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2006 (7) TMI 262 - AT - Income TaxTDS - Applicability of section 194C - payments made to contractors who were given separate contracts for supply as well as for erection - activity of transmission and power distribution of electricity - whether the contracts in question are contracts of sale or they are work contracts - HELD THAT:- 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 this connection we may refer to the decision in the case of Walchandnagar Industries [1984 (11) TMI 304 - BOMBAY HIGH COURT] in which the Hon'ble High Court referred to the judgment of the Hon'ble Supreme Court in the case of Gannon Dunkerley & Co.[1958 (4) TMI 42 - SUPREME COURT] 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." 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 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. In the result, the appeal of the assessee is allowed.
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