2010 With highest regards, we would like point out that the ruling of the Hon'ble Court makes it apparent that when parties enter into two separate contracts, one for material and one for labour, the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale. In such case, as rightly highlighted by the assessee, the provisions of s.
194C could apply only to the labour contract and not to the materials contract.
(ii) It may not be inappropriate to recall at this juncture the ruling of the Hon'ble Supreme Court in the case of State of A.P. vs. Kone Elevators (India) Ltd. (2005) 3 SCC 389. While dealing with the issue of installation of lifts, the Hon'ble Court held that the contract is a "contract for sale". The Hon'ble Court while enumerating the tests to be considered in deciding the nature of contract emphasized the fact that the intention of the parties in the contract would to a large extent determine the issue. The Hon'ble Court laid down the following as the probable tests that should be conducted before determining the nature of contract:
(i) Whether it was one for transfer of property or for work and labour;
(ii) How and when property of dealer passed to the customer i.e., whether by transfer or accession.
(iii) In the case of Andhra Pradesh State Road Transport Corporation vs. DCIT [2001] 119 Taxman 73 (Hyd.) (Mag.): (2002) 74 TTJ 531 (Hyd.-ITAT), the Hon'ble has held that -Page 75 of 109 75 ITA Nos.112 to 115 &
162 to 165/Bang/2010 "......There may be many common characteristics in both the contract, some neutral in a particular contract and yet certain clinching terms in a given case may fortify the conclusion one way or the other. All that will depend upon the facts and circumstances of each case. This question to be answered is not an easy and has perplexed the jurists all over. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of the property in and the delivery of the possession of a chattel as a chattel to the buyer. Where the dominant object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed and in anything that can properly become the subject of sale, neither the ownership of materials is conclusive although such factors may be relevant and be taken into consideration in ascertaining and determining whether the contract in question is in pith and substance a contract for work and labour or one for the sale of chattel....."
(iv) The Hon'ble Andhra Pradesh Court had laid down certain guidelines in the case of P.S. Company vs. State of Andhra Pradesh 56 STC 283 to determine the true construction of a contract so as to determine in turn as to whether transaction covered by that contract is one of sale or of work and labour. These guidelines are as under:
(1) The essence of the contract or the reality of the transaction as a whole has to be taken into consideration in judging whether the contract is for a sale or for work and labour.Page 76 of 109 76 ITA Nos.112 to 115 &
162 to 165/Bang/2010 (2) If the thing to be delivered has any individual existence before the delivery, as the sole property of the party who is to deliver it, then it is a sale.
(3) If the main object of the contract is the transfer from A to B, for a price, of the property in a thing in which B had no previous property, then the contract is a contract of sale.
(4) Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour.
(5) If the bulk of the material used in the construction belongs to the manufacturer who sells the end-product for a price that will be a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not one for work and labour.
(6) A contract where not only work is to be done but the execution of such work requires goods to be used, may take one of three forms:
(a) the contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price;
(b) it may be a contract for work in which the use of materials is accessory or incidental to the execution of work; or
(c) it may be a contract for supply of goods where some work is required to be done as incidental to the sale;
Where a contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and the other for work and labour.
Page 77 of 109 77 ITA Nos.112 to 115 &162 to 165/Bang/2010 The second type of work is clearly a contract for work and labour not involving sale of goods.
While the third type is contract for sale where the goods are sold as chattels and some work is undoubtedly done, but it is done merely as incidental to the sale.
(v) Yet an another ruling with regard to the nature of contract in respect of manufacture and supply of ships, the Hon'ble Supreme Court in the case of Hindustan Shipyard Ltd. vs. State of Andhra Pradesh (2000) 119 STC 533 (SC) had laid down the following test:
"14. The principles deducible from the several decided cases may be summed up as under:
1. It is difficult to lay down any rule or inflexible rule applicable alike to all transactions so as to distinguish between a contract for sale and a contract for work and labour.
2. Transfer of property of goods for a price is the linchpin of the definition of sale.
Whether a particular contract is one of sale of goods or for work and labour depends upon the main object of the parties found out from an overview of the terms of the contract, the circumstances of the transactions and the custom of the trade. It is the substance of the contract document/s, and not merely the form which has to be looked into. The Court may form an opinion that the contract is one whose main object is transfer of property in a chattel as chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale, then it is a sale. If the primary object of the contract is the carrying out, of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour.
Page 78 of 109 78 ITA Nos.112 to 115 &162 to 165/Bang/2010
3. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale.......
3. the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which have to be weighed. If the major component of the end product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end products, the skill and labour are only incidentally used, the delivery of the end product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail the skill and labour of the seller though some material or components may be incidentally used during the process of the end product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour."
It was further observed by the Hon'ble Court in para 15 of the judgment as under:
"There may be three categories of contracts:
(i) The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price;
(ii) It may be a contract for work in which the use of the materials is ancillary or incidental to the execution of the work; &
(iii)It may be a contract for supply of goods where some work is required to be done as incidental to the sale.
The first contract is a composite contract consisting of two contracts one of which is for the sale of goods and Page 79 of 109 79 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the other is for work and labour. The second is clearly a contract for work and labour not involving sale of goods. The third is a contract for sale where the goods are sold as chattels and the work done is merely incidental to the sale."
9.3. As has been averred by the assessee in the case on hand, 80% to 85% of the consideration was towards the supply of materials and barely 20% to 15% total was towards erection and civil works.
9.4. Further, there is considerable force in the assertion of the assessee that the erections work and civil works were carried out in furtherance to the supply of material. In other words, erection works and the civil works were incidental to supply of materials. It is evident from the photographs furnished by the Ld. AR during the course of hearing. Few of the photographs are appended to this order as Annexure-A. The substance of the agreement or arrangement between the parties was to supply the materials and not carrying out the work. Installation or erection work and civil construction work can only be categorized as ancillary to the contract of supply.
9.5. Taking into account the submission of the assessee and also the test laid down by the Hon'ble Apex court cited supra, we are of the firm view that the entire arrangement between the assessee and its contractors was at best be called as divisible contract and, thus, it should be categorized as a supply contract.
Page 80 of 109 80 ITA Nos.112 to 115 &162 to 165/Bang/2010 9.6. We have also attentively perused the Board's Circular No. 681, dated 08.03.1994 on which the assessee had placed reliance. The circular has also laid down certain guidelines, the relevant excerpts are -
(vi) The provisions of this section will not cover contracts for sale of goods--
(a) Since contracts for the construction, repair, renovation or alteration of buildings or dams or laying of roads or airfields or railway lines or erection or installation of plant and machinery are in the nature of contracts for work and labour, income-tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor.
(b) Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section.
(c) In State of Himachal Pradesh v. Associated Hostels of India Ltd. [1972] 29 STC 474, the Supreme Court observed that where the principal objective of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, contract is of work and labour.
Page 81 of 109 81 ITA Nos.112 to 115 &162 to 165/Bang/2010 The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials nor the value of skill and labour as compared with the value of the materials is conclusive although such matters may be taken into consideration in determining in the circumstances of a particular case, whether the contract is, in substance, one of work and labour or one for the sale of a chattel. A building contract or a contract under which a movable is fixed to another chattel or on the land where the intention plainly is not to sell the article but to improve the land or the chattel and the consideration is not for the transfer of the chattel, but for the labour and work done and the material furnished, the contract will be one of work and labour. In case of doubt whether a particular contract is a contract for work and labour or for sale, the matter should be decided in the light of the principles laid down by the Supreme Court in the above mentioned case.
9.7. During the course of hearing, it was advocated by the Ld. A.R that the provisions of s.194C of the Act would apply in respect of a contract for supply of any article or thing as per the prescribed specification only if it is a contract for work and not a contract for sale as per the principles in this regard laid down para 7(vi) of Board's Circular No. 681 dated, 8.3.1994.
9.8. On a glimpse of the said Circular, we find that -
Paragraph 7 (vi) (a) provides that, "......Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of Page 82 of 109 82 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor".
As per the above paragraph, in order that section 194C is attracted, it is necessary that the ownership of goods remains at all times with the contractee.
Paragraph 7 (vi) (b) provides that, "Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section".
9.9. As narrated in the aforesaid paragraph, when the contractor undertakes to supply any article or thing fabricated according to the specifications given by the specified person and the property in such article or thing passes to the specified person only after such article or thing is delivered, the contract will be a contract for sale. Therefore, as pleaded by the assessee, the assessee's case falls within Paragraph 7 (vi) (b) and not within Paragraph 7 (vi) (a).
9.10. The Ld. CIT (A) in his impugned order had observed that "there is no transfer of property in the equipments by the manufacturer to the customer as a chattel". However, his view was contrary to the fact that transfer of the title in respect of equipment and materials supplied by the Page 83 of 109 83 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contractor to the assessee takes place in favour of the assessee pursuant to the terms of the contract by way of negotiation of dispatch documents. On a glimpse of the 'Instruction to bidders', we find -
"37.3 For contractor supplied equipments/materials 37.3.1 Transfer of the title in respect of equipment and materials supplied by the contractor to the KPTCL pursuant to the terms of the Contract shall pass on to the KPTCL with negotiation of dispatch documents. ..................................................................................................................... 37.3.4 In order to enable the contractor to carry out its obligation under the contract such as receipt at site, storage, erection, testing, etc, the owner (KPTCL) shall hand over (wherever applicable) the goods to the contractor against an Indemnity Bond in the format enclosed as Annexure VIII & IX. The contractor shall be fully responsible for the safety of the goods while the same are under its custody as above.
37.4 The Contractor shall be fully responsible for the safety of all the Equipments/Materials while the same are under his custody as above until "Taking Over of the Stations and Transmission Lines" by the Owner in accordance with clause 9.0 of Section-V, Special Conditions of Contract-SCC, volume-I."
9.11. It is clear from the 'Instruction to Bidders' that, the transfer of the title in respect of equipment and materials supplied by the contractor to the assessee takes place in favour of assessee pursuant to the terms of the Contract by way of negotiation of dispatch documents. As the title to equipments and materials already passed on to the assessee and assessee having become the owner of equipments and materials, issues the same to Page 84 of 109 84 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the contractors for carrying out civil works or erection works at the site location. For issuing such goods to the contractor, he had to execute an indemnity bond in favour of the assessee. This, as rightly argued the assessee, proves that, the title to equipments and materials gets transferred in favour of assessee much earlier to the commencement of the erection and civil works.
9.12. Considering the above narration, we are of the view that as soon as the work was awarded by assessee to the contractor, the contractor supplies the equipment to the assessee and the property in goods gets transferred at that point of time only. It was only later on the assessee hands over the equipment to the contractors for using them in the erection and civil work portions. Therefore, it was evident that, the contract relating to supply of equipment was a separate and distinct 'contract for sale' and as advocated by the Ld. A R, the assessee's case falls within the Paragraph 7
(vi) (b) of the Board's circular (supra).
9.13. On a critical analyze of s. 194C of the Act, we find that the term 'work' has been defined in Explanation (iv). The sub-clause (e) deems contract manufacturing as work. However, the latter part of the aforesaid sub-clause clearly excludes 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. On a close scrutiny, the aforesaid exclusion applies not only to manufacturing but also to supplying when such supply is according to be requirement or specifications of the customer and for such supply, the supplier had used material purchased from Page 85 of 109 85 ITA Nos.112 to 115 & 162 to 165/Bang/2010 a person other than the customer. Thus, the assessee's case is squarely covered by the aforesaid exception for a simple reason that the contractor had undertaken to supply to the assessee the equipment as per the specifications of the assessee and for the purpose of such supply, contractor had not used materials bought from the assessee. Applying the afore-mentioned exception, it could be said that the activity carried out by contractor for the assessee cannot, at any stretch of imagination, be categorized as 'work' as alleged by the Revenue.
9.14. In this connection, we recall that though the aforesaid provision was introduced by the Finance Act 2009, even prior to the said amendment, contract manufacturing was never considered as work. By virtue of the aforesaid amendment, although contract manufacturing was now deemed to be work, when the supply was according to specifications of the customer and for the purpose of supply, the supplier had not used the materials of customer; such supply was not to be regarded as work.
9.15. It may not be inappropriate to recall the ruling of the Hon'ble Bombay High Court in the case of CIT vs. M/s. Glenmark Pharmaceuticals Ltd reported in (2010) 324 ITR 199 [as stoutly relied on by the assessee], wherein the Hon'ble Court had held that the "work" as defined in the newly recast section 194C is clarificatory and, thus, retrospective in operation.
The Court had, further, asserted that even before section 194C was recast, unless the contract involved use of goods supplied by the contractee, there cannot be "work" as understood by the Courts and the Revenue through its various circulars.
Page 86 of 109 86 ITA Nos.112 to 115 &162 to 165/Bang/2010 The Hon'ble Court held thus:
"(on page 217) Hence, what has weighed in the introduction of clause (e) to the Explanation was ongoing litigation on the question as to whether TDS was deductible on outsourcing contracts. Clause (e) was introduced "to bring clarity on this issue: or in other words, to remove the ambiguity on the question. Clause (e) as introduced contains a positive affirmation that the expression "work" will cover manufacturing or supplying a product, according to the requirement or specification of a customer, by using material purchased from such a customer. Clause (e) has placed the position beyond doubt by incorporating language to the effect that the expression "work" shall not include manufacture or supply of a product according to the requirement or specification of a customer by using material which is purchased from a person other than such customer. In other words, the circumstance that requirements or specifications are provided by the purchaser is not regarded by the statute as being dispositive of the question as to whether a contract constitutes a contract of work or sale. What is of significance is whether material has been purchased from the customer, who orders the product. When the material is purchased from the customer who orders the product, it constitutes a contract of work while on the other hand, where the manufacturer has sourced the material from a person other than the customer, it would constitute a sale. What is significant is that in using the words which clause
(e) uses in the Explanation, Parliament has taken note of the position that was reflected in the circulars issued by the Central Board of Direct Taxes since May 29, 1972. The judgment of the Supreme Court in Associated Cement gave an expansive definition to the expression "work" and rejected the attempt of the assessee in that case to restrict the expression "work" to "works contract". Both before and after the judgment of the Supreme Court the Page 87 of 109 87 ITA Nos.112 to 115 & 162 to 165/Bang/2010 expansive definition of the expression "work" co-existed with the Revenue's understanding that a contract for sale would not be within the purview of section 194C. The Revenue always understood section 194C to mean that though a product or thing is manufactured to the specifications of a customer, the agreement would constitute a contract for sale, if (i) the property in the article or thing passes to the customer upon delivery; and
(ii) the material that was required was not sourced from the customer/purchaser, but was independently obtained by the manufacturer from a person other than the customer. The rationale for this was that where a customer provides the material, what the manufacturer does is to convert the material into a product desired by the customer and ownership of the material being of the customer, the contract essentially involves work of labour and not a sale. Parliament recognized the distinction which held the field both administratively in the form of circulars of the Central Board of Direct Taxes and judicially in the judgments of several High Courts to which a reference has been made earlier. Consequently, the principles underlying the applicability of section 194C as construed administratively and judicially in decided cases, find statutory recognition in the Explanation. The Explanation, therefore, as the Memorandum explaining the clauses of the Finance Bill of 2009 states, was in the nature of a clarification. Where an explanatory provision is brought to remove an ambiguity or to clear a doubt, it is reflective of the law as it has always stood in the past.
Where, as in the present case, an Explanation is introduced statutorily to adopt an understanding of the law both in the form of the circulars of the Central Board of Direct Taxes and in judicial decisions, Parliament must be regarded as having intended to affirm that intent. In the present case, the intent has held the field for over three decades."
Page 88 of 109 88 ITA Nos.112 to 115 &162 to 165/Bang/2010 9.16. In taking into account the above deliberations and also drawing strength from various judicial pronouncements on the issue, we are of the considered view that the supply portion of the contract being for supply of equipment it does not require deduction of tax at source.
10. We shall now analyze the Ld. CIT (A)'s prescription in treating supply contract, erection and civil engineering contracts as a composite contract for work.
The contention of the assessee was, in brief, that -
- the separate contracts cannot be treated as a composite contract merely on the basis of a clause in the 'Contract Agreement (Supply Portion)' that the contractor is also responsible for the performance of the erection portion and civil works portion, that merely making the contractor responsible for performance of erection portion and civil works portion will not by itself make Supply portion any less a supply contract, that one should appreciate that assumption of overall responsibility is a contractual matter which by itself would not alter the essence of the transaction of supply;
- that the separate contracts expressly entered into cannot be termed as a composite contract merely on the basis that all the contracts have been awarded through a single bidding process, that merely because the bidding process was a composite one it cannot be concluded the contract is a composite contract;
- that the AO had stated that the assessee had neither issued separate tender notification nor divided the contract into supply, construction and erection, which was factually incorrect;
Page 89 of 109 89 ITA Nos.112 to 115 &162 to 165/Bang/2010
- that the authorities below have failed to appreciate that, the assessee had never intended to treat the contract as composite contract, that as per the terms of the 'Instructions to Bidders, the assessee had clearly laid out that once the contractor was found to be a successful bidder, the entire scope of the contract was divided into three separate contracts, i.e. for supply of materials, erection and civil engineering works.
10.1. On a critical perusal of the terms of the 'Instructions to Bidders' it states that, the contract entered by the assessee with the contractors had to be treated as a divisible contract resulting in, into three separate contracts.
10.2. There is a considerable force in the argument advanced by the assessee that it is an accepted practice for the parties to the contract to enter into a consolidated contract with the split up of consideration for various elements viz., supply of materials, erection services and civil construction service. This may be observed from a number of judicial pronouncements with one of the most followed judgments of Supreme Court in the case of State of Madras vs. Richardson Cruddas Ltd., (1968) 21 STC
245. It goes to say that if there is a split of consideration towards material and labour, it cannot be said that the entire contract is an indivisible works contract.
10.3. To drive home his point, the Ld. AR had sought refuge to the various judicial pronouncements on the issue. On a score of case laws relied on by the assessee, some of the cases which are directly on the issue on hand are deliberated upon hereunder:
Page 90 of 109 90 ITA Nos.112 to 115 &162 to 165/Bang/2010
(i) The Hon'ble Apex Court, in the case of Pandit Banarasi Das Bharat vs. State of Madhya Pradesh (1958) 9 STC 388, had observed thus:
"The expression 'sale of goods' in Entry 48 of List II of Sch. VII to the Government of India Act, 1935 has the same meaning which it has in the Sale of Goods Act, 1930. In a building contract there is no sale of materials as such, and it is, therefore, ultra vires the powers of the Provincial Legislature to impose tax on the supply of materials. When a question arises as to whether a particular works contract could be charged to sales tax, it will be for the authorities under the Act to determine whether the agreement in question is, on its true construction, a combination of an agreement to sell and an agreement to work, and if they come to the conclusion that such is its character, then it will be open to them to proceed against that part of it which is a contract for the sale of goods, and impose tax thereon. The prohibition against imposition of tax is only in respect of contracts which are single and indivisible and not of contracts which are a combination of distinct contracts for sale of materials and for work, and nothing shall bar the sales tax authorities from deciding whether a particular contract falls within one category or the other and imposing a tax on the agreement of sale of materials, where the contract belongs to the latter category."
(ii) The Supreme Court in the case of Builders Association of India vs. Union of India (1989) 73 STC 370 observed thus -
"... After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the Page 91 of 109 91 ITA Nos.112 to 115 & 162 to 165/Bang/2010 States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above......"
(iii) In the case of State of Tamil Nadu vs. Titanium Equipment and Anode Manufacturing Corporation Ltd., reported in (1998) 110 STC 43 (Madras), the Madras High Court reversing the decision of the Tribunal held that the contract was clearly a divisible contract, one for the supply of the titanium anodes and another for supervision and installation and undertaking recoating maintenance. The price payable for the supply of material was distinct from the consideration payable for the supervision of installation and commissioning and for recoating maintenance. The parties themselves had no doubt as to the nature of the arrangement they had entered into and had specifically provided for the payment of the excise duty, sales tax and all other statutory levies by the buyer.
(iv) The Hon'ble Constitutional Bench of Supreme Court in the case of Bharat Sanchar Nigam Ltd. and Another vs. Union of India and Others [2006] 145 STC 91 [SC] has held as follows:
"All the clauses of article 366[29A] serve to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchases and sales for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerly [See [1958] 9 STC 353 [SC]] Ltd. The amendment especially allows specific composite contracts, viz., works Page 92 of 109 92 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contracts [clause [b]], hire-purchase contracts [clause [c]], catering contracts [clause [f]] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax.
(v) In Larsen & Toubro Ltd v. Commr. of C.T. (A.P.) [2003] 132 STC 272 (AP), the Hon'ble AP High Court considered the case of a Public Limited Company engaged in manufacturing, fabrication, supply, erection and commissioning of various projects. The nature of work carried out by the appellant is a works contract. During the AYs 1986-87 and 1987-88 the appellant had entered into a contract with Visakhapatnam Steel Plant and other public sector undertakings. The contract entered into by the appellant for designing, manufacturing, fabrication, installation and commissioning specified project is composite in nature. The appellant, in order to discharge the obligation arising out of the contract into with various contractees, has manufactured specified goods in their factory at Bombay, which is within the State of Maharashtra, and also purchased certain goods from outside the State as well as from the local registered dealers. The contracts specified separate prices for supply of various items required for execution of the project as well as the commissioning and installation charges.
The manner and method to be followed by the appellant in the above case in execution of the works contract are as under:
(a) Goods/equipments described in the contract of specific nature are manufactured in their Powai (Mumbai) Factory and dispatched directly in favour of contractee after inspection and approval by them. The turnover is liable for declaration in the State of Maharashtra as provided under section 3(a) of the Central Sales Tax Act, 1956.Page 93 of 109 93 ITA Nos.112 to 115 &
162 to 165/Bang/2010
(b) Appellant also purchases goods/equipments from outside the State vendors and effect transfer of documents of title in favour of contractee. Such turnovers are claimed exemption being transit sales, not liable to be taxed in view of section 6(2) read with section 3(b) of CST Act.
(c) For the above nature of transaction pertaining to contracts, contractees furnished "C" forms to the appellants and the same will be filed during assessment proceedings.
(d) Appellants undertake installation/erection of such goods/ equipments, which are handed over by the contractees along with other goods required for commissioning the project.
The High Court observed as follows:
"...... In view of the law laid down in various decisions referred to above, in particular, Gannon Dunkerley's case [1993] 88 STC 204 (SC), it is difficult for us to appreciate the stand taken on behalf of the department as to how this contract could be presumed as a deemed sale within the State of Andhra Pradesh. Though the learned Special Government Pleader for Taxes submitted that it is an indivisible contract, we are afraid, this submission may not be appropriate, having regard to the fact that there are two facets of the contract, one is supply of goods and the other is installation of machinery with the labour of the appellant and as such this contract is a divisible contract".
(vi) In the case of CIT vs. Hyundai Heavy Industries Co. Ltd.
(2007) 291 ITR 482 (SC), the Supreme Court held that the installation permanent establishment came into existence only after the transaction stood materialized. The installation permanent establishment came into existence only on conclusion of the transaction giving rise to the supplies of Page 94 of 109 94 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the fabricated platforms. The installation permanent establishment emerged only after the contract with the ONGC stood concluded. It is emerged only after the fabricated platform was delivered in Korea to the agents of the ONGC. Therefore, the profits on such supplies of fabricated platforms cannot be said to be attributable to the permanent establishment. Applying this analogy, it may be stated that the question of carrying out any work could arise only after the sale of equipment is completed. In other words, any work for the purpose of section 194C could begin only after the supply portion is completed and therefore, the question of applying the aforesaid section on the supply portion does not arise.
In the instant case, the assessee had awarded the work order for the contractor, under three different segments:
(i) Supply portion; (ii) Erection portion; and (iii) Civil works portion;
- The terms in respect of each of the aforesaid portion are clear and the consideration for each of the portion is separate;
- The terms between the parties were amply clear in respect of the obligations to be discharged by the contractors and in respect of payment towards the work order.
- In respect of supply portion, the parties to the contract are clear about the materials to be supplied, the quantity of materials to be supplied and the rate at which the materials would be supplied. In the case of erection portion and civil works portion, the parties to the contract are clear about the works to be performed by the either of the parties; thus, the aforesaid three portions of the work order were independent of each other.
- that the most important test for determining as to whether payments made in pursuance to contract are liable to deduct tax Page 95 of 109 95 ITA Nos.112 to 115 & 162 to 165/Bang/2010 at source or not was to scrutinize the contract between the KPTCL and the contractor;
- that one of the clauses in the 'Contract Agreement (Supply Portion)', which reads as follows:
It is expressly agreed to by the Contractor that notwithstanding the fact that the Contract is termed as Supply Contract, for convenience of operation of the other Contracts namely Erection Contracts and Civil Contracts are also the integral parts of the contract on single source responsibility basis and the Contractor is bound to perform the total Contract in its entirety and non- performance of any part or portion of the Contract shall be deemed to be a breach of the entire-Contract.
The said clause in the 'Contract Agreement (Supply Portion)' clarifies that, the contractor is also responsible for the performance of the erection portion and civil works portion. It does not mention that all portions of the work order are inter- related or integrated with one another. By merely making the contractor responsible for performance of erection portion and civil works portion will not by itself make Supply portion any less a supply contract. Assumption of overall responsibility is a contractual matter which by itself would not alter the essence of the transaction of supply. In the following cases, although the applicant was made overall responsible for even the work awarded to subcontractors, it has been held that the site of the subcontractors cannot be regarded as site of the applicant.
10.4. Considering the facts and circumstances of the issue and also in conformity with the findings of various judiciary referred above, we are of the firm view that the three separate contracts, i.e. (i) Supply of materials,
(ii) Erection Contract and (iii) Contract for civil work cannot be treated as one single contract. To arrive at such a view, we are drawing strength from the ruling of the Hon'ble Apex Court in the case of CIT vs. Motors & General Stores (P) Ltd. (1967) 66 ITR 692 (SC) wherein the Hon'ble Court in its Page 96 of 109 96 ITA Nos.112 to 115 & 162 to 165/Bang/2010 wisdom had ruled that "When parties have agreed on certain terms, unless it is proved sham, the agreed terms have to be respected".
11. We shall now turn our attention to analyze as to whether the provisions of s.194C of the Act are applicable in respect of 'supply contract'.
(i) In this connection, we recall the finding of the Hon'ble Tribunal, Hyderabad Bench the case of Power Grid Corporation of India Ltd. vs. ACIT [2007] 112 TTJ 654 (Hyd.-ITAT) which is identical to the issue on hand. The issue before the Hon'ble Bench was that the assessee was a Central Government undertaking engaged in the activity of transmission and power distribution of electricity to various constituents across the country. During the year under consideration, the assessee was involved in three projects for which contracts were awarded to different contractors.
The assessee awarded contracts to various parties to construct, execute the transmission line/sub-station. The categories of contracts entered into by the assessee with various contractors for the above purposes were (i) pure supply contracts, (ii) pure erection contracts and (iii) Supply-cum-
erection contracts(but with separate agreements in respect of supply portion). The finding of the Hon'ble Bench was that -
"5.2. (on page 17) In this case, as already stated, the assessee entered into contracts with various contractors for supply of conductors, insulators, transmission towers and sub-stations. The contracts were not only to supply equipment, but also by way of separate Page 97 of 109 97 ITA Nos.112 to 115 & 162 to 165/Bang/2010 contract to erect the transmission towers and also the sub-stations. The contracts, though contained in the same document in some cases are in two parts. Simply because the supply and erection parts of the contract were entered into with the same party in some cases and in some other cases, were in two separate parts in the same agreement the nature of each part of the contract will not alter. In this connection, we may refer to the decision of the Bombay High Court in the case of CST v. Walchandnagar Industries (1985) 58 STC 89 in which the Hon'ble High Court referred to the judgment of the Hon'ble supreme Court in the case of State of Madras v. Gannon Dunkerley & Co. (1958) 9 STC 353 (SC) wherein it was held that 'the parties may enter into two contracts, one for the sale of goods and one for services. Even when such contracts are in one document they can be separate, for more so when they are in two separate documents." Similar view was taken by the Hon'ble Apex Court in the case of Associated Hotels of India Ltd. (1972) 29 STC 474 (SC) ................................................................................. 5.4.....................In the present case, where the contract of supply and erection is given to the same party, the value of the erection contract as can be seen from the annexure is lesser than the value of the supply contract. It cannot therefore control the interpretation of the contract, specifically when the property in the goods has passed ex-works on delivery and not on the theory of accretion. The assessee took possession of the goods and the title passed on to it as a chattel prior to commencement of the erection portion of the contract.Page 98 of 109 98 ITA Nos.112 to 115 &
162 to 165/Bang/2010 5.5........ If the facts of the present case are tested by applying the principles laid down by the jurisdictional High Court and the Hon'ble Supreme Court, the obvious answer that would emerge is that this is a "supply contract" and not "works contract". The nature of a contract as to whether it is 'contract for sale' or "works contract" will depend on the terms of the contract and its execution. In the present case, the contractors have to fabricate towers as per tested quality of conformity with International Standard-(IS) : 2062. Further, the contractor has been given the option to use other equivalent grade of structural steel angle sections and plates conforming to latest International Standards. The contractor fabricates and manufactures the tower with steel sections as per International Standards. The material is that of "the supplier" and not of "the purchaser". The "supplier" does not work on the material supplied by the "purchaser". There is no accretion of material to the purchaser, part by part, unit by unit. The rest of the equipment such as insulators, conductors, transformers, circuit breakers, etc., is standard equipments. The relevant technical specification is specified by the 'purchaser'. The title in the goods passes as a chattel on delivery though certain obligations are still necessarily to be performed by the "supplier". Though the assessee claims that the design specification are not unique in the sense that the same specifications are used by many other concerns, to our mind, this is not a relevant test. The issue is as to the time and situs of passing of the property and as to whether the property passes "brick by brick" on the theory of accretion or as a chattel qua chattel. The mere Page 99 of 109 99 ITA Nos.112 to 115 & 162 to 165/Bang/2010 fact that the supplier has to perform many other obligations cast on it by virtue of the contract after delivery of goods does not change the nature of transaction. The 'supply' portion of the contract is the predominant object and intention of the parties. Erection is relatively minor portion as compared to the supply portion. If the erection portion cannot be taken as the main object of these contracts, title in goods was transferred as movables prior to erection. If equipment are manufactured as per the design, engineering, etc., specified by the customer, it would not result in a works contract especially when all the material belong to the supplier, even though it produced a tailor-made product. The erection portion being subsequent to passing of title by execution of the supply portion, it cannot be said that the erection portion controls the supply portion, though the fulfillment of the conditions of the erection contract has a bearing on the fulfillment of the condition of supply portion of the contract, and though in some cases both the contracts are in the same document. The scope and object of each part of the contract is different. Though the supply portion and erection portion dovetail into each other, the erection portion does not control the supply portion and the supply contract does not become a works contract, just because there is an obligation cast on the supplier to erect the equipment which by that time has become the property of the purchaser. The title in the goods in respect of equipment/material to be supplied as per the terms of contract is to be transferred "ex-work" on dispatch as movable property. The critical test to be applied is as to when the title in the goods is transferred. Thus Page 100 of 109 100 ITA Nos.112 to 115 & 162 to 165/Bang/2010 as the title in the goods were passed on to the assessee, before the commencement of the works or erection contract and as admitted by the assessee had treated these goods as its property and entered the same as such in its stock register before issuing the same for erection, it is a contract of sale and section 194C has no application. On erection portion as admitted TDS is made.
................................................................................. 5.5............................................................................. A plain reading of the section 194C along with CBDT circular referred above and applying the same to the facts of this case, where we find that the supplier does not work or process the material supplied by the purchaser and that the seller supplied goods the title in which passed on to the purchaser/assessee, as a chattel, on delivery ex-work dispatch and as the assessee has already deducted tax at source from the erection portion of the contract treating it as a separate contract, we have to hold that section 194C is not applicable to the supply contract in question."
With due respects, we would like to reiterate that the finding of the Hon'ble Bench (supra) is directly on the point which is under consideration.
(ii) Yet an identical issue, the Hon'ble Delhi Bench in the case of Senior Accounts Officer (O&M), Haryana Power Generation Corporation Ltd. v. ITO (2006) 103 TTJ 584 (Delhi ITAT) had taken a similar view. The issue, in brief, was that the assessee had two thermal plants - one at Faridabad and another at Panipat. The Panipat Thermal plant entered into an agreement with BHEL for designing, engineering, Page 101 of 109 101 ITA Nos.112 to 115 & 162 to 165/Bang/2010 manufacturing, supply, erection, testing and commissioning for retrofit of ESPs. Considering the issue in detail, the Hon'ble Bench was of the view that-
"2.5 Under the provisions of s. 194C of the IT Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract, shall at the time of credit of such sum or at the time of payment deduct tax at source at such percentage as is mentioned in s. 194C. The chart of payment of TDS by the appellant has already been set out above. The AO was of the view that the contract between the appellant and M/s BHEL was a composite contract and therefore the appellant ought to have deducted tax at source in respect of payments for supply of materials as well as the payments for execution of civil work, erection, designing and commissioning and also the freight and insurance. According to the appellant, the contract in question was a divisible contract, comprising of one part of the contract for supply of equipments and the other two parts of the contract for dismantling the existing machinery and for clearing the site and making the necessary infrastructure for installation of the machinery. According to the assessee, it is only in respect of the consideration attributable to the civil as well as erection, designing and commissioning, the appellant was under an obligation to deduct tax at source and not in respect of the supply of materials. The AO, however, referred to the decision of the Rajkot Bench of the Tribunal in the case of Essar Oil Ltd. vs. ITO (2001) 71 ITJ (Rajkot) 599 : (2001) 77 ITD 92 (Rajkot), wherein it was held that in the case of composite contract the deduction of tax at source has to be on the entire sum payable including the material and labour. The AO held that it was a composite contract where the supply of material was only incidental to the execution of contract and TDS ought to have been deducted on the gross payments made to the contractor Page 102 of 109 102 ITA Nos.112 to 115 & 162 to 165/Bang/2010 in pursuance of a composite contract. The AO, accordingly, worked out the tax short deducted and also levied interest on such short deduction of tax at source.
2.6 On appeal by the appellant, the CIT(A) confirmed the order of the AO. Hence, the present appeal by the appellant before the Tribunal.
3. We have heard the elaborated submissions of the learned counsel for the appellant and the learned Departmental Representative. We have already set out the important terms of the contract between the appellant and M/s BHEL. A bare perusal of the components of the consideration for the contract would clearly show that the primary or the dominant intention of the appellant was to purchase the material namely, two ESPs for its power plant at Panipat. Freight and insurance payable in respect of its supply and the cost of material constituted a major portion of the contract value. The cost of spares will also fall in this category. As rightly contended by the learned counsel for the appellant, before installing the plant, it was necessary to dismantle the existing plant and also to do the necessary civil work for erecting the new plant. This by itself would not mean that the contract in question was a composite contract for the erection and commissioning of the plant together with the materials required for such commissioning of the plant. As held by the Hon'ble Supreme Court in the case of State of Himachal Pradesh & Ors. vs. Associated Hotels of India Ltd. 29 STC 474 (SC), in the case of a composite contract, one has to find out the primary object of the transactions and the intention of the parties while entering into it. On the facts of this case, we find that the primary object of the appellant was to purchase the plant in question and the civil work, erection and commissioning was only incidental to purchase the material by the appellant. In other words, the contract for supply of the equipments and the contract for erection and commissioning of the plant are two Page 103 of 109 103 ITA Nos.112 to 115 & 162 to 165/Bang/2010 separable contracts, though there is only one common purchase order. We are, therefore, of the view that the Revenue authorities were not justified in considering the gross payments made by the appellant to BHEL for the purpose of determining the TDS by the appellant. We have also perused the decision of the Rajkot Bench of the Tribunal in the case of Essar Oil Ltd.(supra) We are of the view that the facts of the aforesaid case are clearly distinguishable from the facts of the present case. It was a case where the contract was for construction of a refinery and the contractor was to supply the material to be used for construction. In the present case, the supply of the power generator was an independent transaction and its erection was only ancillary or incidental to the purchase of the power generator. We are also of the view that in each case the terms of the contract need to be analyzed before coming to the conclusion whether it was a composite contract or not. As already stated, in the present case, the contract, insofar as it relates to supply of the material, freight insurance and supply of spare parts, is clearly separable from the other part of the contract relating to carrying out civil work, commissioning and erection of the power generators.
3.1. In view of the discussion above, we direct the AO to work out the short deduction of tax at source, if any, by excluding the payments towards supply of machinery, spare parts as well as freight and insurance."
3.2 In one of the grounds of appeal, the appellant has stated that the contractor, namely, M/s BHEL has already paid tax on the amounts paid by the appellant to it and, therefore, the appellant cannot be treated as an appellant-in-default in terms of s. 201 of the Act. In this connection, our attention was drawn to the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Rishikesh Apartments Co-operative Housing Society Ltd. (2001) 171 CTR (Guj) 288 : (2002)253 ITR 310 (Guj). We Page 104 of 109 104 ITA Nos.112 to 115 & 162 to 165/Bang/2010 have considered the submissions of the appellant and we are of the view that the documents on record do not establish the case pleaded by the appellant. We, however, deem it fit and proper to direct the AO to verify this aspect and in case it is found that the contractor has offered the sums received from the appellant to tax then in that event the appellant should not be proceeded against as an appellant in default under s. 201 of the Act, as laid down by the Hon'ble Gujarat High Court in the case of Rishikesh Apartments Co- operative Housing Society Ltd......"
With due regards, we are in agreement with the finding of the Hon'ble Bench (supra) and also of the firm view the ratio laid down by the Hon'ble Bench is directly on point which is under consideration.
11.1. We have also duly perused the finding of the Hon'ble Rajkot Tribunal in the case of Essar Oil Ltd. v. ITO reported in 77 ITD 92. The Hon'ble Delhi Bench in its finding cited supra had made a reference with regard to the finding of the Rajkot Bench on a similar issue and distinguished the same for the reasons recorded therein. We are in full agreement with the reasons recorded by the Delhi Bench. We are also of the similar view that the facts of the case before the Rajkot Bench were clearly distinguishable from the facts of the present case since it was a case where the contract was for construction of a refinery and the contractor was to supply the material to be used for construction. As the issue before us is relatively on a different footing, we are of the considered view - with due regards - the ratio laid down by the Hon'ble Rajkot Bench cannot be equated with the present case. As judiciously affirmed by the Hon'ble Page 105 of 109 105 ITA Nos.112 to 115 & 162 to 165/Bang/2010 Delhi Bench, in each case the terms of the contract need to be analyzed before coming to a conclusion whether it was a composite contract or not.
11.2. The Hon'ble Lucknow Bench in the case of Somani Iron & Steel (P) Ltd. v. ITO (2003) 86 ITD 750 (Luck-ITAT) had held that "in any case, on consideration of the entirety of the facts and circumstances and the composite character of agreements, dominant or predominant nature of contracts is found to be that of sale and not of work of contract."
11.3. We have also come across an occasion to peruse the finding of the Hon'ble Hyderabad Tribunal reported in (2002) 74 TTJ 531 (Hyd -
ITAT) wherein the issue before the Hon'ble Bench was, in brief, that the assessee-Andhra Pradesh State Road Transport Corporation - was a Corporation established under the State enactment. The assessee was in the business of providing transport services to the public in the State and for that purpose, it owned fleet of buses. It purchased chassis and after the purchase of chassis handed over the same to the fabricators for constructing the body-building upon the chassis. After analyzing the issue in detail, the Hon'ble Bench had observed thus -
"...... the inescapable conclusion is that the contract entered into by the appellant-corporation with its fabricators was a contract for purchase/sale of bus bodies and cannot be construed as a contract of work and labour simplicitor. The dominant object and intention between the parties was to construct and sell as purchase the bus bodies in terms of the requirements and specifications indicated by the appellant-corporation and deliver them duly fitted on the chassis supplied. Whole exercise involved resulted into purchase and sale Page 106 of 109 106 ITA Nos.112 to 115 & 162 to 165/Bang/2010 of bus bodies in fact. Merely because specifications are provided by the appellant-corporation to suit the bus bodies according to appellant's requirements, does not alter the basic crux and character of the contract, which in the instant case is nothing but the contract of sale and purchase. The materials involved in the construction of the bus bodies were to be procured by the fabricators and thereafter bus bodies were to be constructed and to be fitted on the chassis supplied by the appellant- corporation. At no point of time, appellant had any property or ownership in the material used in bus body building or in the bus body itself unless these were delivered to the appellant and approved by the appellant for final use. Property in the bus bodies was to pass on acceptance of bus bodies by the appellant. Purchase of any item which is constructed as per agreed specifications would involve labour and skill but these two elements by themselves alone are not enough to turn the transaction of sale into transaction of "work". Object and end result of the entire process through which that transaction passes shall be looked into. In the case before us, we are of the considered view in the backdrop of the object and end-result of the contract that it was a contract of sale ultimately and finally. ......"
11.4. With regard to the sweeping remark on the part of the Revenue to the effect that there was alleged collusion between the assessee - a State Government Public Sector Company - and the contractors for tax evasion, we are of the considered view that it tends to leave a bad taste in the mouth as no documentary proof was brought on record even to remotely suggest that there was a likelihood of such an alleged collusion between the parties concerned to defraud the Government by indulging in sordid affair of tax evasion etc. Page 107 of 109 107 ITA Nos.112 to 115 & 162 to 165/Bang/2010 11.5. The Hon'ble Bombay High Court in the case of CIT v. West Coast Paper Mills Limited in ITA No:389/2008 had candidly observed that when the other party is a statutory body, the question of evasion of tax does not arise.
11.6. In taking into account the facts and circumstances of the issues which have been meticulously analyzed and also extensively quoting the various judicial pronouncements on the issues in the fore-going paragraphs, we are of the considered view that the authorities below were not justified in treating the assessee - KPTCL - as an 'assessee in default' u/s 201(1) and also charging interest u/s 201(1A) of the Act for the following reasons:
o the assessee cannot be categorized as an 'assessee in default' when there was no obligation on the part of the assessee to deduct tax u/s 194C of the Act for supply portion;
o amendment of s. 194C through Finance Act(No.2) of 2009, clarify deduction doesn't extend to supply of materials (portion);
o the materials in question were purchased from the suppliers by the assessee and given to the contractor(s) for carrying out the work of civil, erection, etc., o the contract between the assessee and the contractor was a 'contract for supply' and NOT for 'contract of work' and the Revenue had consistently refused to see the reason and to recognize the distinct meaning - SUPPLY and WORK;
o it was wrongly visualized that the equipments, materials component parts were fabricated at work site premises; o it was wrongly presumed that the contracts entered into between the assessee and the contractor were composite contract and an indivisible contract whereas there were Page 108 of 109 108 ITA Nos.112 to 115 & 162 to 165/Bang/2010 three separate contracts, viz., (i) supply of materials; (ii) for erection & (iii) for civil work portion; o Instruction to Bidders (Section -II -ITB) under clause
14. Taxes and duties [source P 123 of PB - AR] it has been made implicitly clear that -
"14.1. As indicated in clause 35.2 of section ITB of the Bid Document, in case of Award of contract, a Divisible Contract covering the entire scope of the partial/total turnkey package will be entered into with the successful bidder, there shall be three separate contracts as under:
(i) For supply of goods
(ii) For erection works
(iii) For Civil Engineering works
Thus, tender clearly gives breaks-up of separate agreements reflecting separate consideration;
o through a single bidding process, all the contracts were awarded distinctly which do not mean that they were composite contract;
o The Hon'ble Apex Court in the case of Hindustan Coca Cola Beverages P. Ltd. v. CIT reported in 293 ITR 226(SC) had ruled that "It is not disputed that the circular no. 275/201/95-IT(B) dated January 29, 1997 issued by the Central Board of Direct Taxes declaring that "no demand visualized under section 201(1) of the Income- tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee- assessee";
o When there was no obligation on the part of the assessee to deduct tax on supply portion, there was no question of charging interest u/s 201(1A) of the Act; o We have also duly perused the case laws on which the Ld. CIT (A) had placed strong reliance. However, we are of Page 109 of 109 109 ITA Nos.112 to 115 & 162 to 165/Bang/2010 the considered view that those decisions were clearly distinguishable to the facts and circumstances of the issues under consideration.
11.7. In a nut-shell -
(i) when the assessee was under no obligation to deduct tax u/s 194C of the Act towards the payments made on supply portion, the assessee's case doesn't fall within the ambit of the provisions of s.201(1) of the Act and, thus, the assessee cannot be treated as an 'assessee in default'; and
(ii) that when the assessee was not required to deduct tax towards the payment on supply portion, there was no question whatsoever in charging interest u/s 201(1A) of the Act.
It is ordered accordingly.
12. In the result, the assessee's appeals for the assessment years 2006-07, 2007.08, 2008-09 and 2009-2010 [u/s 201 (1) and u/s 201(1A) of the Act] are allowed.
The order pronounced on 10th day of March, 2011 at Bangalore.
Sd/- Sd/-
(A MOHAN ALANKAMONY) (GEORGE GEORGE K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Copy to :- 1.The Assessee 2. The Revenue 3. The CIT(A) concerned.
4. The CIT concerned. 5. The DR 6. GF Encls : Three Photos are Enclosed as Annexure 'A' By Order MSP/28.2. Assistant Registrar, ITAT, Bangalore.