TMI Blog2005 (3) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 681 issued on 8th March, 1994, has clarified that where the contractor undertakes to supply any article or thing fabricated according to the specifications, the property in such article or thing passes to the purchaser only after such article or thing is delivered and the contract thus being for sale of such article or thing, would be outside the purview of s. 194C. As such, considering all the facts and circumstances of the case and keeping in view the aforesaid decision of the Tribunal in the case of Wadilal Dairy International Ltd.[ 2000 (11) TMI 312 - ITAT PUNE] as well as Circular No. 681, dt.8th March, 1994, issued by the CBDT, we hold that the learned CIT(A) was right in holding that the provisions of s. 194C were not applicable in respect of payments made by the assessee to the suppliers of packing material requiring any deduction of tax. Thus, we uphold his impugned order on this issue and dismiss ground No. 1 of the Revenue s appeal. Failure of the assessee to deduct tax at source - It was a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by s. 194J requiring the assessee to ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the assessee. Even the action of learned CIT(A) in attributing 50 per cent of the salary reimbursed by the assessee-company to its employees towards personal use was fair and reasonable in the facts and circumstances of the case, and there is nothing on record to justify any interference with the same. Thus, we find no infirmity in the impugned order of learned CIT(A) on this issue and upholding the same, we dismiss the relevant grounds of the Revenue s appeal as well as that of assessee s cross-objections. Maintenance and hire charges of AC as well as repairs and renewals towards the leased accommodation - In the present case, the AC provided in the accommodation of managing director was taken on hire by the assessee-company from a third party and, therefore, actual hire charges paid/payable for the said AC was liable to be included in the value of perquisite provided to the managing director on account of rent-free accommodation as rightly done by the AO and confirmed by learned CIT(A). Similarly, furniture and other incidental items were provided in the accommodation given by the assessee-company to its managing director costing Rs. 25,28,410 and value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conducted on 2nd Feb., 2000, at the premises of the assessee during the course of which assessee was found to have procured printed packing material involving cartons, labels, inserts, rolls, corrugated boxes, p.p. caps, self-adhesive company stickers, leaflets and aluminium foils manufactured by different parties as per the purchase orders placed with them giving its specific requirement. According to the AO, the said procurement was in pursuance of material contracts entered into with the concerned suppliers and relying on the decision of Hon ble Supreme Court in the case of Associated Cements Co. Ltd. vs. CIT (1993) 111 CTR (SC) 165 : (1993) 201 ITR 435 (SC) and the subsequent Circular No. 681, dt.8th March, 1994, issued by the CBDT, he held that tax @ 2 per cent was required to be deducted from the payments made to the said suppliers as per s. 194C. Since no such deduction was made by the assessee-company, he treated the assessee-company as in default for the same after quantifying the amount of such short deduction at Rs. 78,351 for financial year 1998-99. Interest under s. 201(1A) amounting to Rs. 22,505 was also charged from the assessee. The matter was carried before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame are delivered to the assessee. No raw material or any part is supplied by the assessee to the manufacturer. The goods are delivered in a readymade form by the vendors to the assessee. Purchase orders are placed by the assessee from these suppliers for supply of packing material based on its own specification. If the supplied packing material is not as per the specifications, the same are rejected. The Board vide its Circular No. 681, dt.8th March, 1994, has clarified that the provisions of s. 194C are not applicable with regard to contract for sale of goods. In the assessee s case, admittedly, there is no supply of material by the assessee to the vendor which has been converted into boxes, labels, etc., and after being printed, has been supplied to the assessee. Thus, I am in agreement with the Authorised Representative that the transaction is a transaction of sale of goods and not a contract for work. The fact that sales-tax as well as excise duty is also paid further substantiates the above finding. The main purpose of buying the packing material is to obtain the goods for the purposes of packing and the fact that some printing, etc. was also required to be done by the suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the issue under consideration was clearly misplaced. He also contended that the decision of Pune Bench of Tribunal in the case of Wadilal Dairy International Ltd. is squarely applicable to the facts of the present case since it was held therein that purchase of packing material by the assessee for its products from various manufacturers did not involve any works contract even if the same was manufactured according to the assessee s specifications and even some printing was also done on the said material by the manufacturers as per the specification of the assessee. He, therefore, strongly supported the impugned order of learned CIT(A) on this issue and urged that the same may be upheld. 6. We have considered the rival submissions and also perused the relevant material on record. It is observed that various packing materials were procured by the assessee-company during the year under consideration from several manufacturers who were regularly manufacturing such material. It is also observed that even though the said packing material was manufactured by the concerned suppliers as per the specifications given by the assessee-company and even some printing was also done as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned counsel for the assessee is directly applicable to the facts of the case wherein, in the similar facts and circumstances, it was held by the Tribunal that purchase of packing material by the assessee for its products from various manufacturers which was manufactured according to the assessee s specifications did not involve any work contract, even if some printing was also done on the said material by the manufacturers as per the requirement of the assessee, the provisions of s. 194C thus were not applicable. As such, considering all the facts and circumstances of the case and keeping in view the aforesaid decision of the Tribunal in the case of Wadilal Dairy International Ltd. as well as Circular No. 681, dt.8th March, 1994, issued by the CBDT, we hold that the learned CIT(A) was right in holding that the provisions of s. 194C were not applicable in respect of payments made by the assessee to the suppliers of packing material requiring any deduction of tax. In that view of the matter, we uphold his impugned order on this issue and dismiss ground No. 1 of the Revenue s appeal. 8. The second issue which is raised in ground No. 2 of the Revenue s appeal relates to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther amount which is not in the nature of fee paid by the assessee. Reliance was placed on behalf of the assessee-company to the Board s Circular No. 714, dt.3rd Aug., 1995, wherein it was clarified in paragraph No. 2 that deduction of tax at source under s. 194J @ 5 per cent of the sum as income-tax has to be only on the income comprised of such sum. It was submitted that the reliance by the AO on reply to question No. 30 as per Circular No. 715, dt.8th Aug., 1995, was misplaced since the said clarification applies only if there is a composite bill which does not differentiate between the reimbursement and other sum. It was pointed out that in the case of the assessee, there was no composite bill but separate bills had been raised for fee for technical services and reimbursement of actual expenses. It was, therefore, contended on behalf of the assessee that there being no income included in the amount of reimbursement which was on the basis of actual expenses incurred by the consultant on petrol and maintenance of the car, the same cannot be subject to TDS as part of gross bill under s. 194J. Convinced by the submissions made on behalf of the assessee-company, the learned CIT(A) f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of learned CIT(A) on this issue. He submitted that as per the consultancy agreement entered into by the assessee-company with M/s Indochem Techno Consultants Ltd., separate bills for expenses actually incurred by the said consultant were raised on the assessee and since no element of profit was involved in the said bills, reimbursement of the same was not covered under s. 194J. He also submitted that tax on its income for all the years under consideration having been already paid by M/s Indochem Techno Consultants Ltd., the assessee could not be held liable for short deduction of tax, if any, as rightly held by the learned CIT(A). 12. After considering the rival submissions and perusing the relevant material on record, we find no infirmity in the impugned order of learned CIT(A) on this issue. It is observed that as agreed by and between the assessee-company and M/s Indochem Techno Consultants Ltd., a vehicle was to be provided by the assessee-company to the said consultant for attending to its work and thus, the assessee-company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisite was to be considered as rent-free accommodation provided to an employee by the employer and as per r. 3(iii) of the IT Rules r/w Circular No. 374, dt.14th Dec., 1983, he worked out its value at Rs. 7,01,685 on account of room rent paid by the assessee-company. The balance amount paid by the company amounting to Rs. 3,47,216 on account of other expenses was also treated by him as a perquisite as per s. 17(2) of the Act. The amount of additional perquisite thus was determined by him at Rs. 9,74,504 and a tax @ 30 per cent amounting to Rs. 2,92,351 was held to be recoverable from the assessee-company being short deducted at source along with the interest of Rs. 54,623 under s. 201(1A). Before the learned CIT(A), it was submitted on behalf of the assessee-company that in terms of the employment agreement, it was to provide accommodation to the managing director and not being able to arrange a suitable accommodation immediately, he was temporarily lodged in a hotel for a short period of two-and-half months till it could arrange a suitable accommodation for him. It was thus contended that lodging the managing director in the hotel was a necessity in the absence of a suitable acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excessive. In my view, 25 per cent of the balance payment of Rs. 3,47,216 can be reasonably estimated towards personal expenses and be added as perquisite of the employee. The amount of short deduction of tax and interest thereon under ss. 201(1) and 201(1A) may be suitably modified by the AO." 15. The learned Departmental Representative relied on the order of the AO in support of the Revenue s case on this issue and specifically invited our attention to pp. 4 and 5 of the AO s order to point out the reasons given by the AO in justification of his action on this issue. 16. The learned counsel for the assessee, on the other hand, submitted that arrangement of stay for its managing director was made by the assessee-company in a hotel for temporary period till he was provided with a suitable accommodation and since this facility provided to him was in the nature of residential accommodation provided by the assessee-company to him, its perquisite value @ 20 per cent of the salary of the managing director during the period of his stay in the hotel was determined as per r. 3(iii) of the IT Rules r/w Circular No. 374, dt.14th Dec., 1983. He submitted that the amount of actual expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be ascertained as provided in specific r. 3(iii) of IT Rules r/w Circular No. 374, dt.14th Dec., 1983. A similar view has also been expressed by the Bombay Bench of Tribunal in the case of R.V. Graafeillan cited by the learned counsel for the assessee involving similar facts and circumstances wherein it was held that where employee was made to stay in a five star hotel till suitable accommodation could be provided by the employer as per the terms of employment, entire hotel expenses would not form value of perquisites. Moreover, the perquisite value of the arrangement made for stay of its managing director in a hotel was determined by the assessee-company in accordance with r. 3(iii) r/w Circular No. 374, issued by CBDT on 14th Dec., 1983, taking into consideration that the arrangement for stay in hotel was akin to providing a rent-free accommodation to the managing director and since such valuation made by the assessee was fair and honest and was also based on bona fide working made for the purpose of deduction of tax at source, the requirements under s. 192 were duly complied by the assessee-company as held by Delhi Bench of Tribunal in the case of Dy. CIT vs. HCL Infosystems Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or car but the actual running and maintenance charges (including remuneration of the chauffer) are met or reimbursed to him by the employer, the value of the perquisite to the employee has to be determined as an amount which can reasonably be attributed to the user of the car by the employee for his personal purposes. Accordingly, he held that 50 per cent of the amount reimbursed could reasonably be attributed towards the personal user of the employees in the case of the assessee and directed the AO to recompute the perquisite value in the hands of the employees accordingly. 21. The learned Departmental Representative relied on the order of the AO in support of the Revenue s case on this issue, whereas the learned counsel for the assessee submitted that the drivers were provided to the concerned employees by the assessee-company as per the terms of employment and the value of perquisites on account of drivers salary was liable to be determined as per r. 3(iii)(c)(ii). He submitted that the said drivers were not directly employed by the assessee-company just to avoid various obligations under different labour laws and merely because the same were shown to be in employment of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the managing director. Accordingly, he worked out short deduction of tax to the extent of Rs. 1,32,642 and held the assessee to be in default on this count under s. 201(1) along with interest of Rs. 32,828 payable thereon under s. 201(1A). Before the learned CIT(A), it was submitted on behalf of the assessee-company that the expenditure incurred on maintenance and hire charges of AC as well as on account of repairs and maintenance to the residential accommodation of the assessee could not be treated as perquisite liable to be included in the salary of the managing director. It was also submitted that the said residential accommodation was occupied by its director only for a period of five months, i.e., from July, 1998 to November, 1998, and the entire amount incurred on repairs and renewals having been recovered by the assessee-company from the subsequent occupant, there was no case to treat the same as perquisite to the extent of 10 per cent provided to its managing director. The learned CIT(A) found no merits in the contention raised on behalf of the assessee-company and considering that the expenditure in question incurred by the assessee on account of repairs and maintenance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the subsequent occupant. Keeping in view these specific provisions contained in r. 3(a)(iii), we hold that the valuation of perquisite on account of providing AC and other furniture in the rent-free accommodation of managing director to the extent sustained by the learned CIT(A) was in accordance with law, especially the relevant Rules framed thereunder and there being no infirmity in his impugned order on this issue, we find no justifiable reason to interfere with the same. The same is, therefore, upheld, dismissing ground No. 2 of the assessee s cross-objection for financial year 1998-99 being C.O. No. 268/Del/2004. 26. The next issue which is raised by the Revenue in all its appeals relates to the levy of interest under s. 201(1A) for all the years under consideration. 27. After considering the rival submissions and perusing the relevant material on record, it is observed that the learned CIT(A) has directed the AO vide his impugned order to allow consequential relief to the assessee in respect of levy of interest under s. 201(1A) holding that charging of interest under s. 201(1A) is consequential inasmuch as it was to be charged on the amount of tax finally determined as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
