TMI Blog2017 (1) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... ember And Shri Ram Lal Negi, Judicial Member Appellant by : Shri A.R. Ninawe. Respondent by : Shri Ketan Ved Shri P.B. Chhapgar ORDER Per Shamim Yahya, A. M. These are appeals by the Revenue against respective orders of learned CIT(Appeals)-II, Nagpur for assessment years 2009-10 and 2010-11 in the case of the same assessee. Since the issues are common and connected, they have heard together and are being disposed of by this common order. Common grounds of appeal read as under : 1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in holding that TDS need not be made on the amount of ₹ 198,38,20,000/- for AY 2009-10 and ₹ 315,43,91,259/- for AY 2010-11 and deleting the demand. 2. On the facts and in the circumstances of the cast h Ld. CIT(A) erred in holding that the amount paid is towards supply contract without appreciating that the whole contract is a composite contract 3. On the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate that on works contract TDS has to be made in view of CBDT circular No. 13 of 2006 dt. 13-12-2016. 4. On the facts and in the circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after learned CIT(Appeals) referred to the relevant portion of the ITAT order and concluded as under : As stated above, the contract for the year under consideration is identical to the contracts entered into by the appellant, that were the subject matter of adjudication by the Hon ble ITAT Nagpur Bench reproduced above. In view of the facts of the case and the above binding decision of the Hon ble ITAT Nagpur Bench in the case of the appellant it is held that appellant was not required to deduct TDS on the payments made to BHEL in terms of agreement in question and consequently the action of the Ld. AO of holding the appellant to be an assessee in default for not deducting TDS on payment of ₹ 198.38 crores is hereby cancelled and consequently the tax liability u/s 201(1) 201(1A) is also hereby cancelled. 6. It is against this part of learned CIT(Appeals) order that the Revenue is in appeal before us. 7. Upon careful consideration we deem it appropriate to refer to the ITAT order as mentioned above, wherein it was held as under : 18. We find that it is a plea of the assessee that the assessee has entered into distinct/separately identifiable contracts fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partial turnkey contract, value of supply portion was relatively lower as transformer was supplied by the assessee. In either event, 80 to 85 per cent of the consideration was towards the supply of materials and barely 20 to 15 per cent was towards erection and civil works. The assessee-company had entered into three independent contracts with the contractors, viz., agreement for supply, agreement for civil work, and agreement for erection work. While tax was being deducted at source for civil work and erection work, the tax was not deducted at source towards payments made on supply portion. The assessee contended that section 194C deals with deduction of tax at source on composite contracts for erection and installation of plant and machinery but in its case there were separate contracts for supply of goods and erection/installation charges and, therefore, section 194C was not attracted. The Assessing Officer, however, held that the performance and execution of contract was as a composite contract and, therefore, the tax was deductible by the assessee on the entire consideration paid under the three contracts treating same as a composite contract. Therefore, he assessed tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire scope of the partial/total turnkey package. Therefore, the intention is clear. There is no ambiguity in the language. The contract that is entered into is not a composite contract. It is a divisible contract. Three contracts entered into are separate contracts. Though the work, that is entrusted to the contractor is to be completed by him by performing all the three separate contracts, the contract as such is divisible contract. Therefore, the parties have entered into three separate contracts on the very same day. [Para 11] From the terms of the contract it is clear that the moment there is negotiation of dispatch documents, the equipments/materials are supplied under the agreement of supply from the contractor to assessee, the title in the goods passes. It is, therefore, assessee in order to enable the contractor to carry out its obligation under the other contracts hand over the goods so supplied to them. The moment the materials are supplied under the agreement of supply and title passes to the assessee, the agreement for supply comes to an end. In order to see that the ultimate object of entering into contract is achieved, it is made clear in the agreement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoice, TDS shall be deducted on the whole of the invoice value. Therefore, whatever ambiguity which prevailed earlier is clarified. When in a composite contract, an invoice is raised separately mentioning the value of the material supplied, no deduction is permissible under section 194C. In a case where three separate agreements are entered into and one such agreement is agreement for supply of material, merely because the said agreement is a part of a composite transaction, section194C cannot be pressed into service to deduct tax at source. The whole object 0) introducing the section is that it should deduct tax in respect of payments made for a works contract. No deduction is permissible in respect of contract for supply of material for carrying out work. In fact, the Tribunal, by a detailed consideration of the statutory provisions, the various terms of the contract, the legal position as explained in the various judgments, has rightly come to the conclusion that the transaction in question is not a case of composite contract. It is a case of the distinct contracts and the contract for supply of materials is a separate distinct contract in respect of which no deduction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal Nos. 92 to 97 of 2014 vide order dated August 18, 2015. The Hon ble High Court in para 7 and 8 of the above decision has held as under : 7. We are, also, of the opinion that the clauses of the contract particularly, clause 3.5 of the contract agreement, make it clear that three separate contracts have been entered into, but all the separate contracts were integral parts of a composite contract on single sale responsible basis. The invoices raised on the basis of the said composite contract separately mentioning the value of the material supplied, no deduction is permissible under Section 194C of the Act. Section 194C of the Act cannot be pressed into service to deduct tax at source. The whole object of introduction of that Section is to deduct tax in respect of payments made for works contract. No division is, therefore, permissible in respect of a contract for supply of materials for carrying out the work. It is in a case of distinct contracts. The contract for supply of material being a separate and distinct contract, no division is permissible under Section 194C of the Act. Section 194C has sufferedan amendment also with effect from October 1, 2009 and the provision ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinction brought out by the learned CIT(Appeals) is not correct. On the contract for supply of materials para 51.0 of the contract clearly mentions that once the equipments are supplied by BGR and BHEL, the property was in possession to the assessee. The relevant clause read as under : 51.0 OWNERSHIP OF PLANT The plant and equipment supplied by the Contractor pursuant to the contract shall become the property of the Owner at whichever is earlier of the following times viz: i. When the plant and equipment is delivered /dispatched pursuant to the contract. ii. When the contractor has been paid any sum to which he may become entitled in accordance with the provisions of the contract. iii. Plant is otherwise taken over by the Owner in terms of contract. The Hon ble jurisdictional High Court in the case of CIT vs. Glenmark Pharmaceutical Ltd. 324 ITR 199 has clearly expounded that if the property in the product manufactured passes to the customer upon delivery and the material that was required was not sourced from the customer/purchaser but was independently obtained by the manufacturer from a person other than customer, the contract entered into by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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