TMI Blog2009 (3) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the specifications regarding the size, the design, the label and the logo of Pepsi to the assessee-company. But while making payments against these supplies, TDS was not deducted by the Company. A show-cause notice was, therefore, issued to the assessee on 13-3-2007 as to why the Vice-President is not held as an assessee-in-default because he has not deducted requisite TDS as per the provisions of section 194 C of the Act. It was replied by the company that it had purchased glass bottles, plastic crates and corrugated boxes etc., under the contract of sale of goods as they have issued purchase order and the party has raised invoice charging applicable taxes, so all these purchases are out of purview of section 194 C of the Act. It was explained that glass bottles, plastic crates etc., purchased contains logo of "Pepsi" but are not specifically manufactured for assessee-company only and that these items were being used by various units of Pepsi in India run by Pepsi Company itself or its franchisees. Hence, same bottles and crates can be used by any manufacturing units of Pepsi and are out of purview of section 194C of the Act. The provisions of section 194 C do not apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to be done by the supplier was of no consequence, there is no work contract involved and therefore, provisions of section 194 C are not applicable. ( iii ) CST v. Purshottam Premji 1970 (2) SCC 288. ( iv ) CIT v. Dabur India Ltd. [2006] 283 ITR 197 (Delhi) - Printing of label on corrugated boxes did not require any special skill or involve any confidence or secrecy and under the circumstances out of purview of section 194C of the Income-tax Act, 1961. ( v ) State of Himachal Pradesh v. Associate Hotels of India Ltd. 1972 (1) SCC 472 - If main object of contract is to transfer property in or deliver the possession of a chattel as chattel, then contract is one of sale. The test is whether or not the work and labour bestowed end in anything that can property become the subject of a sale, neither the ownership of the material not the value of the skill and labour as compared with the value of the material is conclusive, although such matters may be taken into consideration in determining whether the contract is in substance one for work and labour or one for the sale of chattel." 4. In the light of above, the assessee-company categorically stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of TDS. The ld. ITO(TDS) also explained how the decisions relied by the assessee-company are not relevant and not applicable to the facts of the given case. The ITO(TDS) observed that the assessee-company gets the packing material in the shape of glass bottles, plastic crates, boxes and cartons manufactured as per prescribed specifications and do not purchase manufactured material as available in the open market. The charges paid are composite and are not separately apportioned. Thus, supply of items as per specifications tantamount to contract of work and not sale. The ld. ITO (TDS), therefore, held the assessee as an assessee in default, after discussing the following case laws : " ( i )Hon ble Supreme Court in the case of State of Tamil Nadu v. Anandam Vishwanathan 1989 (1) SCC 613 - It was a case of printing and supply of question papers of the university. The Supreme Court held that though sale of ink and paper was involved, it was merely incidental. It was not a case of sale but a work contract having regard for the work to be done and the confidence reposed for the work to be done. ( ii )In the case of Glaxo India Ltd. - Printing and packing material was trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these years under consideration, the assessee preferred the first appeal before the ld. CIT(A). The ld. CIT(A) vide his common order dated 31-10-2007 has accepted the plea of the assessee and the entire tax charged under section 201(1) along with interest under section 201(1 A) of the Act was directed to be deleted. Now, the revenue is aggrieved and has raised the plea that the provisions of section 194 C are applicable in this case for all the years and the assessee is even liable under section 201(1) and also interest thereon under section 201(1 A) of the Act is leviable. 6. We have heard the rival submissions and have carefully gone through the entire material available on record. We have also carefully treaded the decisions relied before us. It is an undeniable fact that the assessee has made payments against the supplies of glass bottles, plastic crates, boxes etc. As per the provisions of section 194 C of the Act, TDS is deductible only against the payment made for works contract (out sourcing). For ready reference, we extract the provisions of section 194 C along with its Explanation etc. : "194 C. Payments to contractors and sub-contractors. (1) Any person r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause ( a ) or clause ( b ) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under this sub-section. Explanation I. For the purposes of sub-section (2) , the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India. Explanation II. For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." 7. No specific definition has been provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section will not cover the contract for sale of goods. ( a )Since contracts for the construction, repair, renovation or alteration of buildings or dams or laying of roads or air fields 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 persons, 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 contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the execution of a contract and such payments are to be adjusted at the time of final settlement of accounts, tax will have to be deducted at the time of making advance [payments if the total payment is likely to exceed Rs. 10, 000.] ( xii )Where any contractor is the recipient of any amount under a contract but the income of the recipient is not subject to income-tax such contractor may obtain a certificate from his Assessing Officer under section 194 C(4) for receiving payment without deduction of tax at source. ( xiii )Every contractor, other than an individual or HUF, who is responsible for paying any sum to any sub-contractor (who is resident in India), in pursuance of a contract with such contractor for carrying out or for the supply of labour of carrying out, wholly or in part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor had undertaken to supply will be required to deduct income-tax at the rate of 1 per cent of such sum. 8. It may be noted that ( i )The term service contracts would include service rendered by such persons as lawyers, physicians, surgeons, engineers, accountants, arch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scern as to whether a contract between the parties is a contract for sale or for contract of work. The difficulty so faced is regarding resolving of the nature of such contracts. The nuance between the two is very subtle and delicate. This is particularly so when the contract is a composite one involving contract of work and labour and also contract of sale. The distinction between the two is held to be based on clear principles. A contract of sale is one where main object is transfer of property in or delivery in possession of a chattel as chattel whereas the very object of work undergone by the payee against price thereof is not the transfer of a chattel qua chattel the contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of a sale. Neither the ownership of the materials nor the value of the skill and labour, as compared with the value of the materials is conclusive, although such matters may be taken into consideration in determining whether the contract is in substance one for work and labour or one for the sale of chattel. The Hon ble Supreme Court while deciding the case of Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. 11. In this case, the Assessing Officer required the assessee vide letter dated 12-10-2006 ( a copy enclosed at paper book page 69) to furnish complete details regarding the nature of contract between the assessee and its principal, viz., Pepsi. The contents of the letter are as under : To, The Vice President (Commercial) M/s. Varun Beverages Ltd., Dautana, Kosi Kalan, Distt. Mathura, U.P. Sub. :- Information under section 133(6) of the Income-tax Act, 1961 - regarding In connection with pending proceedings under section 201(1) read with section 194C of the Income-tax Act, 1961 you are requested to furnish the following information : 1. Explain the nature of your connection/business relation with your principal viz. Pepsi and furnish copies of evidence through which you have entered into agreement with the said company. 2. Furnish the copies of agreements ( a )With your principal viz., Pepsi in respect of technical specifications of glass bottles, plastic crates, boxes and cartons to be used for filling purpose, whether any quality check is being conducted by your principal in this regard. ( b )With our suppliers of glass bottles, plastic cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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