COMMISSIONER OF INCOME TAX II CHD vs. M/S MOUNT SHIVALIK BREWERIES LTD

I.T.A. No.69 of 2013 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

I.T.A. No.69 of 2013 (O&M)

Date of decision : 29.05.2013 The Commissioner of Income Tax-II, Chandigarh .....Appellant VERSUS M/s Mount Shivalik Breweries Ltd., Punjab ....Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MS. JUSTICE RITU BAHRI

Present: Ms. Urvashi Dhugga, Advocate for the appellant. HEMANT GUPTA, J. (ORAL) The present appeal under Section 260A of the Income Tax Act, 1961 (for short 'the Act') arises out of an order passed by the Income Tax Appellate Tribunal, Chandigarh, Bench 'A' Chandigarh (for short 'the Tribunal') on 24.09.2012 holding that the material supplied forms part of the contract of sale and is not a works contract attracting the provisions of deduction of tax at source in terms of Section 194C of the Act. The revenue has raised the following substantial question of law:- “Whether in the facts and circumstances of the case and in law, the ITAT has erred in deleting the addition of Rs.3,31,16,818/- which was made by the A.O. being disallowance on account of I.T.A. No.69 of 2013 (O&M) 2 non deduction of TDS by invoking the provisions of Section 194C read with Section 40 (a)(ia) of the Income Tax Act, 1961, keeping in view the fact that the said transaction does not constitute a contract of sale as the parties from which the work was got done are not actually engaged in the selling of corrugated boxes, bottle caps etc., meaning thereby that these parties were under a contractual obligation to do the jobs for the assessee?” The assessee during the assessment year 2009-10 purchased corrugated boxes, cap inserts for packing of bottles etc. from three firms, two out of them are the sister concerns of the assessee. The assertion of the assessee is that it has not supplied any material to the said firm for supply of corrugated boxes or the other packing material and, therefore, it is a contract for sale and not a works contract, which may make the assessee liable for deduction of tax at source in terms of Section 194C of the Act. The Assessing Officer made the asseesee liable for payment of deduction of tax holding that transactions are in the execution of the works contract. In appeal, the Commissioner Income Tax (Appeals) held that the firms are doing work for the assessee and not for any third person and that the assessee is not supplying any material to these firms. After such finding, the order of the Assessing Officer holding it to be a works contract was maintained. Such finding has been set aside by the Tribunal holding that the material supplied to the assessee is part of contract of sale. The Tribunal observed to the following effect:- “We have heard the rival submissions carefully and are unable to agree with the submissions of the ld. DR for the revenue. We find that there is always distinction between the contract for supply of labour and materials and contract for sale of goods as such. When the person

I.T.A. No.69 of 2013 (O&M) 3 places an order for printing and supply even if specifications are given by such person then such contract has to be treated as contract for sale simplicitor particularly when such person has not given his own paper or ink to the printer. No doubt the specifications given for printing will not alter the situation and the contract would remain a contract for sale. Further so because let us say material is printed incorrectly and there is any defect in such printed material then obviously buyer would not accept the loss. In any case this issue came up for consideration of Hon'ble Punjab & Haryana High Court in case of Dy CAO, Markfed (supra). In that case the Hon'ble High Court after considering the decisions of Hon'ble Delhi High Court in case of CIT V. Dabur India Ltd. (supra).” It is the finding of fact recorded by the Tribunal that the assessee has not supplied any material to the firms, who have supplied corrugated boxes and other packaging material to the assessee. Therefore, in terms of explanation to Section 194C of the Act, the assessee is not liable for deduction of tax at source. The Commissioner Income Tax (Appeals) returned a finding that the assessee has not supplied any material to the firms from whom the assessee has purchased the packing material. Since the material has been purchased from the three firms, two out of them are being sister concerns will not make the as works contractor. It is case of purchase of goods. This Court in a judgment reported as Commissioner of Income Tax versus Deputy Chief Accounts Officer, Markfed, Khanna (2008) 304 ITR 17 has held to the following effect:- “We have considered the submissions made by learned counsel for the Revenue. There is no dispute that the main purpose of the assessee to buy packing material is to obtain goods for the purpose of packing of its finished products. The factum of such packing material carrying some printed work can only be regarded as the work executed by the supplier incidental to the sale to the assessee.

I.T.A. No.69 of 2013 (O&M) 4 This fact of some printing being done as a part of supply is of no consequence to the contract being essentially of a sale of chattel. The predominant object underlying the contracts were sale/purchase of goods and only the intention of the respondent was to buy the packing materials. Admittedly, the raw material for the manufacturing of such packing material was not supplied by the respondent. Thus, it was a case of sale and not a contract for carrying out any work.” In view of above, we hold that the assessee has purchased goods from the sister concerns and not got executed the works contract. Consequently, We do not find that any substantial question of law arises for consideration by this Court. Dismissed. (HEMANT GUPTA) JUDGE May 29, 2013 (RITU BAHRI) rts/Vimal JUDGE