TMI Blog2015 (4) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... vendors is being treated as 'sales transaction’ or a ‘contract for sale’., which will not fall under the provisions of sec. 194C of the IT Act, and therefore, the demand raised by the Assessing Officer is deleted. From the facts as recorded by the CIT(A), it is clear that the agreement between the assessee and Powercell Batteries India Ltd is not job work agreement but it was simply an agreement of purchase for specific battery with the name of the assessee printed on the cell. An identical issue was considered by the Hon'ble Jurisdictional High Court in case of CIT Vs. Glenmark Pharmaceuticals Ltd [2010 (3) TMI 289 - BOMBAY HIGH COURT] - Decided in favour of assessee. Non deduction of tax in respect of payment made on supply of Cameras manufactured by Hical Magnetic Pvt. Ltd. - Held that:- activity of Hical Magnetic Pvt. Ltd. do not have financial risk and working capital risk as it was all provided by the assessee. Even the procurement of the raw material is also arranged by the assessee as per the tripartite agreement. Thus it is nothing but a job work contract under these two agreements. Further the assessee is paying the entire cost in advance being working capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri Vijay Kumar Bora For The Assessee : Shri Dipal J. Shukla ORDER Per Vijay Pal Rao, JM This appeal by the revenue is directed against the order dated 29.10.2010 of CIT(A) for A.Y. 2009-10. The revenue has raised following grounds in this appeal:- 1. (i) The Ld. CIT (A) has erred on facts and in law in giving relief to the assessee by holding that TOS is not deductible on supply of batteries manufactured by Powercell Batteries India Ltd., without properly appreciating the factual and legal matrix of the case as clearly brought out by the Ld. A.O. in order cls. 201 (1)/201 (1A) of the Income-tax Act, 1961. (ii) The Ld. CIT (A) has erred on facts and in law in giving relief to the assessee by holding that TOS is not deductible on supply of cameras manufactured by Hical Magnetic Pvt. Ltd., without properly appreciating the factual and legal matrix of the case as clearly brought out by the Ld. A.O. in order u/s. 201 (1)/201 (1A) of the Income-tax Act, 1961. (iii) The Ld. CIT (A) has erred on facts and in law in giving relief to the assessee by holding that TOS is not deductible on payment made to Customs House Agents (CHA) on account of reimbursement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be supplied along with Kodak Cameras, therefore, only because the assessee s brand name printed on the batteries, it would not amount to job contract when the assessee is not providing any raw material or having control over manufacturing activity of the Powercell Batteries India Ltd. In support of his contention, he has relied upon the Judgment of Hon'ble Jurisdictional High Court in the case of CIT Vs. Glenmark Pharmaceuticals Ltd. 324 ITR 199. 6. Having considered the rival submissions as well as relevant material on record, we note that the contract between the assessee and Powercell Batteries India Ltd is regarding manufacture of the batteries to be used in the Camera of the assessee s company and, therefore, as per the agreement, the batteries have to be manufactured by the Powercell Batteries India Ltd., with the name Kodak printed on the cell. It is also not disputed that the assessee has not provided any raw material to the manufacturer and the manufacturing activity has been carried out by the manufacturer in its factory. The CIT(A) has given it finding in para 6 as under:- 6. I have gone through the above submissions very carefully and perused the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ultimate point of time. Merely because the logo of Kodak is printed on the battery does not convert its sale contract into a works contract. The appellant further submitted that it has no control over the manufacturing process, the funding of the Assessing Officer that the appellant has control over in manufacturing, is factually incorrect. The appellant placed reliance on the following decisions and CBDT's circulars: I. Circular No.681 dated 8.3.1994 issued by CBDT (206 ITR st.pg.299). ii. Circular No.13 of 2006 dated 13.12.2006 (2871TR st. pg. 174) iii. BOA Ltd. vs. iTO (TDS) - 281 ITR 99 (Bom.) iv, CIT vs. Dabur India Ltd - 283 ITR 197 (Delhi) v. CIT vs. Dy. Chief Accts. Officer - 304 ITR 17 (P H). vi. Cl T vs. Reebok india Co. (306 ITR 124) (De!) vii. CIT vs. Girnar Food and Beverages Pvt. Ltd. (306 ITR 23)(Guj) CIT Vs. Hindustan Lever Ltd. (306 ITR 25)(Guj) - SLP dismissed 306 ITR (st) In view of the above facts, I find considerable merit in the arguments of the appellant The issue involved under this ground of appeal is quite clear in view of the CBDT's circulars as well as various decisions of courts including jurisdictional High Court as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udiced by the consumption of a product not meeting prescribed standards. The owner of a mark, therefore, introduces specifications to ensure that the product meets the standards justifiably associated with the reputation in the mark. The specification ensures the observance of standards. Similarly, a clause relating to exclusivity is not inconsistent with a transaction of sale. Here again, much depends upon the nature of the product. Restrictive covenants of this kind are intended to protect the intellectual and other property rights of a party which markets its goods by requiring a manufacturer to observe norms of specification and exclusivity. The law is, therefore, consistent with the transaction being regarded as a transaction of sale, provided that the requirements of a contract of sale are met. They are in this case. The contract entered into by the assessee is not a contract for carrying on any work within the meaning of section 194C. Conclusions : 34. For the reasons aforesaid, we are of the view that the revenue was not justified in treating the assessee, as an assessee in default. The Tribunal was justified in coming to the conclusion which it did, though for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and held that the assessee entered into a contract/agreement with the vendors for purchase of Kodak Cameras and this agreement was not a work contract agreement. The CIT(A) has further observed that the assessee has not supplied any raw material to the manufacturer. Accordingly, the demand raised by the Assessing Officer u/s 201(1) and 201(1A) for non deduction of tax was deleted by the CIT(A) in this respect. 12. Before us, the Ld. DR has submitted that as per the terms and conditions of the agreement, it is clear that the Camera is assembled by Hical Magnetic Pvt. Ltd. as per the specifications provided by the assessee. Further as per the tripartite agreement, the raw material is supplied under the said agreement and, therefore, it was a job work contract attracting TDS provisions of section 194C of the Income Tax Act. He has relied upon the order of Assessing Officer. 13. On the other hand, the Ld. Authorized Representative of the assessee has submitted that the assessee has not purchased any raw material required for manufacturing of Camera, therefore, the assessee does not supply any component required for manufacturing of the Camera for Hical Magnetic Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Cameras for sale in Kodak s assigned subsidiaries, affiliates and/or distributors. 15. Thus the agreement was entered into for assemble and packaging of KB- 10 Camers by Hical Magnetic Pvt. Ltd. and the assessee agreed to acquire the Cameras for sale. As per clause 25 of the agreement the Hical Magnetic Pvt. Ltd. stated to have acted as independent contractor as under:- 25. Independent Contractor Hical shall act as an independent contractor and nothing herein shall be construed to make Hical , or any of its employees, officers, directors of representatives, the agent employee or servant of Kodak. 16. The price of the Camera assembled by Hical is agreed upon as per appendix B of the agreement dated 5.12.2005, as under:- Product Pricing KB-10 (Hical Bangalore) Sl. Cost details status Hical OEM INR Volume Assumption 600K 1. Labor Burden 20.83 2. Material Total 110.00 3. Scrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of the Kodak. b) Kodak and Hical have entered into an Agreement whereby Hical will supply to Kodak KB-10 Cameras as per the specifications of Kodak. c) Hical has undertaken to supply to Kodak KB10 Cameras as per requirements of Kodak. d) Supplier has agreed to use the tools and moulds owned by Kodak for the purpose of supply of camera parts to Hical. 19. Thus as per the arrangement between the parties, the assessee supplied tool/moulds to the supplier for carrying out job work for camera parts as per requirements of the assessee. These Camera Parts were supplied to the Hical Magnetic Pvt. Ltd. for assembling of Camera. It is clear that the job work for camera parts used as a raw material for assembling of the camera by Hical Magnetic Pvt. Ltd. is arranged by the assessee under the tripartite agreement. Further the assessee is providing the working capital fund to the Hical Magnetic Pvt. Ltd. for the purpose of all cost including labor and raw material which is supplied under the tripartite agreement. Therefore, the nomenclature of the agreement becomes irrelevant when the intention of the parties presents a different picture as per the various terms and conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling job is subjected to TDS. Accordingly, we set aside the impugned order of CIT(A) on this issue and restore the order of Assessing Officer to the extent of applicability of section 194C only on the payment of ₹ 28.88 per camera. The decision relied upon by the CIT(A) in the case of CIT Vs. Glenmark Pharmaceuticals (supra) is not relevant on the facts of this issue when the arrangement is found to be work contract. 19. Ground no. 3 is regarding sort deduction of TDS on the payment to agent. 20. The Assessing Officer observed that the assessee company had paid commission to the handling agents and it has not deducted TDS on the gross payments to payee instead claimed it pays advance to its agents but does not deduct TDS on it as it is for reimbursement of freight charges, delivery order charges, post handling charges etc. The Assessing Officer further noted from the sample bills that it includes transportation, crane hiring, administration charges, handling charges to Airport Authority of India etc., and the composite bill is raised in the name of the assessee. Thus the Assessing Officer was of the view that individually each of these payments attract TDS u/s 194I, 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the agent for the services provided by the third party to the assessee. Once the payment is made through the agent to the third party against the services provided by the third party, the assessee is liable to deduct tax on such payment or to ensure the TDS through the agent. There is no denial of the fact that these payments were not subjected to TDS either by the assessee or by the agent. Failure to deduct tax for such payment at any stage either by the agent or by the assessee would attract the provisions of section 201(1) and 201(1A). If this modus operandi is allowed then in each and every payment which otherwise attracts the TDS can be given a colour of reimbursement of making the payment through intermediatory and consequently circumvent the provisions of TDS. The real fact is that the payment is made for and on behalf of the assessee by the agent and, therefore, the same would be considered as payment made by the assessee to the third party for the purpose of TDS provisions under chapter XVII of the Act. The decision relied upon by the Ld. Authorized Representative in case of CIT Vs. Siemens Aktiongesellschaft (supra) as well as S.S. Co. Octroi Contractors Vs. Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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