TMI Blog2014 (7) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of establishment expenditure - Held that:- Whatever amount the assessee wants to claim under the aforesaid heads, he has to furnish the particulars and proof of the same and on considering the same, the assessng authority shall grant the benefit under the aforesaid provisions. Therefore, though the authorities cannot be found fault with for not granting the deduction under the aforesaid head on percentage basis, it would be just and proper to give an opportunity to the assessee to produce before the authorities the actual amount spent for the said on-going project with legal proof and then the assessing authority shall consider the same in accordance with law. - Decided in favor of assessee. Excess labour charges to be carried over - Held that:- assessee's claim under the head labour and other charges in a sum of ₹ 9,14,49,077 at page 7, clause (6) and the assessee was only claiming ₹ 5,76,30,391 for the current year and wanted the balance amount to be carried over to the subsequent year. - the facts were not clearly understood by the authorities and they denied the benefit wrongly - matter remanded back for fresh consideration. - Decided in favor of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4)(n) of the KST Rules, 1957 to be carried forward and availed of in the next and subsequent years. The assessing authority, the first appellate authority and the Tribunal have rejected these claims. Therefore, the assessee is before this court challenging the aforesaid orders. The learned counsel appearing for the assessee, assailing the impugned orders contends that they have employed own machinery and equipments in the execution of works contract. When under the aforesaid provisions labour and other like charges include charges for obtaining on hire, machinery and tools used for execution of contract when the assessee employs his own machinery and equipments, the assessee is also entitled to proportionate or corresponding charges like hire charges. The same fall within the words otherwise used in Explanation-I and the interpretation placed by the authorities, is contrary to the statutory provisions and therefore, requires to be set aside. He further contended that as per the Explanation to the aforesaid provision, labour and other like charges include charges for obtaining on hire or otherwise planning, designing and architect's fees which the assessee had claimed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own machineries and equipments in execution of the works contract under Explanation-I clause (n), sub-rule (4) of rule 6 of the KST Act, 1957? (2) Whether the assessee is entitled to disallowance of the expenditure in respect of the planning, designing and architect's fee, in other words establishment charges as provided in Explanation-I on any percentage basis or on actuals based on the expenditure incurred in the head office or regional office? (3) What are the conditions to be fulfilled by an assessee to claim deduction under clauses (m) and (n) in any year and the excess labour charges to be carried over to the following year? Point No. 1 Rule 6 of the KST Rules deals with determination of total and taxable turnover. Sub-rule (4) of rule 6 provides that in determining the taxable turnover, the amount specified in clauses (a) to (p) shall, subject to the conditions specified therein, be deducted from the total taxable turnover of a dealer as determined under clauses (a) to (e) of sub-rule (1). Clause (n) of sub-rule (4) reads as under: (n) in the case of works contracts specified in serial numbers 6, 13, 14, 15, 16, 18, 19, 20,21, 22, 23, 24, 25, 28, 29, 30, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly lays down that the deduction of labour and like charges, which include charges for obtaining of machinery on hire-charges actually incurred shall be deducted. As such the emphasis is on the expression actually incurred which means the amount of money actually spent. Dealing with the reliance on the words or otherwise occurring after the word hire in Explanation-I to rule 6(4)(n)(i), it was held that the claim is based on the assumption that the words or otherwise are comprehensive enough to cover any notional amount. Rejecting the said contention as misconceived, it was held that the Explanation should be read along with the provisions of rule 6(4)(n)(i) and not in isolation. When so read, there is no ambiguity that it is only such expenditure actually incurred as hirecharges alone qualifies for deduction and not any notional amount as claimed. Besides following the rule of ejusdem generis the words or otherwise used in Explanation-I to rule 6(4)(n)(i) shall get its colour from the preceding word hire and therefore, it is only in the nature of hire such as taking the machinery on lease and paying lease rental. This is a case of wrong application of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific instances are not governed by this rule and their import cannot be limited by any such principle. A Constitution Bench of the apex court in the case of State of Bombay v. Ali Gulshan reported in AIR 1955 SC 810 explaining the application of this rule held as under at para 8: 8. With great respect, we are constrained to say that the 'ejusdem generis' rule of construction, which found favour in the court below for reaching the result that the words 'any other public purpose' are restricted to a public purpose which is also a purpose of the State, has scarcely any application. Apart from the fact that the rule must be confined within narrow limits, and general or comprehensive words should receive their full and natural meaning unless they are clearly restrictive in their intendment, it is requisite that there must be a distinct genus, which must comprise more than one species, before the rule can be applied. If the words 'any other public purpose', in the statute in question have been used only to mean a State purpose, they would become mere surplusage; courts should lean against such a construction as far as possible. Therefore, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and services rendered by the contractor during the course of execution of the works contract. The submission of the learned counsel is that this mode would prevent evasion of tax. The learned counsel for the contractors have submitted that in that event the following deductions should be made from the value of the entire contract in order to arrive at the value of the goods involved in the execution of a works contract: (i) labour charges for execution of the works; (ii) amounts paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire the machinery and tools used in the execution of the works contract; (v) cost of consumables such as water electricity, fuel, etc. (vi) transportation charges for transport of goods to the place of works; (vii) overhead expenses of the head office and branch office including rents, salary, electricity, telephone charges, etc., and interest charges to banks and financial institutions; (viii) profits expected on such contract. Keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in item Nos. (vii) and (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amount so deductible would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover: (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the apex court in the aforesaid judgment, the amounts deductable under the said head will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. Therefore, the assessing authority has to consider the material produced by the assessee on record keeping in mind that for deploying the same machinery and tools, if it had been taken on lease what is the hirecharges, which he should have paid and also take into consideration other circumstances, which may be relevant to the case on hand and determine the amount deductable under the aforesaid head. For that purpose, the said question requires to be remitted back to the assessing authority for fresh computation. Point No. 2 As is clear from the aforesaid provisions, the assessee is entitled to the benefit of charges for planning, designing and architect fees as well as the cost of establishment to the extent relatable to the supply of labour and service and other similar expenditure relatable to the supply of labour and services. The case of the assessee is for execution of the project at Kaiga, the architects and other staff worked in the regional office ..... 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