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2023 (11) TMI 948 - ALLAHABAD HIGH COURTShort deduction of TDS - TDS u/s 194C OR 194J - testing and commissioning of technical works - primary/dominant object of the contract - To set up that thermal power plant, the assessee entered into two sets of contracts - admissibility of divide an otherwise indivisible/composite contracts executed by the assessee with the BHEL and CIPL - principle of indivisibility of a composite contract - contracts for the works done under the head of “services of Transportation, Insurance, Erection, Installation, Testing and Commissioning of BTG”, awarded to BHEL and also the work done under the head of “Erection, Installation and Commissioning of BOP”, awarded to CIPL - HELD THAT:- Essence the contract involved in the present case and that involved in the case of The Senior Manager (Finance), Bharat Heavy Electricals Ltd., Jhajjar [2016 (12) TMI 955 - PUNJAB AND HARYANA HIGH COURT] were similar-to set up a thermal power plant. In both cases, the dispute arose upon a survey. That inconsequential similarity apart, it is undisputed that in both cases, the element of testing and commissioning of technical works etc. were part of the main contract-to set up a thermal power plant including therein the work of Transportation, Insurance, Erection, Installation, Testing and Commissioning of BTG and also Commissioning of BOP. As decided in The Senior Manager (Finance), Bharat Heavy Electricals Ltd., Jhajjar (supra) the contract entered into between the respondent and each of the contractors, therefore, did not involve the supply of professional or technical services at least within the meaning of section 194J. The consideration paid under the contracts, therefore, was hot for the professional or technical services rendered by the contractors to the respondent. Section 194J is, therefore, not applicable to the present case. In view of our finding that the contract does not fall within section 194J, the dismissal of the appeal would follow in any event. The respondent has not denied that the present case falls under section 194C. Had the respondent contended that section 194C is also not applicable, it would have been necessary to consider whether the contract falls within the ambit of section 194C. Thus work of testing etc. had to be performed by the contractor not by way of independent work awarded to it but by way of execution of the whole contract that was to set up a thermal power plant. Thus, Punjab and Haryana High Court has principally reasoned that the primary/dominant object of the contract would govern or subsume the other object/clause therein. In absence of any internal tool shown to exist (in the contract), we are unable to reach an inference that the contracting parties i.e. assessee on one hand and BHEL and CIPL on the other, had intended to treat the work of Testing and Commissioning, separate/independent of the contract to set up BTG and BOP by those contracting parties. Further, in absence of any enabling law, it never became open to the taxing authorities to overlook the dominant object of the contract and reach to a conclusion, because part of the contract involved Testing, Commissioning etc., necessarily, there would exist component of “fees for technical services”, by necessary implication. Then in Bangalore Metro Rail Corporation Ltd [2022 (7) TMI 336 - KARNATAKA HIGH COURT] has further reasoned that an indivisible/composite contract may not be bifurcated to cull out any indivisible component of such contract, to make a higher deduction of tax at source. Thus, that Court applied the principle of indivisibility of a composite contract. It may not be bifurcated to subject a part of the contract to higher TDS. Thus, that Court applied the principle of indivisibility of a contract, that may not be artificially dissected at the hands of a taxing authority, to the prejudice of the assessee. On plain reading, the contracts executed by the assessee with BHEL and CIPL were indivisible contracts for BTG and BOP, respectively. The taxing authorities exist to apply the taxing statute to the proven facts of a case. Such facts are not for the taxing authority to imagine or presume or assume. Therefore, the burden existed on the revenue authorities to establish that they were enabled in law and also that the proven facts of the case permitted them divide an otherwise indivisible/composite contracts executed by the assessee with the BHEL and CIPL. Unless that exercise had been carried out by the assessing authority, no presumption was available in law. Decided in favour of assessee.
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