TMI Blog2015 (12) TMI 1621X X X X Extracts X X X X X X X X Extracts X X X X ..... act in the present appeal whether distinguish it from the facts mentioned in above appeal dealt by the Hon’ble High Court. Hence following the above decision, we hold that the contract of supply of material is a separate distinct contract and on which no deduction is permissible u/s 194C. We further find that in the present case the assessee is not liable to deduct tax at source on the supply portion as per Explanation (iv) (e) to section 194C. Section 194C mandates that a person responsible for paying any sum for carrying out any work in pursuance of the contract between the contractor and a specified person shall at the time of credit of such sum with the account of the creditor or at the time of payment thereof deduct a specified sums as incometax. The Hon’ble jurisdictional High Court in the case of CIT vs. Glenmark Pharmaceutical Ltd. [ 2010 (3) TMI 289 - BOMBAY HIGH COURT ] 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing grounds of appeal at or before the hearing of the appeal. Since facts are identical we adjudicate the issue by referring to the facts and figures of learned CIT(Appeals) common order mentioned above. 2. Brief facts of the case are as follows: The appellant company is wholly owned by the Government of Maharashtra through MSEB Holding Co. Ltd. engaged in the activity of generation of electricity. During the F.Yrs. 2007-08, 2008-09 and 2009-10, the appellant company was setting up a power plant at Khaparkheda and had inter-alia entered into the following agreements: a) Agreement dt. 03-07.2007 being the Letter of Award for Supply of Equipments for Balance of Plant entered into with GEA Energy System (India) Ltd.. (GEA) now known as BGR Energy System (India) Ltd. (BGR) and b) Agreement dt. 27-06-2007 being the Contract Agreement entered into by the appellant with Bharat Heavy Electrical Ltd. (BHEL). 3.1 In addition to the above, the appellant has also entered into other contracts with BGR and BHEL and for erection, testing and commissioning of the plants purchased by it for BGR and BHEL and for carrying out the civil and structural works required for the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds for all the three years. Further more the assessee raised the following additional ground before the learned CIT(Appeals): The appellant submits that the recipient viz. BGR Energy Systems (India) Ltd. (BGR) and Bharat Heavy Electricals Ltd. (BHEL) have already made payment of advance taxes on the amount received by them from the appellant during the year under consideration and hence the tax deductible by the appellant on the said payments cannot be recovered from the appellant. The assessee submitted before the learned CIT(Appeals) that though the bid was a composite bid the same had distinctly/separately identifiable contracts for the three clearly distinguishable portions : i) Supply of equipment; ii) Erection and iii) Civil works. No tax is required to be deducted on the contract for supply of equipment. On the erection and civil works component, TDS has been done as per provisions of section 194C. Appellant has also relied on the following decisions : i) Senior Accounts Officer (O M), Haryana Power Corporation Ltd. vs. ITO [2006] 103 TTJ 584 (Del). ii) Power Grid Corporation of India Ltd. vs. ACIT [2007] 112 TTJ 654 (Hyd). iii) ACIT vs. Andh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant shall be taken over by the owner. That as far the BOP contract with BGR Systems, it is noticeable from the agreement clause in the contractor s obligation/liabilities itself specifies that the contract shall be a turnkey contract on the basis of supply cum erection on a single source responsibility. That thus the terms and conditions of the contract agreement and the obligations and liabilities of the contractor, clearly indicate that there is a composite contract. 6. Learned CIT(Appeals) further observed that the appellant has relied on Explanation (iv)(e) to section 194C for supporting his definition of work, which essentially contemplates manufacture or supply of a product. That appellant has further emphasized that in this case, no material was purchased from Mahagenco by either BHEL or BGR systems. Therefore, clause (e) to Explanation (iv) to section 194C is applicable. In this connection learned CIT(Appeals) referred to clause (e) of Explanation (iv) to Section 194C and observed that since the relevant clause of the Explanation is applicable only in the context of manufacturing or supplying a product, it was necessary to appreciate whether the setting up of a po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract in question was not an outsourcing contract. Further, as held by A.O., the contract for supply and the contract for erection, commissioning and testing of the power plant cannot be artificially bisected and a composite contract exists for construction of a power plant. Therefore, the need for looking the source of supply of the components would not arise in the appellant s case because the explanatory note itself excludes the construction contract for supply of equipments and erection, commissioning and testing is a composite contract, the intention of which is to set up or construct a power plant. 8. Learned CIT(Appeals) further held that the decision of the Tribunal relied upon by the AO in the case of Essar Oil Ltd. vs. ITO 77 ITD 92 was entirely applicable. Learned CIT(Appeals) further found fault with the assessee s distinguishing the decision of the Hon ble Madras High Court in the case of Ansaldo Energia SPA vs. ITAT 310 ITR 237. Learned CIT(Appeals) further found that following case laws relied upon by the assessee distinguishable: a) Haryana Power Generation Corporation 103 TTJ (Del). b) Power Grid Corporation vs. ACIT 112 TTJ 654. c) ACIT vs. Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201 (1 A) of the Act till the date of payment of taxes by the deductee- assessee or the liability for penalty under section 271 C of the Income Tax Act. A.O. may verify the factual position and give relief accordingly. This ground is allowed. 10. Against the above order, assessee is in appeal before us. 11. We have heard both the counsel and perused the records. Learned counsel of the assessee Shri J.D. Mistri, vehemently argued that the Revenue authorities have totally erred in treating all the contracts as composite contracts. He submitted that both the bids were a composite bid. The same had distinctly/separately identifiable contracts for the three clearly distinguishable portions viz. supply equipment, erection, civil works. He submitted that no tax is required to be deducted on the contract for the supply of equipment. Learned counsel further submitted that learned CIT(Appeals) has erred in distinguishing the decisions relied upon by the assessee. Learned counsel took us through the paper book and referred to the agreements under bide specification to suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hindustan Coca Cola Beverage P. Ltd. vs. CIT 293 ITR 226. Learned CIT(Appeals) held that the AO may verify the factual position and give relief accordingly. 16. Now we find that in the above referred decision of the Hon ble Apex Court it was expounded that if the deductor has satisfied the AO that tax due had been paid by the deductee-assessee, then tax deductor will not be liable. However, Hon ble Apex Court has clarified that this will not alter the liability to charge interest u/s 201(1A) of the Act till the date of payment of taxes by the deductee-assessee. 17. When enquired in this regard by the Bench, both the counsel were not in a position to furnish the actual position of tax liability fastening upon the assessee after considering the above decision of Hon ble Apex Court. Hence we are of the opinion that to the extent the assessee gets relief as above, the issue raised by the assessee before us will be otiose. Be as it may, we adjudicate herein below the issue on merits. 18. We find that it is a plea of the assessee that the assessee has entered into distinct/separately identifiable contracts for three clearly distinguishable portions viz. supply equipment, ere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 payable on the supply portion and also levied interest on the said amount. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 for supply, that the obligation under the contract would not come to an end. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 permissible under section 194C. [Para 14} In that view of the matter, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has been made very clear without any ambiguity. 8.Thus, we can conclude safely that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 assessee was not a contract for carrying on work within the meaning of section 194C.Considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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