M/s Gowthami Scan Centre Pvt. Ltd., Visakhapatnam v. The ACIT, Circle-1, Rajahmundry

ITA 515/VIZ/2010 | 2007-2008
Pronouncement Date: 05-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 51525314 RSA 2010
Assessee PAN AACCG4707F
Bench Visakhapatnam
Appeal Number ITA 515/VIZ/2010
Duration Of Justice 7 month(s) 6 day(s)
Appellant M/s Gowthami Scan Centre Pvt. Ltd., Visakhapatnam
Respondent The ACIT, Circle-1, Rajahmundry
Appeal Type Income Tax Appeal
Pronouncement Date 05-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 05-07-2011
Date Of Final Hearing 19-04-2011
Next Hearing Date 19-04-2011
Assessment Year 2007-2008
Appeal Filed On 29-11-2010
Judgment Text
ITA NO 515 OF 2010 GAUTHAMI SCAN CENTRE PRIVATE LIM ITED RAJAHMUNDRY PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.515/VIZAG/2010 ASSESSMENT YEAR: 2007 - 08 GAUTHAMI SCAN CENTRE PRIVATE LIMITED RAJAHMUNDRY VS. ACIT CIRCLE-1 RAJAHMUNDRY (APPELLANT) PAN NO:AACCG 4707 F (RESPONDENT) APPELLANT BY: SHRI C. SUBRAMANYAM CA RESPONDENT BY: SMT. D. KOMALI SINGH SR.DR ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 15-09-2010 PASSED BY LD CIT(A) RAJAHMUNDRY AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING TWO ISSUES:- (A) DISALLOWANCE OF REPAIR EXPENSES RS.9 22 400/ - (B) DISALLOWANCE U/S 40(A)(IA) - RS.13 4 6 590/- 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS RUNNING A SCAN CENTRE. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED FOLLOWING EXPENSES AS REVENUE EXPENDITURE UNDER THE HEAD SCANNING CEN TRE OPERATIVE EXPENSES. PICTURE TUBE - RS.8 00 000/- OPG CIRCUIT BOARD - RS.1 22 400 /- THE ASSESSING OFFICER CONSIDERED THESE EXPENSES AS CAPITAL IN NATURE AND ACCORDINGLY DISALLOWED THE SAME. THE ASSESSEE ALSO INCURRED EXPENSES TO THE TUNE OF RS.13 46 590/- UNDER THE HEAD ANNUAL M AINTENANCE CONTRACT ITA NO 515 OF 2010 GAUTHAMI SCAN CENTRE PRIVATE LIM ITED RAJAHMUNDRY PAGE 2 OF 6 OF THE CT SCAN EQUIPMENT. THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE DID NOT DEDUCT TDS ON THE SAID PAYMENT AS REQUIRED U/S 194C OF THE ACT. HENCE THE ASSESSING OFFICER BY INVOKING THE PROVIS IONS OF SEC.40(A)(IA) OF THE ACT DISALLOWED THE SAID EXPENDITURE ALSO. THE APPEAL FILED BY THE ASSESSEE BEFORE LD CIT(A) WAS PARTLY ALLOWED I.E. THE LD CIT(A) WHILE CONFIRMING BOTH THE ADDITIONS DIRECTED THE ASSESSI NG OFFICER TO ALLOW DEPRECIATION ON THE AMOUNT TREATED AS CAPITAL EXPEN DITURE. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WITH REGARD TO THE EXPENDITURE CLAIMED AS REPAIRS THE LD AR SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED ON REPLACEME NT OF WORN OUT PARTS OF CT SCANNER. HE FURTHER SUBMITTED THAT THE SAID PAR TS CANNOT FUNCTION INDEPENDENTLY AND ACCORDINGLY CONTENDED THAT LD CIT (A) IS WRONG IN PLACING RELIANCE ON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF CIT VS. SRI MANGAYARKARASI MILLS P LTD (315 ITR 114) IN THIS REGARD. WE FIND MERIT IN THE SAID CONTENTIONS OF THE ASSESSEE. THE LD D.R ALSO FAIRLY CONCEDED THAT THESE EXPENSES ARE IN THE NATURE OF R EPAIRS ONLY. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE IMPUGNED EXPENDITURE CLAIMED BY THE ASSESSEE. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE M ADE U/S 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER HAS NOTED THAT THE ASSE SSEE HAS ENTERED INTO A COMPREHENSIVE ANNUAL MAINTENANCE CONTRACT FOR CT SC ANNER FOR SERVICE AND SUPPLY OF SLICES AND OTHER MATERIAL WITH M/S CURA MEDICAL EQUIPMENT PVT. LTD AND PAID A SUM OF RS.13 46 590/- IN PURSUANCE O F THE SAID CONTRACT. SINCE THE ASSESSEE DID NOT DEDUCT TDS ON THE SAID P AYMENT U/S 194C OF THE ACT THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE U/S 40(A)(IA) OF THE ACT. THE LD A.R SUBMITTED THAT THE ASSESSI NG OFFICER HAS MAINLY PLACED RELIANCE IN THIS REGARD ON THE QUOTATION ISSUED BY THE SAID COMPANY TO THE ASSESSEE. ADVERTING OUR ATTENTION TO A LETTER DATED 03-06- ITA NO 515 OF 2010 GAUTHAMI SCAN CENTRE PRIVATE LIM ITED RAJAHMUNDRY PAGE 3 OF 6 2006 ISSUED BY M/S CURA MEDICAL EQUIPMENT PVT. LTD WHICH IS PLACED AT PAGE 6 OF THE PAPER BOOK FILED BY THE ASSESSEE THE LD A.R SUBMITTED THAT THE IMPUGNED EXPENDITURE IS INCURRED TOWARDS THE SU PPLY OF SLICES A CONSUMABLE USED IN THE CT SCAN. HE FURTHER SUBMITT ED THAT THE NORMAL COST OF SLICE IS RS.18/- PER SLICE WHILE THE ADVAN CE PAYMENT ENTITLES THE ASSESSEE TO GET THE SLICE AT A CONCESSIONAL RATE OF RS.10/- PER SLICE UP TO THE QUANTITY OF 9000 SLICES. IN THIS REGARD THE L D A.R ADVERTED OUR ATTENTION TO THE MONTHLY BILLS RAISED BY M/S CURA M EDICAL EQUIPMENT P LTD WHEREIN THE SLICES CONSUMED OVER AND ABOVE THE LIMI T OF 9000 QUANTITIES HAVE BEEN CHARGED AT RS.18/-PER SLICE. ACCORDINGLY HE SUBMITTED THAT THE IMPUGNED PAYMENTS HAVE BEEN MADE FOR SUPPLY OF MATE RIALS AND HENCE THE SAID PAYMENTS DO NOT REQUIRE DEDUCTION OF TDS U/S 1 94C OF THE ACT. 5.1 ON THE OTHER HAND THE LD D.R SUBMITTED THA T THE ASSESSEE HAS BOOKED THE IMPUGNED EXPENSES UNDER THE HEAD AMC CT EQUIPMENT. THE CORRESPONDENCE RELIED UPON BY THE ASSESSEE ALSO CLE ARLY STATES THE CONTRACT AS COMPREHENSIVE ANNUAL MAINTENANCE CONTRACT. AC CORDINGLY SHE SUBMITTED THAT THE ASSESSEE IS LIABLE TO DEDUCT TDS ON THE IMPUGNED PAYMENT U/S 194C OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CARE FULLY PERUSED THE RECORD. WE HAVE GONE THROUGH THE LETTER DATED 03- 06-2006 ISSUED BY M/S CURA MEDICAL EQUIPMENT P LTD THE QUOTATION AND MON THLY BILLS ISSUED BY THE SAID COMPANY. IT IS SEEN THAT THE QUOTATION DA TED 01-04-2006 WHICH THE LD A.R CONTENDED AS MERELY A QUOTATION HAS B EEN SIGNED BY BOTH THE PARTIES MEANING THEREBY THE ASSESSEE HAS CONFI RMED THE CONTRACT BY AFFIXING ITS SIGNATURE ON THE SAID QUOTATION. HENC E IT IS REASONABLE TO INFER THAT ASSESSEE HAS ENTERED INTO A COMPREHENSIVE ANN UAL MAINTENANCE CONTRACT WITH THE ABOVE SAID COMPANY. THE ANNUAL P AYMENT OF RS.11 90 160/- WORKS OUT TO 12 MONTHLY PAYMENTS OF RS.99 180/- EACH. ITA NO 515 OF 2010 GAUTHAMI SCAN CENTRE PRIVATE LIM ITED RAJAHMUNDRY PAGE 4 OF 6 6.1 A PERUSAL OF THE LETTER DATED 03-06-2008 AND THE MONTHLY BILLS RAISED BY THE SAID COMPANY SUGGESTS THAT THE MATERIAL NAME D SLICES SUPPLIED BY THE SAID COMPANY SHALL BE CHARGED AT CONCESSIONAL R ATE OF RS.10/- PER SLICE FOR THE FIRST CONSUMPTION OF 9000 SLICES PER MONTH. THE EXCESS CONSUMPTION OF SLICES OVER IN A MONTH OVER AND ABO VE THE ABOVE SAID LIMIT SHALL BE CHARGED AT RS.18/- PER MONTH. THUS THE CO ST OF 9000 SLICES AT THE CONCESSIONAL RATE WORKS OUT TO RS.90 000/- AND AFTE R ADDING THE SERVICE TAX THE SAME WORKS OUT TO RS.99 180/-. THUS THE M ONTHLY PAYMENT OF RS.99 180/- CAN REASONABLY PRESUMED TO BE A PART OF COMPREHENSIVE ANNUAL MAINTENANCE CONTRACT. HOWEVER THE ASSESSEE HAS INCURRED A SUM OF RS.13 46 590/- UNDER THE HEAD AMC CT EQUIPMEN T AND THE BREAK UP OF THE SAME IS GIVEN BELOW:- MONTHLY PAYMENT OF RS.99 180/- MADE FOR 10 MONTH S - RS.9 91 800/- COST OF EXCESS SLICES OVER AND ABOVE 9000 AS PER MONTHLY BILLS - RS.3 54 790/- ------------------ RS.13 46 590/- =========== THE AMOUNT OF RS.3 54 790/- PERTAINS TO THE COST OF EXCESS SLICES CHARGED AT THE RATE OF RS.18/- PER SLICE AND HENCE THE SAME IS NOT COVERED BY THE CONTRACT ENTERED BY THE ASSESSEE. FURTHER THE MON THLY PAYMENT OF RS.99 180/- MADE BY THE ASSESSEE COMPANY ALSO APPEA RS TO BE TOWARDS THE COST OF SLICES ONLY I.E. THE COST OF 9000 SLICES A T THE CONCESSIONAL RATE OF RS.10/- PER SLICE. NOW THE QUESTION THAT ARISES IS WHETHER THE ASSESSEE HAS MADE ANY PAYMENT TOWARDS THE CONTRACT FOR SERVICES SO AS TO ATTRACT THE PROVISIONS OF SEC. 194C OF THE ACT. 6.2 IN THIS REGARD WE SHALL MAKE A REFERENCE TO THE QUOTATION SIGNED BY BOTH THE PARTIES. IN THAT QUOTATION THE CONTRACT I S DESCRIBED AS ANNUAL COMPREHENSIVE MAINTENANCE CONTRACT. THE SCOPE OF WORK IS MENTIONED AS UNDER: SCOPE OF WORK: CONTRACT COVERS PMS BREAK DOWN REPLACEMENT OF FIELD ITA NO 515 OF 2010 GAUTHAMI SCAN CENTRE PRIVATE LIM ITED RAJAHMUNDRY PAGE 5 OF 6 REPLACEABLE/REPAIRABLE SPARE PARTS AN D X RAY TUBE. PERIODIC MAINTENANCE SERVICE WILL BE DONE ONCE IN A QUARTER AND BREAK DOWN ATTENDANCE WILL BE AS AND WHEN REQUIRED. THUS ON A COMBINED READING OF THE CLAUSES OF THE C ONTRACT THE LETTER DATED 03-06-2006 AND THE MONTHLY BILLS RAISED FOR T HE EXCESS QUANTITY OF SLICES WE NOTICE THAT THE ANNUAL COMPREHENSIVE MA INTENANCE CONTRACT CONSISTS OF TWO TYPES OF CONTRACTS VIZ. CONTRACT OF SALE FOR SLICES AND CONTRACT FOR SERVICE. 6.3 IT IS WELL SETTLED THAT THE PROVISIONS OF SE C. 194C SHALL NOT APPLY TO THE CONTRACT OF SALE. ACCORDINGLY THE COST OF E XCESS SLICES AMOUNTING TO RS.3 54 790/- SHALL FALL OUTSIDE THE PURVIEW OF THE PROVISIONS OF SEC. 194C. HOWEVER AS STATED EARLIER THE BALANCE AMOUNT OF R S.9 91 800/- ALSO APPEARS TO HAVE BEEN PAID TOWARDS THE CONSUMPTION O F 9000 SLICES PER MONTH. IF THAT BE THE CASE THEN THERE WILL BE NO N ECESSITY FOR THE COMPANY I.E. M/S CURA MEDICAL EQUIPMENTS P LTD TO TAKE RESPONSIBILITY TO DO MAINTENANCE WORKS. HENCE IT IS REASONABLE TO P RESUME THAT THE PAYMENT OF RS.9 91 800/- MADE BY THE ASSESSEE IS TO WARDS TWO TYPES OF CONTRACTS STATED EARLIER I.E. CONTRACT FOR SUPPLY OF SLICES AT A CONCESSIONAL RATE AND ALSO A CONTRACT FOR SERVICES. SINCE THE P ROVISIONS OF SEC. 194C SHALL APPLY ONLY TO THE CONTRACT FOR SERVICES IT IS IMPERATIVE TO SEGREGATE THE SAID PAYMENT BETWEEN THE TWO CONTRACTS AND APPL Y THE SAID PROVISION TO THE PORTION RELATING TO THE CONTRACT OF SERVICE . 6.4 WE HAVE ALREADY EXTRACTED THE SCOPE OF SERV ICE WORK ACCORDING TO WHICH THE COMPANY M/S CURA MEDICAL EQUIPMENT P LTD WILL UNDERTAKE PERIODIC MAINTENANCE WORK ONCE IN A QUARTER AND WIL L ATTEND IN THE CASE OF BREAK DOWN AND REPLACEMENT/REPAIR OF SPARE PARTS AN D X-RAY TUBE. CONSIDERING THE SCOPE OF SERVICE WORKS IT APPEARS THAT PURPOSE OF COLLECTING ADVANCE PAYMENT IS TO COMPENSATE THE COS T OF SLICES SUPPLIED AT THE CONCESSIONAL RATE AND ONLY A SMALL PORTION APPE ARS TO BE ATTRIBUTED FOR ITA NO 515 OF 2010 GAUTHAMI SCAN CENTRE PRIVATE LIM ITED RAJAHMUNDRY PAGE 6 OF 6 SERVICE WORKS. HENCE ON A CONSPECTUS OF THE MATTER IN OUR VIEW IT WOULD BE REASONABLE TO CONSIDER THE PAYMENT MADE TOWARDS CONTRACT FOR SERVICE @ 10% OF RS.9 91 800/- AND THE BALANCE AMO UNT AS THE PAYMENT MADE TOWARDS THE ADVANCE PAYMENT FOR SUPPLYING SLIC ES AT CONCESSIONAL RATE I.E. TOWARDS CONTRACT FOR SALE. WE ORDER A CCORDINGLY. 6.4 IN VIEW OF THE FOREGOING DISCUSSIONS WE SE T ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO INVOKE THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT ONLY IN RES PECT OF PAYMENTS MADE TOWARDS CONTRACT FOR SERVICE AS DETERMINED ABOVE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5 TH JULY 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:05-07-2011 COPY TO 1 M/S GAUTHAMI SCAN CENTRE (P) LTD. C/O SHRI C. SU BRAMANYAM FCA FLAT NO.102 LAKSHMI APARTMENTS FACOR LAYOUT WALT AIR UPLANDS VISAKHAPATNAM 530 003 2 THE ACIT CIRCLE-1 RAJAHMUNDRY 3 4. THE CIT RAJAHMUNDRY THE CIT(A) RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM