TMI Blog2002 (6) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... n the body of this order. It may be pointed out that the assessee has taken eight similar grounds in all the three appeals, out of which ground No.8 is additional ground. The application of the assessee for admitting the additional ground (ground No.8) was considered and decided by us vide our order dated 7-1-2002. The detailed order for rejecting the prayer of the assessee has also been noted on the order sheet dated 7-1-2002. Thus, only seven grounds are to be adjudicated in each of these appeals. 4. Shri S.K. Garg, FCA appeared on behalf of the assessee and made detailed submissions. On behalf of the Department, Shri D.K. Shrivastava, ld. Sr. DR (CIT-ITAT), appeared and made oral as well as written submissions. It may be pointed out that the assessee had filed a paper book containing 372 pages. The assessee had also filed a brief synopsis of the case running into seven pages. This synopsis was submitted on 3-9-200l. In reply to the written submission of the assessee, the Department has also filed written submission dated 14-1-2002. These written submissions have been taken on record and are being considered, while adjudicating the issues involved in these three appeals. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of contracts fall within the meaning of section 194C of the Act and, therefore, the liability of the assessee to deduct the income tax at source was there. The Assessing Officer further held that the assessee had defaulted with respect to the compliance of the provisions contained under section 194C and under section 201 of the Act and is, therefore, liable for income tax deduction at source as well as interest leviable on the amount of income tax deduction. He, thus, held that the assessee was liable for payment of income tax deduction at source and interest totalling to Rs. 8,18,274 (sic.) in assessment year 1993-94 to a sum of Rs. 2,67,865 (sic.) in assessment year 1994-95 and to sum of Rs. 98,251 in assessment year 1995-96. (d) The assessee challenged the orders of Assessing Officer passed under section 201(1)/201(1A) of the Act for all the three years before the Commissioner (Appeals). The submission of the assessee was that the contracts entered into by the assessee with M/s. GEC India Limited, were not for services, but were contracts for supply of material and, therefore, were covered by the Sale of Goods Act and the assessee had also paid excise duty and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier is also to give details of necessary inputs in the form of lubricants, flushing oils, hydraulic fluids, chemicals etc. required during the start up, commissioning, initial filling and yearly requirement for normal operation. 17. In the body of order I have repeatedly used the expression "setting up of the project on turnkey basis". The turnkey basis, as stated above is supply of things which are ready to use. In other words, M/s GEC India has set up these three projects, carried out the cold run, performed all the functions as mentioned in para 16 above. Another feature is detailed drawings and engineering documents have also to be given to appellant. Therefore, it is clear that M/s GEC India Ltd. has performed one single service i.e. setting up of project on turnkey basis. This would certainly include some material also. The entire payment has been made by the appellant is for all the services alongwith machinery, drawing, designs, technical data which have not been split up. Even the layout plan has been designed by M/s GEC India personnel and bills have also been raised by M/s GEC India Ltd. and separate payment of Rs. 70 lakhs has been made by the appellant. 18. I have, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment, which was distinct from 'Work Contract'. (C) The contracts provided terms and conditions with regard to satisfactory performance of the equipment and bills raised by the supplier of the equipment related to supply of commodity as manufactured by the supplier. (D) That the contracts in question were basically for supply of goods covered under the Sale of Goods Act and the provisions of section 194C were not applicable to such contract. (E) That the mere fact that the supplier of the equipment was also required to render technical and technological assistance was responsible for conducting trial runs in commissioning of the plant cannot be a ground to attract provisions of section 194C. (F) That the ld. Commissioner (Appeals) has not considered the aspect that labour inputs as were required in setting up the sub-station by using the equipment and technology supplied by M/s GEC India, were provided by the assessee at its own cost. (G) That the consideration, that the arrangements made by the supplier was in the nature of turnkey project was wholly irrelevant. 6(II). In the synopsis submitted by the assessee, these arguments have been elaborated and in support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bros. Ltd. v. ITO [1999] 237 ITR 630 (Ker.) (12) CBDTv. Cochin Goods Transport Association [1999] 236 ITR 993 (Ker.) (13) Akonkar Dashmesh Transport Co. v. CBDT [1996] 219 ITR 511 (Punj. Har.) (14) Hindustan Shipyard Ltd. v. State of AP. Judgment (2000) (SC) 29 (15) Vadilal Dairy International Ltd. v. Asstt. CIT [I.T. Appeal Nos. 642 . and 643 (Pune) of 1999 dated 13-11-2000] 7. The stand of the Department is that the contact was for carrying out the work on 'turnkey' basis and, therefore, the provisions of section 194C are dearly attracted. 7(I). In support of this stand, the Department has assigned following reasons: (A) That the agreements were basically for setting up of 220 KVA sub-station in the factory premises of the assessee. Thus, the contractor was asked to carry out the entire work on turnkey job basis. (B) That the assessee had himself stated before the Allahabad High Court in the affidavit of its Chairman that the job was to be done by the GEC India Limited on turnkey project basis. (C) That through second agreement dated 22-9-1992, the assessee engaged the contractor for installation of 220/33KV Electric substation, for design, fabrication, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whether the work done by GEC India Ltd. was on the basis of Turnkey project system? Issue No.1 9. So far as the scope of section 194C and definition of 'carrying out any work' is concerned, the issue has been considered by the Hon'ble High Courts and by the Hon'ble Apex Court in several decisions, particularly, on the point as to whether provisions of section 194C cover the activities and services rendered by the consultants and professional. In this regard, the C.B.D.T. had also issued circulars, particularly, Circular No. 86 dated 29-5-1972, Circular Nos. 93 and 108 dated 26-9-1972, circular dated 8-3-1994 and other circular letters. The ambiguity arose on account of interpretation of the decision of Hon'ble Supreme Court of India in the case of Associated Cement Co. Ltd. The C.B.D.T. on the understanding of the said decision found that the provision of section 194C were applicable to all types of contracts for carrying out 'any work'. Such as transport contracts, service contract, the labour contracts, material contracts as well as works contract etc. The C.B.D.T., thus, issued circular dated 8-3-1994, on the basis of said judgment of Hon'ble Supreme Court of India and poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 681 dated 8-3-1994, CBDT had missed the real purport of the decision of Hon'ble Supreme Court of India in the case of Associated Cement Co. Ltd. It was also held that section 194C of the Act does not govern the deduction of tax at source from payments of fee towards professional or technical services on the interpretation of term 'any work'. The Hon'ble Court made the following observations :- . The term "any work" in section 194C is aimed at the type of work resulting in tangible material and by virtue of the special inclusion, supply of labour to carry out any work also is brought into the net of tax deduction at the source. This inclusive clause ropes in the consideration for the supply of labour. The word "supply" connotes the meaning of "procuring", "securing" or "bringing in", and not rendering of one's own professional or technical services. To the extent that the circulars govern payments to commission agents and brokers for the services rendered by them, they travel beyond the provisions of section 194C and have no legal force and the authorities functioning under the Act are not bound by them." (v) The issue was also considered by Hon'ble Gujarat High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n' in section 194C, not as a 'verb'. The Hon'ble Court also made following observations while interpreting the term 'work' :- "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. The fact that two meanings are possible to be given to a word means that there is an ambiguity in the word itself. Even assuming that the decision of the Supreme Court is not restricted to the facts of the case before it, it is clear that without the word "any work" being defined, the applicability of section 194C to a given situation cannot be determined. The Supreme Court had observed that "any work" means any work. This does not take the matter any further. The Supreme Court has not gone on to, clarify or explain or define the sense in which the word was being used by the Supreme Court. That the word "work" does not have the widest possible connotation is also clear from the fact that Parliament had sought to bring professional services and other such "works" in the wider sense within the net of tax deduction at source. If such "work" were already covered by section 194C it was wholly unnecessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court also considered the scope of term 'any work' appearing in section 194C of the Act and after considering the dictionary meaning of term 'work' and also other decisions, the Hon'ble Court observed as under :- "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 been comprehended in the word "work". Section 194C(1) refers to carrying out of any work. If the sub-section (1) is read as a whole then it could be interpreted that it is the work of labour which is done by the contractor or he may supply the labour to do the work as a sub-contractor. Subsection (2) of section 194C also refers to the contract for carrying out the work undertaken by the contractor or for supplying wholly or partly any labour which the contractor has undertaken to supply." (ix) In the case of Rajasthan Tax Consultants Association, the Hon'ble Rajasthan High Court, following the decision of Delhi High Court in the case of High Court Bar Association v. CBDT [1995] 81 Taxman 324, and the decision of Hon'ble Madras Bar Association held that the expression 'any work' which was considered by the Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out any work". One of the two possible interpretations of a taxing statute, which favours the assessee and which has been acted upon and accepted by the revenue for a long period should not be disturbed except for compelling reasons. There can be no doubt that if the only view of section 194C had been the one reflected in the impugned circular, then the issue of earlier circulars and acceptance and acting thereupon by the revenue reflecting the contrary view would have been of no consequence. That, however, is not the position. Further, there are no compelling reasons to hold that Explanation III inserted in section 194C with effect from July 1, 1995, is clarificatory or retrospective in operation. We hold that section 194C before insertion of Explanation III is not applicable to transport contracts, i.e., contracts for carriage of goods: 11.2 It may be pointed out that so far as the professional services are concerned by amendment inserted under section 194J, which became effective from 1-7-1995 fee for professional and technical services is also covered within the ambit of section 194C for deduction of tax at source. However, as held by the Hon'ble Court while interpreting Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de variety of responsibilities including duties to provide for the design, engineering, procurement, supply, installation, commissioning, performance test etc. and to train and maintain staff and to render the services connected therewith. In this regard, further argument of the Department is that the agreements should be considered as a whole and in their entirety and if viewed from this angle, it will be obvious that these contracts were neither for supply of goods nor for services such. Rather, they were for carrying out the "work" within the meaning of section 194C of the Income-tax Act, 1961. 17. After taking into account, the rival stands of the parties before us and their respective contentions to support such stands arid after considering the entire material on record including the agreements referred to above, we are of the view that agreements/contracts entered into between assessee company and M/s. GEC India Ltd. were, in substance, and in form, the agreements for supply of goods and not the agreements for carrying on work or work of contract. We assign the following reasons in support of this finding. 18. At the outset, it may be pointed out that to determine the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 21. In the context of above criterion, we proceed to examine the nature of the contracts executed by the parties, which are relevant in these appeals. (i) The first contract is dated 19-5-1992 available at pages 90 to 173 of the paper book. Some of the salient provisions and features, which support our finding recorded above are as under: "(i) In the contract, the assessee is referred to as purchaser and the GEC India Limited is referred and defined as supplier. The main clause of the contract is as under :- "A. Supplier has offered and the Purchaser has entrusted to the 'Supplier', the work covering the design, detailed engineering, manufacture, procurement, supply and demonstration or performance guarantees of the equipment as defined in the Contract." Not is hereby agreed and declared by and between the purchaser and the seller as follows :-" 22. In para 1.4, scope of supply has been defined to mean the equipments and spares to be provided by the suppliers u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Contract Price is based on concessional D.P. Sales Tax on supply of 'Kha' Forms by the purchaser for Transformers to be supplied from D.P. Any statutory increases or decrease in the same shall be to the Buyers' account. In case the 'Kha' Form is not given the actual sales tax paid by supplier shall be reimbursed by Purchaser." 24. In Articles 6.1 to 6.4, duties of suppliers and purchasers have been laid down. In Article 7(ii)(b), it has been laid down that supplier's representative shall accompany the carriers bringing the equipments to the purchaser's site. 25. Regarding delivery schedule, provision has been made in Article 8. In article 9 with the contract, the warranty period has been laid down. It may be pointed out that the warranty clauses are similar to warranty clauses to sale of goods. For example, in clause 9.2, the following condition is laid down :- "9.2 Supplier Warrants that the Equipment supplied are free from defects for a period of 12 months after commissioning (final acceptance) or 18 months from the date of receipt and acceptance of last major consignment at site whichever is earlier." 26. Regarding defective supply, enough care has been taken by layi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be free to take back such spares. However, the Purchaser shall have the option to purchase such spares at a reasonable list price: 28. In accordance with the Article 16.4, supplier undertook that supplies of necessary maintenance spares shall be made available by him to the purchaser. 29. In para 16.5, the following stipulation has been made regarding supply of spare parts :- "16.5 All spare parts shall be properly documented and identified and full details such as technical specification/datalogues detailed description, unpriced purchase order copies etc. shall be furnished to enable the Purchaser to procure the same directly from the sub-suppliers, if the purchaser so desires." 30. Articles 21 and 22 relate to supply of instructions manual and progress report etc. 31. The details of equipments to be supplied have been specifically given in Annexure 'A', which carries following captions: "Scope of supply for electric arc furnace (Hydraulic Regulations)." 32. Likewise, details of other electrical equipments have also been given in the Annexure to the above mentioned agreement. A perusal of these details indicate that each item or equipment has been mentioned with min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills and vouchers, which are available at pages 242 to 368. In these bills, the price of various items has been given. 41. The assessee has also filed the bill dated 31-5-1993, which is for a sum of Rs. 50 lakhs and which relates to various accessories in setting up of the purchase. Photocopies of these bills have been filed in the paper book. Invoice dated 31-3-1995 shows the total net sales at Rs. 5,10,578. The details of accessories supplied are mentioned in this bill. Likewise, in the other bills dated 31-8-1995, 4-9-1995, 31-7-1995, 31-8-1996 etc., the details of items and prices thereof have been mentioned. 42. After examining the various clauses and stipulations of the agreements mentioned above and also bills of payment and payments actually made, we are led towards irresistible conclusion that the agreements entered into between the assessee and GEC India Ltd. were agreements for sale or supply of goods and were not merely work contracts. 43. The issue relating to the nature of contract regarding manufacture and supply of ships came for consideration before the Hon'ble Supreme Court of India in the case of Hindustan Shipyard Ltd. 44. In that case, the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement for sale. 48. The submission of ld. Sr. DR was that decision in the case of Hindustan Shipyard Ltd. was in different context and the definition of sale as appearing in section 2(n) and 1 of Andhra Pradesh General Sales Tax Act, 1957 was involved. We are unable to agree with this submission because in that case, the nature of work contract and contract for sale was examined and the Hon'ble Supreme Court of India had laid down the principles on these supplies. Hence the ratio of that case is fully applicable to the present matter. 49. So far as the decision of Tribunal in Vadilal Diary International Ltd.'s case is concerned, we are unable to agree with the contention of Shri D.K. Srivastava that this decision is not applicable. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court of India held that material procured or purchased by the company against 90 per cent billed, of which advance was taken from the Railways, did not before their use in the construction of the wagons pass to the Railways. It was held that the wagons were sold for a price and the contract was a contract for the sale of wagon and not a work contract. 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. 53. This issue is, therefore, decided in favour of the assessee. 54. Ground Nos. 3, 4 5 are decided in favour of the assessee. Issue No.3 Ground No.6. 55. Through this ground, it is pleaded that ld. Commissioner (Appeals) has not considered the relevant material submitted before him and therefore he has not correctly appreciated the nature of agreements. 56. At the time of hearing, the learned counsel for the assessee pointed out that in the installation of the equipments, the civil work and labour included were provided by the assessee itself at its own cost. In this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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