TMI Blog2012 (2) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract between the assessee and the manufacturer company. Therefore, it is held provisions of Section 194C are applicable to the assessee and is clearly attracted to the present situation – Decided in favor of Revenue. - ITA No.1262/2006 - - - Dated:- 5-1-2012 - D V Shylendra Kumar and H S Kempanna, JJ. For Appellant: Shri M Thirumalesh, Standing Counsel For Respondent: Shri Harish V S, Adv. For M/s Harish Co JUDGEMENT The appeal by the Revenue u/s.260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against the order dated 22.3.2005 passed by the Income Tax Appellate Tribunal, Bangalore Bench in ITA No.688/Bang/02 and posing the following substantial questions of law for our answer:- 1. Whether Appellate Authorities were correct in holding that the transactions entered into between the assessee and the TPL is a contract for sale and not contract for work, when the entire transaction under the agreement were in the nature of work contract, and TDS was deductible? 2. Whether the Appellate Authorities committed and error in terming the transactions entered into between the assessee and the TPL as contract for sale of goods when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of the product. This is the interrelation linking the three companies viz, the raw material supplying foreign company, the raw material receiving Indian manufacturing company and the product buying assessee company. The Indian manufacturing company manufactured the products making use of the raw material supplied by the foreign raw material supplier company. 8. There was another agreement between the assessee company and the manufacturer company also which provides for supply of technical know-how for the manufacture of the product, but at no cost and know-how to be exclusively utilised for converting the raw material received by the Indian manufacturing company from the raw material supplying foreign company. 9. There was yet another agreement between the assessee company and the manufacturer/supplier company known as trade mark licence agreement under which the product manufactured by the supplier/manufacturing company was to be labelled with the name of the assessee company for marketing and the entire manufactured product was to be restored to the buying company viz. the assessee company, in the even of termination of the contract. 10. While these are the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing not absolved of the liability of the provisions of Section 201(1A) of the Act proceed to compute the interest in terms of the statutory provisions and worked out to be 7,60,570/- starting from 1.4.1997 till the date of the order under the provisions of Section 201(1A) of the Act which was on 30.7.2001. 13. It is aggrieved by this order the assessee carried the matter in appeal to the Appellate Commissioner. The Appellate Commissioner examining the agreement between the assessee and its supplier company and being of the view that in terms of the Board circular No.681 of 83/84 dated 8.3.1984 which is also applicable to the assessment year 1997-98, in terms of his order dated 8.2.2002 opined that the assessee company not having supplied the raw material, the price paid by the assessee company has to be construed only as a price for the sale of the product and not a contract for manufacturing and therefore, Section 194C is not attracted and in this view of the matter set aside the order of the assessing authority. 14. The revenue carried the matter further to the Tribunal, but without success as the Tribunal also affirmed the order of the Appellate Commissioner being of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted using crystals supplied by NNAS and know-how supplied by NNPIL. ii) "Know-how Licence Agreement" between the purchaser and NNPIL whereby the "know-how" to manufacture such formulation was transferred from NNPIL to TPL for no apparent consideration. iii) "Trade Mark Licence Agreement" between the purchaser and NNPIL. 17. Drawing our attention to the relevant terms of the three agreements Mr.Thirumalesh, learned counsel for the revenue submits that the Appellate Commissioner as well as the Tribunal have adopted a very simplistic approach in adopting the Board circular without even applying their mind as to applicability of the notification in a situation, of the present nature; that the present situation was not one of a simple agreement between the manufacturer and its buyer or, the seller of goods and buyer of manufactured goods by the very raw material supplied, but this was a rather complicated interlinking arrangement amongst the three parties viz. the assessee company, its supplier the manufacturing company and the foreign raw material supplier company and that the terms of agreement between the raw material supplying company virtually, dictating terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his sum which is levied by way of interest, which is the bone of contention in this appeal. 20. Section 194C applies to all such situations where there is a contract of the nature as is indicated in this Section and in existence between a person and the company etc. Here the person is an assessee company and 'company' as indicated in Section 194C (1d) is the supplier company. 21. On a perusal of all the agreements which have a bearing on the transaction of sale of the product or sale or supply of the product by the supplier/manufacturer of the assessee company, we find this is not simply a situation of a product manufactured to the specifications of the assessee, being sold to the assessee at the price fixed by the supplier but this is a situation where a product manufactured out of raw materials supplied by a foreign company who had direct interest in the assessee company so manufactured to the specification of the assessee company utilising the technical know-how supplied by it also labelling the product with the brand name of the assessee and supplying the entire product only to the assessee company and not to anyone else and it is throughout to be held as a specific contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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