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TMI Blog2017 (12) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by any person and in the present case the work carried by the assessee duly falls within the parameters of work contract?" 4. The facts of the case are that assessee a private limited company and filed return declaring loss of Rs. 4,25,107/-. It had claimed refund of Rs. 61,94,160/-. Since the refund was claimed on account of credit of tax at source deducted by Central Government Employees Welfare Housing Organization (hereinafter to be referred as CGEWHO) and asseesee did not declare any corresponding receipt or income in its return of income, the Assessing Officer issued a notice u/s 148 of the Income Tax Act, 1961 on 1.7.2010. In response thereto, the assessee filed a letter dt 4.8.2010 stating that the return already filed may be treated as a valid return in response to such notice. The assessee's objection to the issuance of notice were disposed of by the Assessing Officer vide order dt. 9.12.2011. 5. The tribunal while considering the matter has relied upon the decision rendered in the case of The Commissioner of Income Tax-I vs. Radhe Developers (2012) 341 ITR 403 (Guj.) wherein it has been held as under:-...... 32. Section 80IB(10) of the Act thus provides for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax legislation and many of those judgments relate to the period prior to the enactment of the Forty Sixth Amendment to the Constitution. The technicalities of sales tax legislation, especially as a consequence of the Forty Sixth amendment do not fall for determination in this proceeding. The decided cases are being referred to only with a view to emphasise the distinction between a contract for work and a contract for sale. 15. In Govt. of Andhra Pradesh v. Guntur Tobaccos Ltd. MANU/SC/0272/1964 : AIR 1965 SC 1396 : 16 STC 240, the Supreme Court held that in the execution of a contract of work some materials may be used and property in the goods so used passes to the other party. However, the contractor who undertakes to do the work will not necessarily be deemed on that account to sell the materials. The Supreme Court noted that a contract for work in the execution of which goods are used may take one of three forms. Those three forms were elaborated as follows( page 1404 of AIR 1965 SC 255 of 16 STC): The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia) Ltd. MANU/SC/0118/2005 : (2005) 3 SCC 389 : (2005) 140 STC 22, the assessee was under the terms of contract required to supply and install lifts to its customers, while it was the customers' obligation to undertake work connected in keeping the site ready for installation. The Supreme Court noted that under its contractual obligations, the assessee had undertaken the installation of lifts manufactured and brought to site in a knocked-down state and the contract in question was a contract of sale and not a works contract. The distinction between a contract of sale and a works contract found elaboration in the following observations( page 26 of 140 STC): If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judged not by artificial rules but from the intention of the parties to the contract. In a 'contract of sale', the main object is the transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sole property of the party who is to deliver it, then it is a sale. If A may transfer property for a price in a thing in which B had no previous property then the contact is a contract for sale. On the other hand where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. (4) The bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not for the work and labour. However, the test is not decisive...' 18. A contract for sale has hence to be distinguished from a contract of work. Whether a particular agreement falls within one or the other category depends upon the object and intent of the parties, as evidenced by the terms of the contract, the circumstances in which it was entered into and the custom of the trade. The substance of the matter and not the form is what is of importance. If a contract involves the sale of movable property as movable property, it would constitute a contract for sale. On the other hand, if the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfer of property and delivery of possession of the property, whereas the main object in a 'contract for work' is not the transfer of the property but it is one for work and labour. Another test often to be applied to is: when and how the property of the dealer in such a transaction passes to the customer; is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer' If it is the former, it is a 'sale', if it is the latter, it is a 'works-contract'. Therefore, in judging whether the contract is for a 'sale' or for 'work and labour', the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a 'sale' or a 'works-contract'. Essentially, the question is of interpretation of the 'contract'. It is settled law that the substance and not the form of the contract is material in determining the nature of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) of the Act, merely because the project was not approved in the name of respondents-assessee, but was in the name of the original land owner." 7. We have heard counsel for the parties. 8. Taking into consideration the observations made by the tribunal which reads as under:- "19. We have heard parties with reference to material on record. On the ground of initiation of proceedings under section 147/148 of the Act, it is found that the assessing authority after processing the return under section 143(1) of the Act and after expiry of statutory period for issuing notice under section 143(2) of the Act, cause and justification that income of the assessee had escaped assessment. He thus entertained a bonafide belief that income of the assessee has escaped from assessment as the receipts from contract on which tax at source has been deducted are not disclosed as income in the Profit & Loss account. In this view of the matter, we do not find any error in the order of Ld. CIT(A) in upholding the action taken by the assessing authority. The ground raised in appeal being deviod of any merit, the same stands rejected. 20. On the issue of deduction under section 80IB(10) of the Act, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as occupancy certificate in his name by Jaipur Development Authority and the same were also a part of record of the authorities below. All these documents read together thus reveals that the appellant has entered into a contract with CGEWHO for development and sale/transfer of composite housing complex comprising of dwelling units and specified common facilities on a Turnkey basis which included providing of land, carrying out development etc. Merely the payment of stamp duty for transfer of land does not mean that the assessee had lost control and possession of the land that vested in him prior to execution of such transfer deed in favour of CGEWHO without receiving any sale consideration in lieu thereof, in particular when such a transfer was for a limited purpose of performance security only. The land under question remained in possession of the appellant prior to the date of such transfer deed as well as subsequent to that date till the housing project is completely constructed and possession is handed over by the appellant to the CGEWHO or its beneficial allottees in the composite turnkey contract and there is no separate consideration for land or development/contract or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod applied in the first year is followed in the subsequent year, the rule that it has consistently been followed shall be applicable to such first year also. In the present case in appeal even though the appellant followed Project Completion method but it has given up his claim and agreed to be assessed on the basis of Percentage Completion method provided the deduction under section 80IB(10) of the Act is allowed to it in the light of Board's Instruction No. 4/2009 as has been reproduced in para 8.2 of the assessment order as the tax audit report as envisaged before allowing deduction has also been furnished by the assessee. We, therefore, on the peculiar facts and considering entire gamut of the case laws are satisfied that the assessee is a builder and developer and cannot be termed as a works contractor for invoking Explanation below section 80IB(10) of the Act. The appellant having agreed to be assessed on Percentage Completion method, the estimation of income after rejecting accounts by the Ld. CIT(A) in both the years under appeal does not require any interference so that the appellant in this case having filed the requisite audit report also is entitled to deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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