ACIT, Patiala v. M/s Patiala Distt. Co-op Milk Producers Union Ltd., Patiala

ITA 1392/CHANDI/2010 | 2007-2008
Pronouncement Date: 08-12-2011 | Result: Dismissed

Appeal Details

RSA Number 139221514 RSA 2010
Bench Chandigarh
Appeal Number ITA 1392/CHANDI/2010
Duration Of Justice 11 month(s) 29 day(s)
Appellant ACIT, Patiala
Respondent M/s Patiala Distt. Co-op Milk Producers Union Ltd., Patiala
Appeal Type Income Tax Appeal
Pronouncement Date 08-12-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 08-12-2011
Date Of Final Hearing 07-12-2011
Next Hearing Date 07-12-2011
Assessment Year 2007-2008
Appeal Filed On 09-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI MEHAR SINGH ACCOUNTANT MEMBER ITA NO. 1392/CHD/2010 ASSESSMENT YEAR: 2007-08 ACIT CIRCLE V M/S PATIALA DISTT.COOP. PATIALA. MILK PRODUCERS UNION LTD. PATIALA. PAN: AAAAT-0459K (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.JYOTI KUMARI RESPONDENT BY : NONE DATE OF HEARING : 07.12.2011 DATE OF PRONOUNCEMENT : 08.12.2011 ORDER PER MEHAR SINGH AM THE PRESENT APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER DATED 27.09.2010 PASSED BY THE LD. CIT(A) PAT IALA U/S 250(6) OF THE INCOME-TAX ACT 1961 (IN SHORT 'THE AC T') FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1 40 04 901/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED TO DEDUCT TDS AS PER SECTION 194C ON PAYMENTS MADE IN LIEU OF CONTRACT FOR WORK TO THE PAYEE PARTIES NAMELY IDMC LTD. SHIVALIK AGRO POLY PRODUCTS LTD. HINDUSTAN TIN 2 WORKS LTD. & ECHO PACKAGING SYSTEMS DESPITE THE EXISTENCE OF AGREEMENTS/CONTRACTS OUTLINING SPECIFIC TERMS AND CONDITIONS BETWEEN THE ASSESSEE AND THE SAID PARTIES. LD. CIT(A) HAS ALSO FAILED TO APPRECIATE THAT SPECIFIC TERMS AND CONDITIONS FOR SUPPLY OF MATERIAL HAD BEEN OUTLINED BY THE ASSESSEE WHILE FLOATING THE TENDERS AND THE SAID PARTIES HAD ACCEPTED THE SAME AND HAD SUPPLIED MATERIAL AS PER THE SPECIFICATIONS.. 2. IT IS PRAYED THAT THE ORDER OF CIT(A) BE SET ASI DE AND THAT OF THE AO RESTORED. 3. THE APPELLANT CARVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSED OF. 3. GROUND NOS. 2 & 3 ARE GENERAL IN NATURE AND THER EFORE NEED NO SPECIFIC ADJUDICATION. 4. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS LD. 'DR' STATED THAT THE ISSUE APPEARS TO BE COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT V DY.CHIEF ACCOUNTS OFFICER MARKFED KHANNA (2008) 3 04 ITR 17 (P&H). HOWEVER SHE RELIED UPON THE ORDER PASSE D BY THE AO. 5. NONE ATTENDED ON BEHALF OF THE ASSESSEE. 6. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE AND THE RELEVANT AVAILABLE RECORD INCLUDING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT V CHIEF ACCOUNTS OFFICER MARKFED (SUPRA). THE BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE RELEVANT RECORDS ARE TH AT THE ASSESSEE FILED RETURN OF INCOME SHOWING NIL INCOM E ON 31.10.2007 WHEREIN INCOME FROM BUSINESS AND PROFESS ION 3 WAS SHOWN AS RS.8 64 151/- AFTER SETTING OFF BROUGH T FORWARD LOSSES OF EARLIER YEARS. THE ASSESSMENT WA S FRAMED ON 27.10.2008 U/S 143(3) OF THE ACT. THE APPELLAN T IS A COOPERATIVE SOCIETY AFFILIATED TO THE PUNJAB STATE COOPERATIVE MILK PRODUCERS FEDERATION LTD. CHANDIGARH. IT PURC HASES MILK AS RAW MATERIAL FROM VARIOUS MILK SOCIETIES AN D MANUFACTURES MILK PRODUCTS WHICH ARE INTURN SOLD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICE D THAT A SUM OF RS.1 40 04 901/- HAD BEEN PAID TO THE FOLLOW ING PARTIES ON ACCOUNT OF SUPPLY OF PACKING MATERIALS: NAME OF PARTIES AMOUN T 1. M/S IDMC LTD. RS.62 85 237/- 2. M/S SHIVALIK AGRO POLY PRODUCTS LTD. RS.37 64 6 30/- 3. M/S HINDUSTAN TIN WORKS LTD. RS.27 38 688/- 4. M/S ECHO PACKAGING SYSTEMS RS.12 16 346/- 6.1 AO WAS OF THE VIEW THAT CONTRACTS WITH ABOVE P ARTIES WERE FOR SUPPLY OF DAY TO DAY PACKING MATERIAL FOR PACKING VARIOUS ITEMS BEING SOLD IN THE MARKET. AO INFERRE D THIS ACTIVITY TO BE PART OF WORKS CONTRACT AND PAYMENT S MADE IN CONTRAVENTION OF SECTION 194C OF THE ACT HENCE MAD E DISALLOWANCE. THE OBSERVATIONS OF THE AO ARE REPRO DUCED HEREUNDER : IN THE INSTANT CASE AS PER AGREEMENTS/CONTRACT BETWEEN THE ASSESSEE AND THE PARTIES THE SPECIFIC TERMS AND CONDITIONS WERE MENTIONED WHILE CALLING F OR THE TENDERS TO PURCHASE OF SUCH MATERIAL WHICH WAS ACCEPTED BY THE SUPPLIERS/CONTRACTORS OF CONTRACT. IT IS VERY CLEAR THAT THE SPECIFIC DESCRIPTIONS WERE CLEA RLY MENTIONED BY THE ASSESSEE E.G. IN RESPECT OF MILK PACKAGING FILM TYPE-1 I.E. BUTENE 80:20 OCTANE 50: 50 4 MILK PACKAGING FILM TYPE-11 48:25:25:2. SIMILARLY CLEARLY MENTIONED IN TYPE-1 MATERIAL ITEM CO-EXTRAD ED MULTI LAYERED NATURAL FOOD GRADE FILM MANUFACTURED OUT OF ONLY FOOD GRADE VIRGIN MATERIAL WITH A BLEND OF LDP AND LLDP HAVING 80:20 AS ALSO HAVING MENTIONED THE THICKNESS OF POUCH FILMS I.E. 50 60&65 + 5% MICRON OF CAPACITY OF HALF LTR AND ONE LTR ALONGWIT H THEIR LENGTH 150MM 220MM RESPECTIVELY. IT IS PERTINENT TO MENTION THAT THE CBDT CLARIFIED FROM TIME TO TIME WHERE THERE WAS ANY AMBIGUITY IN RESPE CT OF THE CONTRACT WHETHER FALLS UNDER THE PROVISIONS OF SECTION 194C OR NOT. THE LEGISLATURE ALSO INTRODUC ED EXPLANATIONS BELOW THE SECTION 194C BY DIFFERENT FINANCE ACTS IN WHICH SPECIFIC ITEMS WERE EXPLAINED AS TO WHETHER THEY FALL IN THE CATEGORY OF CONTRACT U/ S 194C I.E. ADVERTISING BROAD-CASTING TELECASTING CARRIAGE OF GOODS AND PASSENGERS ETC. TILL THE FINA NCE ACT 2008 THERE HAS NOTHING BEEN EXPLAINED IN THE INCOME-TAX ACT ITSELF AS TO WHETHER THE PREPRINTED MATERIAL OR SUPPLY OF PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON OTHER THAN CUSTOME R SHALL NOT BE INCLUDED IN WORK. NOW THE LEGISLATURE HAVE SUBSTITUTED SECTION 194C BY THE FA(2) ACT 2009 W.E.F. 1.1.2009 IN WHICH ONLY EXPLANATION HAS BEEN GIVEN UNDER SECTION 194C CLAUSE (VI) OF WHICH DEFIN ES WORK. IN THIS NEW CLAUSE DEFINING THE WORK SUB CLAUSE(A) HAS BEEN SUBSTITUTED IN PLACE OF EARLIER EXPLANATION-III BELOW THE SECTION 194C WHICH WAS INSERTED W.E.F. 1.7.1995. IN THE NEWLY SUBSTITUTED EXPLANATION BELOW SECTION 194C THERE HAS BEEN CLEAR LY MENTIONED THAT MANUFACTURING OR SUPPLYING THE PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATI ON OF CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH CUSTOMER WILL BE INCLUDED IN WORK BUT FURTHER IT HA S BEEN MENTIONED THAT MANUFACTURING OR SUPPLYING THE PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATI ON 5 OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER SHALL NOT BE INCLUD ED IN WORK. THUS IT IS VERY MUCH CLEAR THAT INTENTION OF THE LEGISLATURE HAS CLEARLY EXPRESSED WHILE SUBSTITUTING THE SECTION 194C THAT THESE PROVISIONS WILL BE APPLICABLE ONLY W.E.F. 1.10.2009. ACCORDIN GLY IN THE INSTANT CASE THIS PROVISION IS NOT EXPRESSL Y APPLICABLE FOR THE YEAR UNDER CONSIDERATION IN AS M UCH AS THERE WAS A CONTRACT FOR WORK DURING THE YEAR UNDER CONSIDERATION UNDERTAKEN BY THE SUPPLIER AS DISCUSSED IN DETAIL SUPRA. AFTER KEEPING IN VIEW THE ABOVE DISCUSSION I HOLD THAT THE ASSESSEE HAS ENTERED INTO CONTRACT WITH THE ABO VE MENTIONED PARTIES FOR SUPPLY OF MATERIAL AS PER ITS REQUIREMENT FOR EXECUTION OF WORK WHICH HARDLY FALL S IN THE CATEGORY OF SALE OF GOODS AND ACCORDINGLY T HE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE U/S 194C OF THE IT ACT. BUT THE ASSESSEE FAILED TO DO S O AND THE PAYMENTS MADE TO THESE PARTIES ON ACCOUNT O F SUPPLY OF MATERIAL TO THE ASSESSEE AGGREGATING TO RS.1 40 04 901/- IS NOT DEDUCTIBLE AND THE SAME IS LIABLE TO BE ADDED AS PER PROVISIONS OF SECTION 40A (IA) OF THE IT ACT TO THE INCOME OF THE ASSESSEE. 7. THE FINDINGS OF THE LD. CIT(A) ARE REPRODUCED HEREUNDER FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE RI VAL CONTENTIONS. THE MAIN QUESTION IN DISPUTE IN THIS CASE IS WHETHER THE SUPPLY OF PACKING MATERIAL WITH PRE-PRINTED LABELS TO THE APPELLANT IS A SIMPLE CAS E OF CONTRACT FOR SALE OF GOODS OR WAS A WORKS CONTRA CT. THE FOUR PARTIES NAMED BY THE AO IN HIS ORDER ARE INDEPENDENT MANUFACTURERS OF DIFFERENT PRINTED AND PACKAGING MATERIAL. THEY ARE SUPPLYING THIS MATERIA L TO THE APPELLANT AS PER THEIR SPECIFICATIONS. ALL THE 6 WORK OF MANUFACTURING THE PACKING MATERIAL AND THE PRINTING WORK OF THIS PACKAGING MATERIAL WAS BEING DONE IN THE PREMISES OF THESE THIRD PARTIES. BEFOR E TAKING A DECISION ON THE APPLICABILITY OF TDS U/S 194C ON A CONTRACT IT IS NECESSARY FOR THE AO TO EXAMINE WHETHER THE CONTRACT IN QUESTION IS A CONTRACT FOR WORK OR CONTRACT FOR SALE AND TDS CAN ONLY BE APPLICABLE WHERE THERE IS A CONTRACT F OR WORK. AS HELD IN THE CASE OF BDA LTD. V ITO (2006 ) 281 ITR 99 (BOM) THE HON'BLE HIGH COURT CONSIDERED THE ISSUE WITH REGARD TO THE SUPPLY OF WRAPPERS LABELS FOR BOTTLES CONTAINING LIQUOR SOLD BY THE ASSESSEE. IT WAS FOUND THAT THE WORK WAS DONE IN THE PREMISES OF THE ASSESSEE AND HE INCURRED THE COST OF LABELS. THE NUMBER OF LABELS WAS DETERMINE D BY ASSESSEE. IT WAS HELD THAT THIS WAS A CONTRACT F OR SALE AND NOT WORKS CONTRACT. 4.5 HOWEVER CBDT IN CIRCULAR NO.13 OF 2006 DATED 13.12.2006 HAS CLARIFIED THAT EXCLUSIVE RELIANCE ON CIRCULAR NO.715 DATED 8.8.1995 CANNOT BE MADE WITHOUT CONSIDERING THE PRINCIPLES LAID DOWN IN CIRCULAR NO. 681 DATED 8.3.94. EACH CONTRACT IS TO BE EXAMINED SEPARATELY TO DETERMINE WHETHER IT IS CONTRACT FOR WORK OR FOR SALE. 4.6 THE ENTIRE ACTIVITY OF PACKAGING AND PRINTING AND LATER SUPPLYING THE SAME TO THE APPELLANT SHOWS THAT THIS IS A CONTRACT OF SALE AND CANNOT BE TERME D AS A WORKS CONTRACT AS HELD BY THE AO IN HIS ORDER. IN CASE THIS IS A CONTRACT FOR SALE NO TDS IS REQU IRED TO BE DEDUCTED BY THE APPELLANT U/S 194C OF THE ACT . THEREFORE THIS AMOUNT IS NOT DISALLOWABLE WHILE COMPUTING THE INCOME OF THE ASSESSEE. THE MAIN PURPOSE OF THE APPELLANT WAS TO BUY THE PACKING AND PRINTING MATERIAL FROM THE THIRD PARTIES FOR THE PURPOSE OF PACKING AND NO WORKS CONTRACT WAS INVOLVED. THE PROVISIONS OF SECTION 194C HAVE BEEN 7 WRONGLY HELD TO BE APPLIED IN THE APPELLANTS CASE. THE ADDITION MADE IS THEREFORE DELETED. 8. LD. CIT(A) ADJUDICATED THE ISSUE AGAINST THE REV ENUE BY PLACING RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF BDA LTD. V ITO (2006) 281 ITR 99 (BOM). 9. IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE TH E CIT(A) THE ASSESSEE PLACED RELIANCE ON THE FOLLOWI NG JUDGEMENTS: I) WADI LAL DAIRY INTERNATIONAL LTD. V ACIT (2001) 70 TTJ 77 (PUNE) II) CIT V DABUR INDIA LTD. (2001) 198 CTR 375 (DEL) III) BDA LTD. V ITO (2006) 201 CTR 413 (BOM) IV) GLENMARK PHARMACEUTICALS LTD. V CIT (2010) 37 DTR (BOM) 265 10. THE ISSUE IN QUESTION IS COVERED BY THE DECISIO N OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V DY.CHIEF ACCOUNTS OFFICER MARKFED AND THE RELEVANT AND OPER ATIVE PART OF THE SAID DECISION IS REPRODUCED HEREUNDER : HELD DISMISSING THE APPEAL THAT THERE WAS NO DISPUTE THAT THE MAIN PURPOSE OF THE ASSESSEE IN BUYING PACKING MATERIAL WAS TO OBTAIN GOODS FOR THE PURPOSE OF PACKING ITS FINISHED PRODUCTS. THE FACTUM OF SUCH PACKING MATERIAL CARRYING SOME PRINTED WORK COULD ONLY BE REGARDED AS THE WORK EXECUTED BY THE SUPPLIER INCIDENTAL TO THE SALE TO THE ASSESSEE. THE FACT OF SOME PRINTING BEING DONE AS A PART OF SUPPLY WAS OF NO CONSEQUENCE TO THE CONTRACT BEING ESSENTIALLY OF A SALE OF CHATTEL. TH E PREDOMINANT OBJECT UNDERLYING THE CONTRACTS WERE SALE/PURCHASE OF GOODS AND THE ONLY INTENTION OF THE ASSESSEE WAS TO BUY PACKING MATERIALS. 8 ADMITTEDLY THE RAW MATERIAL FOR THE MANUFACTURING OF SUCH PACKING MATERIAL WAS NOT SUPPLIED BY THE ASSESSEE. THUS IT WAS A CASE OF SALE AND NOT A CONTRACT FOR CARRYING OUT ANY WORK. THE PURCHASE OF PARTICULAR PRINTED PACKING MATERIAL BY THE ASSESSEE WAS A CONTRACT FOR SALE AND OUTSIDE THE PURVIEW OF SECTION 194C. 10(1) FURTHER THE AMENDMENT TO SECTION 194C OF T HE ACT REFERRED TO BY THE AO IS APPLICABLE ONLY W.E.F. 01. 10.2009 AND THE PRESENT CASE PERTAINS TO THE ASSESSMENT YEA R 2007- 08 AND HENCE THE SAME IS NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE. 11. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSI ONS AND FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DEC. 2011. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8 TH DEC. 2011. POONAM COPY TO: THE APPELLANT THE RESPONDENT THE CIT(A) THE CIT DR ASSISTANT REGISTRAR ITAT CHANDIGARH