TMI Blog2012 (11) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... - in favour of assessee. Finished/Traded Goods - Held that:- After going through the agreement and its various clauses it is concluded that the contract with the various parties are contract for purchases of traded goods and not of the works contract - as decided in Glenmark Pharmaceuticals Ltd. Versus Income-tax Officer (TDS)-1(3), Mumbai [2009 (3) TMI 648 - ITAT MUMBAI] on identical facts that TDS is not required to be deducted on purchase of traded goods - in favour of assessee. Purchase of Packing Material - Held that:- As decided in BDA Ltd vs. Income Tax Officer (TDS) [2004 (3) TMI 11 - BOMBAY HIGH COURT] TDS is not required to be deducted under section 194C on purchase of packing material - in favour of assessee. Clinical Trials - Held that:- In order to carry out clinic trial, the person who carries out the trial must possess medical qualification and the person should be highly qualified and should possess technical expertise. Therefore, payment made in this respect is nothing but fees for professional/technical services. According the above payment of ₹ 7,68,21,907/- is a payment to professional fees, therefore, tax should have been deducted as per provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the orders of the jurisdictional High Court, the CIT (A) deleted the demands so made by AO holding that the provisions of TDS are not applicable to the payments made under these heads. Accordingly assessee is aggrieved on the amount confirmed under item (a), whereas the Revenue is aggrieved on the amounts deleted on the items (b) to (d). ITA No. 1667/Mum/2010 : 5. The learned Counsel reiterated the submissions made before AO and the CIT (A) to submit that assessee is in the practice of making provision for expenses at the end of the year as it has multifarious locations and innumerable transactions and since all the bills would not be received, without making specific entries into accounts of the parties, makes provision for expenses. Next year the entire provision of expenses was written back and the actual amounts paid to the respective parties were credited to their respective accounts and TDS as per the provisions are being made. In this context the method of accounting followed by assessee, entries made in the books of account and the reliance on the Board s Circular No.288 of 1980 were relied upon. It was the contention that it is not a constructive payment made to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit (Rs.) Expenses a/c DR. XXX To party s a/c XXX To TDS payable a/c XXX" 10. As can be seen from the above entries, when the payment/ credit was made to the individual payee identified, all the provisions of TDS are made applicable whether to a resident or to a nonresident as the case may be. In the absence of any identifiable payee, the provisions of TDS are not applicable as was held by the ITAT in the case of IDBI vs. I.T.O 107 ITD 45(Mum). In that the case the facts are as under: "The assessee, a financial institution, was following financial years as its accounting year. It issued 'regular return bonds'. The terms and conditions for payment of interest on these bonds provided that the assessee was liable to pay interest at the rate of 16 per cent annually in respect of regular return bondholders, that the interest was payable on 9th June of each calendar year, except in the year of maturity, when interest was payable on maturity, that the interest, except at the lime of maturity, was to be paid to the person whose name was registered in the records of the assessee company as on 15th M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to tax on distributed profits of domestic companies: A plain reading of section 190 and section 191, which are first two sections under the Chapter XVII, and of sections 199, 202 and 203(1), would show this underlying feature of the tax deduction at source mechanism. Section 190 makes it clear that the scheme of tax deduction at source is one of the methods of recovering the tax due from a person and it is notwithstanding the fact that the tax liability may only arise in a later assessment year. The tax liability is obviously in the hands of the person who earns the income and tax deduction at source mechanism provides for method to recover such tax liability. Therefore, this tax deduction at source liability is a sort of sub-stitutionary liability. Section 191 further makes this position clear when it lays down that in a situation TDS mechanism is not provided for a particular type of income or when the taxes have not been deducted at source in accordance with the provisions of Chapter XVII, income-tax shall be payable by assessee directly. This provision, thus, shows that tax deduction liability is a vicarious liability and the principal liability is of the person who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be deemed to be credit to the payee s account also presupposes that identify of the payee can be ascertained. Therefore, this deeming fiction can only be activated when the identity of the payee can be ascertained. Therefore, the Explanation to section 193 cannot be invoked in a case where the person who is to receive the interest cannot be identified at the stage at which the provision for interest accrued but not due is made. This position is also accepted by the CBDT in its letter dated 5-7-1996 addressed to the Tata Iron Steel Co. Ltd (Letter No.257/126 IT(B). In the instant case, the regular return bonds being transferable on simple endorsement and delivery and the relevant registration date being a date subsequent to the closure of books of account, assessee could not have ascertained the payees at the point of time when the provision for "interest accrued but not due" was made. Accordingly, no tax was required to be deducted at source in respect of the provision for interest payable made by assessee which reflected provision for "interest accrued but not due" in a situation where the ultimate recipient of such interest accrued but not due could not have been ascertaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady explained and evidenced from the computation of income as well as the orders of AO in the assessment proceedings, the entire provision has been disallowed under section 40(a)(ia) and section 40(a)(i). Once the amount has been disallowed under the provisions of section 40(a)(i) on the reason that tax has not been deducted, it is surprising that AO holds that the said amounts are subject to TDS provisions again so as to demand the tax under the provisions of section 201 and also levy interest under section 201(1A). We are unable to understand the logic of AO in considering the same as covered by the provisions of section 194C to 194J. Assessee as stated has already disallowed the entire amount in the computation of income as no TDS has been made. Once an amount was disallowed under section 40(a)(i)/(ia) on the basis of the audit report of the Chartered Accountant, the same amount cannot be subject to the provisions of TDS under section 201(1) on the reason that assessee should have deducted the tax. If the order of AO were to be accepted then disallowance under section 40(a)(i) and 40(a)(ia) cannot be made and provisions to that extent may become otiose. In view of the actual dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturers have also paid excise duties VAT/sales tax as applicable on the goods manufactured/sold. After going through the agreement and its various clauses and facts of the case in its entirety, it is concluded that the contract with the various parties are contract for purchases of traded goods and not of the works contract. I have also noted that the above issue is covered in the favour of the Appellant by the decision of Mumbai Tribunal in case of Novartis HealthCare Pvt. Ltd. v. ITO 29 SOT 425 (Mum) and Glenmark Pharmaceuticals Ltd. v. ITO (TDS) 30 SOT 19 (Mum) wherein the Hon'ble tribunal on identical facts has held that TDS is not required to be deducted on purchase of traded goods. Based on the above, I am of the opinion that the provisions of Chapter XVII0B of the Act cannot be said to be applicable on purchase of finished/traded goods Accordingly, there is no default on the part of tile Appellant in complying with the provisions of Chapter XVII-B of the Act while making payment for purchase of finished/traded g0o.dS without deducting tax at source This ground of appeal is allowed in favour of the appellant". 2.Purchase of Packing Material: "13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted as per provisions of section 194J. Therefore, the action of AO is confirmed so far as the applicability of section 194J is concerned. However, AO is directed to calculate TDS liability under section 194J. Whatever TDS liability comes under section 194J credit for taxes paid of Rs.42,45,914/- is to be allowed and balance amount needs to be recovered from the appellant. This ground of appeal is disposed off accordingly". 15. After considering the rival contentions and perusing the order of the CIT (A), we are of the opinion that there is no need to differ from the order of the CIT (A). The learned CIT (A) has followed the principles established by the Hon'ble High Court in the case of BDA Ltd vs. Income Tax Officer (TDS) 281 ITR 99 (Bom.) and CIT vs. Glenmark Pharmaceuticals Ltd, 324 ITR 199. Since the issues are crystallized in favour of assessee by the orders of the jurisdictional High Court, respectfully following the same we affirm the order of the CIT (A). 16. In the result Revenue appeal is dismissed. 17. In the result appeal filed by assessee in ITA No: 1667/Mum/2010 is allowed, while the appeal filed by the Revenue in ITA No.1765/Mum/2010 is dismissed. - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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