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TMI Blog2019 (12) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ereto are without prejudice to each other. 2. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is bad both in law and on facts. 3. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is based on presumption, surmises and conjectures. 4. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is further violative of the settled principles of natural justice in as much as no opportunity much less adequate opportunity was ever afforded to the appellant to furnish its defence in course of assessment proceedings. 5. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is wholly perverse in as much as the same are contrary to and at variance with the materials available on record. 6. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the two separate and distinct contracts, one in relation to supply of goods and the other in relation to labour and services were composite contract and that the appellant was liable to ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, the statement of Sri Anurag, Deputy General Manager(Accounts) was recorded on 09.11.2017. Thereafter a show cause notice was issued on 06.11.2017 to furnish the explanation on 22.11.2017. On behalf of the assessee company, Shri Anurag, Dy. G.M.(Accounts) and Sri Alok Kumar, Sr. Manager (Finance) of the deductor assessee appeared and it was brought to the notice of AO that from the perusal of tender documents floated by the assessee company it is observed by the AO that the assessee company had made composite contract. The scope of the work is that the work is to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture's quality assurance, transportation, storage, erection including all civil/structural works, site testing commissioning of all items and supply of materials including all associated activities though not exclusively specified herein and are required for completion of the entire works. In this regard, Sri Alok Kumar, Sr. Manager (Finance) submitted the written explanation as under :- "Regarding explanation of non-deduction of TDS on supply portion. With reference to the subject noted above it is to mention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erection portion works. Thus, in view of the above the contract is composite in nature and is basically a work contract. Accordingly, the AO noted that the assessee has not deducted tax at source on supply of materials as per the provisions of Section 194C of the Act, therefore, he treated the assessee as 'assessee-in-default' u/s.201(1)/201(1A) of the Act for not deducting of tax under section 194C of the Act and passed order u/s.201(1)/1A of the Act, dated 23.11.2017. 5. Feeling aggrieved from the above order of AO, the assessee appealed before the CIT(A), wherein the assessee submitted its written submissions, however, the CIT(A) after considering all the submissions of the assessee and facts available before him and relying on the case laws submitted by the assessee, held that it was a composite contract and the assessee should have deducted TDS. The relevant observations of the CIT(A) are as under :- I have carefully considered the assessment order, the submissions of the appellant and the remand report and other material on record and the facts and merits of the case. I have also carefully considered the submissions of the appellant with regard to the contracts being dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for non-deduction of tax at source. It has also stated that as per CBDT's instruction dated 29.01.1997 and the decision of the Hon'ble Apex Court, it would suffice if the deductee considered the receipts in its books and files ITR with the Department. This, according to the appellant would also be in keeping with the provisions of Section 201 [1] of the Income Tax Act, 1961. The appellant, while advancing this alternative argument, has also cited the following decisions in his favour to aver that in the light of these judgments, it cannot be held as an 'assessee in default':- [i] Power Grid Corporation of India ltd. Vs. CIT[TDS], Patna CWJC No.8472/2013 [Patna] [ii] DCIT[TDS] Vs Sahara India Commercial Corporation Ltd. [2017] 395 ITR 734 [Allahabad] [iii] ITO Vs. Secretary, KUMS, Chhabra, ITA No. 342, 343 & 344 of 2013 [Jaipur] [iv] Haldia Petrochemicals Ltd. Vs. DCIT, ITA No.66/2014 [Kolkata] [v] Reliance Communications Ltd. Vs. ACIT, ITA No.2957/2014 [Mumbai] Before proceeding any further, it would be useful to advert to the facts of the case once again, if only limited..-to the issue at hand. The appellant assessee has contended that; it had eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases. It is also a fact that in some of the cases the deductees have filed their ITRs and have offered the receipts from the appellant assessee as their income and have paid taxes thereon. At the same time, it is also true that in a significant number of cases, neither TDS has been made nor taxes have been paid by the deductees on their own. The contention of the appellant that in its case the ratio of Hindustan Coca Cola Beverages, as expounded by the Hon'ble Apex Court, is applicable which comes to its aid in the given set of facts and circumstances is only partially true. While there is no denying the fact that the decision in the Coca Cola case [supra] is the law of the land but the said needs to be seen in proper perspective and in its entirety. The Hon'ble Apex Court while considering the recovery of taxes imposed u/s 201 in the light of the fact that the deductees had already paid tax on the receipts from the appellant, held that recovery of tax u/s 201 would tantamount to double jeopardy and thus, was not proper. It, however, held the deductor liable to pay interest u/s 201 [1A] for the default in deducting tax in time. CBDT, too, had expressed a similar view in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be liable to pay simple interest,- (i) at one percent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:] [Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso of subsection (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident] (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191. of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability. The payer is liable to pay interest under section 201(1 A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly. As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it can be said that payer has paid the taxes directly. Also, there is no cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is distinguishable. The deductees have not filed their ITRs or paid taxes on income received from the appellant. Hence, this citation does not aid the case of the appellant assessee. [ii] The decision in DCIT[TDS] Vs Sahara India Commercial Corporation Ltd. [2017] 395 ITR 734 [Allahabad] too, stands on a different footing altogether. In this case, the Hon'ble ITAT had remanded the case back to determine as to whether the deductees were liable to pay any tax which was being contested by the Department before the Hon'ble Allahabad High Court. There is no such instance in the present case and further the lack of ITR by the deductee or the finding by the AO of the deductee about the taxability of the deductee precludes such a possibility. Hence, this case is of little help to the appellant. On the contrary, it aids the case of the Department to the extent that the deductees must first file their ITRs, which is then considered by the A.O. before a finding on TDS or its exemption, can be given. [iii] The decision in ITO Vs. Secretary, KUMS, Chhabra, ITA No. 342, 343 & 344 of 2013 [Jaipur] relates to an entity covered by Section 12A, which had been granted by the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t' and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed. In the light of the above discussion it is held that the assessee is liable to deduct TDS on both the contracts, supply and execution, as the nature of the two is composite. Further in the light of the clarity emerging from the decision of the Hon'ble High Court of Kerala in the case of 'The Academy of Medical Sciences' Vs. CIT, Kannaur, as reported in [2018] 403 ITR 74 (Kerala), the assessee is to be treated as an 'assessee in default and would be liable to pay the amount of TDS with interest in such cases where the deductee has not filed a return as per provisions of Sec 139 of the I T Act 1961 or has not paid any taxes and filed a return of loss or nil income for the relevant year. In the result the appeal is partly allowed. 6. Ld. AR before us reiterated the submission made before the lower authorities and in addition to this, he submitted that there was a no liability for deduction of tax at source on supply of goods and there was a separate contract for the supply of goods and for erection and commissioning of the goods. Both were awarded separately which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the point of delivery itself is the owner of goods. The assessee stated that the same represents purchases and is accounted as such and after the receipt of goods and its certification by its qualified engineer that the goods imported are as per the specifications and do not suffer from any defect it hands it over to the contractor for using them in erection. Therefore, ld. AR submitted that the supply of equipment are a separate and distinct the same falls outside the purview of section 194C of the Act. Ld. AR also placed reliance on the decision of Hon'ble Karnataka High Court in the case of Commissioner of Income Tax versus Karnataka Power Transmission Corporation Ltd reported in 208 Taxman 73 (Kar) considered an identical case. The ld. AR stated that in that case also there were two separate and distinct contracts for supply of goods and execution of the works contract. The Lordships after hearing the parties held that in a composite contract, if the invoices are raised, separately mentioning the value of the materials supplied, no deduction is permissible under section 194C of the Act. In a case where three separate agreements entered into and one such agreement is agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax is deductible is answered in the affirmative the liability to pay interest under section 201(1A) of the Act would be consequential. Finally, ld. AR of the assessee submitted that the issue as to whether an assessee in default on account of his failure to deduct tax at source on the contract for supply of goods has been answered in the affirmative, particularly, in view of the judgment of the Hon'ble Supreme Court of India in the case of Hindustan Coca-Cola (supra); the legislative amendment in section 201 of the Act and the law explained by the Hon'ble Patna High Court in the case of Nai Rajdhani Path Pramandal (supra). 7. It was also the alternative plea of the ld. AR of the assessee that if the contractee has offered to the receipt as income in the relevant assessment year in which he has duly paid tax as per the Income Tax Act, 1961, therefore, in such case, as per the amended provisions, the assessee will not be treated as 'assessee-in-default'. In this regard, ld. AR relied on the decision of the Hon'ble Allahabad High Court in the case of CIT(TDS) Vs. M/s Sahara India Commercial Corpn, ITA No.58/2015, order dated 18.01.2017 and submitted that if there is no tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular job. Apart from this it is reiterated in the tender document as well as the letter of award that both these contracts contained Interlinking cross fall breach specifying that breach of one contract would constitute breach of other contract. Thus, it was assumed that even though it had awarded composite contract, but had deducted TDS on the erection part of the contract works only. It failed to deduct tax at source on the supply portion of the contract value which was integral part of the composite contract. From the letter of agreement it was observed that the final payment would be made on completion of all work and on fulfillment by the contractor of all his liabilities under the contract. The bidder was required to submit all bills in triplicate as per the actual work done. Proper item-wise accounting for material supply, erection and assets created had to be maintained. Thereafter payment against next supply would be released upon completion of 40% erection work as per the contract and certification by Engineer-in-charge regarding completion of 40% erection work in the shape of admitted bills. Commissioning, for the purpose of payments shall mean satisfactory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice.' It is an executory contract and the agreements entered into between the assessee and the contractors were basically for carrying out work as per the specifications of the assessee. From various covenants of the contract and by reading the contracts as a whole, it is clear that the contract entered into by the NBPDCL with its contractors is not merely a supply contract but that of a works contract of composite in nature and any payments made under the contract are covered by provisions of section 194C of the Act. From the evidences, it appears that nowhere at any time the so called purchased items came in the possession of the NBPDCL till the project was completed. So all along, the materials/ equipment remained under the custody of the contractor. The possession and real ownership of so called purchased items remained with contractors till the handing over of the project on completion by the contractor. Had the items been purchased by the department then (i) there must have been delivery of the items to NBPDCL, and (ii) it would have been received and kept under the custody of the department of NBPDCL, and (i) the NBPDCL would have sent items at the constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le with regard to maintenance of all insurance cover. (Kindly refer to Annexure- 2) Order for supply of equipment and erection, testing and commissioning are being placed on two separate contracts i.e. first contract for supply and second contract for erection and civil works. However, both these orders/contract shall contain interlinking breach clause specifying that breach of any one contract will constitute breach of the other contract. The supplier shall be fully responsible for the work to be executed under the 'second contracts' (i.e. contract of erection and civil works) and it is mentioned in express language that any breach under the "second contract" (i.e. contract of erection and civil works) shall automatically deemed as breach of this contract and any such breach of occurrence, giving the NBPDCL a right to terminate the "second contract" (i.e. contract of erection and civil works) and / or recover the damages that contract, shall give us right to terminate this contract as well. However, such breach or occurrence in the "second contract" shall not, automatically relieve the contractor from any of their obligations under this contract. It is agreed by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 06-10-2018 in No. ITBA/APL/S/250/2018-19/1012849501(l) has confirmed that the AO was correct in holding the said contract as composite one. Accordingly the effect of above appellate order of Ld CIT (A) in No ITBA/APL/S/250/2018-19/1012849501(l) dt. 06-10-2018 was passed & served on the deductor assessee along-with the fresh modified demand notice. Now to brief:- (1) Though the first part and the second part is mentioned as the "supply contract" & "Erection contract" both these contract would contain interlinking cross fall breach specifying that breach of one contract will constitute breach of the other contract. (2) The said contract is in a condition of turnkey project. (Kindly refer to Annexure-1) (3) Property title was not delivered to NBPDCL unless the project is complete in all respect i.e the property commissioned and handed over in "ready to use" condition to the deductor company. The goods were never transferred prior to erection. (4) Final payment of supply will be done after successful erection and commissioning of the project. (5) Supplied material was as per the specification of NBPDCL so the said supply is found to be customized one. Rebuttal to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the CIT(A) while dealing with the issue has observed that the deductees have neither filed their ITRs nor taxes have been paid. Even if it is taken that the deductees were incurring losses, the primary condition of filing of ITR has to be made so that the department can assess the loss and allow it. Accordingly, the CIT(A) has rejected the contention of the assessee. On perusal of the assessment order, we find that during the course of survey it was brought to the notice of deductor that the assessee had entered into composite contract with the contractors. The scope of the work included the work to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture's quality assurance, transportation, storage, erection including all civil/structural work, site testing, commissioning of all items and supply of materials including all associated activities though not exclusively specified herein and were required for completion of the entire work. It was further observed that it had awarded contracts to specific persons for supply of materials and erection thereof for a particular job. Apart from this, it is reiterated in the tender documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utomatically be construed as a breach of the other contracts which will confer a right on the corporation to terminate other contracts also at the risk and the cost of the supplier. 10. Regarding the closure of projects, the contract mentioned the following clause. Closure proposal will be prepared by the contractor after completion of the project or as per decision of NBPDCL for closure of the project. The details of supplied materials and works executed as per the contract will be prepared by the contractors and reconciled with the engineer to his satisfaction. Therefore, the CIT(A) observed that the two contracts are of the nature of a composite package and that they are inseparable. Both contracts serve the purpose of rendering one single service. The scope of the contract includes design, engineering, manufacture, type testing, and training of power grid personnel and supply of, goods. Further, as per the conditions of the supply of contract, the contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, sub-assemblies and, raw materials or any other items used and it is clearly mentioned that no separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled all its returns for these years declaring loss in all the impugned assessment years and there was no tax liability on the receipts at any point of time. Thus, this fact requires verification by the Assessing Officer. If it is established that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, interest under Section 201 (1A) of the Act cannot be charged against the assessee. It may be that against loss declared by the recipient in its return, ultimately the assessment was completed at a positive income but in that situation also, that demand is on account of different between the returned income and assessed income and not because of non deduction of TDS by the assessee and hence it will not alter the situation particularly if that assessee has challenged the addition in his hands in appeal. Accordingly the order of the ld. CIT(A) on this issue is set aside and the matter is restored to the file of the Assessing Officer for verification and adjudication of the issue in terms indicated above after affording an opportunity of being heard to the assessee. If it is found that in the return of income filed for these years b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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