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TMI Blog2012 (6) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to as "the Act" for short) was conducted in the premises of the assessee on 30.9.2009 to verify its compliance with the TDS provisions. During the course of survey, it was noticed that the assessee company has entered into contract agreements on Total Turnkey Basis or Partial Turnkey Basis with various contractors for setting up of its electrical sub-stations. The sub-stations are established in order to segregate the load of one station or to improve the reliability of the power supply and to meet the increasing demand for power supply. In Total 'Turnkey Contracts, the contractor was required to establish electric sub-stations and Lines using his own material including the electrical transformer. The assessee pays for the same by treating the payment as for material purchased from the contractor under the agreement of supply portion of the overall single contract. Whereas in Partial Turnkey Contracts, the assessee supplies electrical transformer while contractor uses his own other material to execute the contract. Thus, the difference between two types of contract is of value of the supply portion of the contract. In Total Turnkey Contract, as the contractor uses his o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source responsibility basis and the contractor is bound to perform the total contract in its entirety and non-performance of any contract or portion of contract shall be deemed to be breach of the entire contract. Therefore held that the contract in question is a composite contract and not a divisible contract as contended by the assessee. He further held that admittedly tender notification floated for composite work. Bid price, Bid price format for the single work and no trifurcation of contract at this stage was permissible. Evaluation of Bid, award of contract as a single composite contract, three agreements for different work was entered into only for the convenience at a later stage. Guarantee and liabilities, liquidated damages are for a single contract The performance and execution of contract is as a composite contract. Therefore, the tax was deductible by the assessee on the entire consideration paid under the three contracts treating as a composite contract. Therefore, he proceeded to assess tax payable on the supply portion also and also levied interest on the said amount. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifications of the assessee and for the purpose of such supply, the contractor had not used fee material bought from the assessee. Therefore, the activity carried out by the contractor for the assesses cannot be categorized as work. Further, they have held that the amendment introduced by the Finance Act, 2009 is clarificatory in nature and thus retrospective in operation and therefore, if we keep in mind those amended provisions, the nature of activity carried on by the assessee would not fall within the definition of "work". Ultimately, the Tribunal held that the assessee cannot be characterised as the assessee in default, when there was no obligation on the part of the assessee to deduct tax under section 194C of the Act for supply portion, Therefore, it allowed the appeal, set aside the order passed by the assessing authority as well as the appellate authority and granted the relief to the assessee. Aggrieved by this order the revenue is in appeal. 5. The learned counsel for the revenue assailing the impugned order contended firstly that if the entire material on record is taken into consideration it is amply clear that the contract entered into between the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a composite contract. The amendment brought about in 2009 explaining the meaning of the word "Work", as per the Circular of the Board itself, it is clarificatory in nature. If that amendment is clarificatory in nature, it applies retrospectively and cannot be prospective in its operation. When admittedly, the contractor has not procured the materials from the assessee and has procured the materials from third persons and supplied it to the assessee and on such supply, the title in the goods passed on to the assessee, it is a contract for supply and Section 194C has no application, That is precisely what the Tribunal has held and therefore, no case for interference is made out. 7. In the light of the aforesaid facts and contentions, the substantial questions of law that arise for consideration are as under:- (1) Whether the Tribunal was right in splitting up this contract, which, according to the revenue, was one ALB of the composite contract into parts such as part of the contract attributable to the value of the materials involved in the execution of the work and other part of the contract such as civil works and taking the view that tax was required to he deducted at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the entire scope of the Partial/Total Turnkey Package will be entered into with the successful Bidder. There shall be three separate Contracts as under: (i) For Supply of Goods (ii) For Erection Works (iii) For Civil Engineering Works. Then 3.5 of the Proforma of the Contract/Agreement, reads as under: "It is expressly agreed to by the Contractor that not withstanding the fact that the Contract is termed as Erection Contract, for convenience of operation of the other Contracts namely Supply Contracts and Civil Contracts are also the integral parts of the contract on single source responsibility basis and the Contractor is bound to perform the total. Contract in its entirety and non-performance of any part or portion of the Contract shall he deemed to be a breach of the entire Contract". 7.0 of the General Terms and Conditions of Contract to bidders, reads as under: 7.1 Construction of the Contract: 7.1 Notwithstanding anything stated elsewhere in the Bid Documents, the Contract to be entered into will be treated as a Divisible Contract resulting into three separate contracts, one for supply of goods, the second for erection and the third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion explicitly provide for transfer of title at 37.0. Clauses 37.1 and 37.2 reads as under: "37.1 The Title of Owner Supplied Equipments/ Materials will be with KPTCL These Equipments/Materials will be handed over the Contractor for Erection. Testing and Commissioning duly obtaining an Indemnity Bond in accordance with Clause 11.2 of Section-V, Special Conditions of Contract - SCC, Volume - I. This Indemnity Bond shall be furnished by the Contractor before Commencement of the Supplies of Owner Supplied Equipments/Materials and shall be valid till the Scheduled Date of Testing, Commissioning and handing over of the Work back to the Engineer in accordance with Clause 9.0 of Section-V Special Conditions of Contract- SCC Volume - I. 37.2 In order to enable the Contractor to carry out his obligation under the Contract such as receipt at Site, Storage, Erection, Testing, etc., the Owner shall hand over (wherever applicable) the Goods to the Contractor against an Indemnity Bond." Clause 37.3.1 provides how transfer of the title in respect of equipment and materials supplied by the Contractor to the KPTCL pursuant to the terms of the Contract shall pass on to the KPTCL with negotiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement to supply a contract for carrying out any work. In fact, the amendments in 2009 explains this position. When they amended the definition of "Work" as contained in Explanation to Clause (4) of sub-clause (e). In fact, the object and reasons for substituting Section 194C of the Act makes it clear that the amendment was introduced to bring clarity on the issue which reads as under: Clarification regarding "work" under Section 194C There is ongoing litigation as to whether TDS is deductible under Section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is proposed to prove that "work" shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for "sale". This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g., a construction contract). It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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