TMI Blog2009 (5) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... urce under section 194C on the payments made to replicators/manufacturers of cassettes, VCDs, DVDs, etc. amounting to Rs. 4,56,77,200; expenses towards packing material of Rs. 93,00,124 and design expenses of Rs. 61,54,072 in the previous year relevant to the year in question. Statement of Shri Atul Maroo, Joint Managing Director of the assessee-company, was recorded on 30-11-2005. In response to question No. 3 he stated that no tax was deducted under section 194C as there were professional/technical services rendered by the manufacturers of VCDs/DVDs. The fact pattern of the business of the assessee has been noted in the impugned order as under: "-A film producer of a Hindi film would be holding copyright to the film produced by him. Without his consent the film cannot be commercially exhibited by any one; no one can possess multiple copies for commercial views unless authorized by the copyright holder. -The appellant would approach the film producer and acquire the authority to possess multiple copies and to sell them as part of his business. -The film producer will deliver a master copy - a kind to sample of product from which multiple copies can be obtained. The film sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and required plant and machinery (including maintenance thereof) will always belong to the entrepreneur. -The appellant is not concerned with inventory or plant management of the entrepreneur. -Once the goods are produced like any other goods, the same are delivered to the appellant. The product delivered to the appellant is called VCD/DVD. It carries the image of the film. The product is resold by the appellant in the same form in which it is purchased. -There is an invoice at the time of sale of goods. It carries sales tax levy, excise is exempted in respect or product. Once the appellant has purchased the product after payment of sales tax, for the appellant, any subsequent delivery is a resale. -The appellant enjoys about 60 days credit for the payment. The appellant is under no obligation to make payment until he has been delivered the stock. -The risk in the property of the goods is with the entrepreneur until the time of sale. For, e.g., if the goods are destroyed by fire prior to occurrence of sale the loss has to be borne by the entrepreneur alone. Once the sale is complete the risk will travel to the appellant." 3. In the backdrop of the above facts the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pursuance of a contract between the contractor and...( d ) any company... shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to.... of such sum as income-tax on income comprised therein". A bare perusal of this section reveals that the liability has been cast on any person who is paying any sum to any resident "for carrying out any work". Thus it is clear that the obligation to deduct tax at source under this section arises when a payment is made for carrying out any work. The expression "work" has been defined in Explanation III to this section in an inclusive manner to include advertising; broadcasting and telecasting including production of programmes; carriage of goods and passengers and catering. The list given in this Explanation is not exhaustive but inclusive. It has been done so with a view to include any payment within the purview of this section which is for carrying out any work. The natural corollary which follows is that if the payment is not for carrying out any work, then such payment will go out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fications given by the Government or any other specified person and the property in such article or thing passes to the Government or such other person only after such article or thing is delivered the contract will be a contract for sale and hence outside the scope of this section. Adverting to the facts of the instant case we find that the assessee placed orders with the entrepreneurs for the production of VCDs/DVDs of the films for which it had purchased rights, but the property in such DVDs passed to the assessee only after these were delivered to it. When the entrepreneurs were making the purchase at their own and incurring the other input costs, the product so produced was their own till it was delivered to the assessee. Suppose during the course of producing such DVDs some wrong raw material is used or due to any other reason the finished product did not come to the specifications of the assessee, such was the loss of the entrepreneurs. It is only when the DVDs etc. was produced according to the assessee s specifications carrying right images and delivered to it that the property in goods could be said to have been passed to the assessee. Here is a case in which the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts. 11. The Hon ble Bombay High Court in the case of BDA Ltd. v. ITO [2006] 281 ITR 99 considered a case in which supply of printed labels by an independent establishment to that assessee as per its specifications by using its own raw material and carrying out the printing work in its own premises, came up for adjudication. In this case M/s. BDA Limited had a distillery at Aurangbad and it purchased materials required for bottling and marketing the foreign made Indian liquor including the printing and packing material. M/s. Mudranika, an another establishment was supplying the printed labels to be wrapped on the bottles to the assessee. The ITO, TDS held the view that the payments made to M/s. Mudranika, the supplier of the printed material from whom the printed labels were purchased, executed the contract liable for deduction of tax at source under section 194C of the Act and it was a contract for sale and not works contract. Their lordship of the Hon ble High Court observed that M/s. Mudranika was an independent establishment engaged in the business of supplying printed packaging material to various establishments and the assessee had issued a purchase order in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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