THE INCOME TAX OFFICER vs. M/S. KRISHAK BHARATI COOPERATIVE LIMITED

Facts

The Revenue has appealed against an order dated August 18, 2005, passed by the Income-tax Appellate Tribunal (ITAT), Ahmedabad Bench, for assessment year 2005-06. The assessee, M/s. Krishak Bharati Cooperative Limited, had not deducted tax at source on payments made to M/s. Super Sack, Gwalior, for printing packing material. The Assessing Officer initiated proceedings under Section 201 of the Income Tax Act, 1961, demanding tax, surcharge, and interest. The Commissioner (Appeals) upheld the AO's order. The ITAT, however, reversed this decision, allowing the assessee's appeal. The Revenue is challenging the ITAT's order before the High Court.

Held

The High Court held that the ITAT was correct in its conclusion. The Court referred to its own previous decisions in Tax Appeal No. 1239 of 2005 (CIT vs. Balsara Home Products Ltd.), which relied on CIT vs. Girnar Food and Beverage P. Ltd. and CIT vs. Hindustan Lever Ltd. In these cases, the Court had observed that where a contract is for the supply of materials, i.e., a sale of materials, it cannot be termed a contract for work and labour and is therefore not amenable to the provisions of Section 194C of the Act. Since the Revenue could not dispute this proposition or provide contrary rulings, the Court answered the substantial question of law in the affirmative, in favour of the assessee. The impugned order of the ITAT was confirmed, and the appeal was dismissed.

Key Issues

1. Whether, on the facts and circumstances of the case and in law, the ITAT was correct in concluding that the payment made to M/s. Super Sack, Gwalior, was not covered under Section 194C of the Income Tax Act as a contract for supply of goods, but rather under the provisions of the Sales of Goods Act. Assessee's Contention: The assessee argued that the payment was for the outright sale of printing material and not a work contract, thus Section 194C was not attracted. The assessee relied on the ITAT's decision in Balsara Home Products Ltd. vs. ITO and this Court's decision in CIT vs. Girnar Food & Beverages Pvt.Ltd. and CIT vs. Hindustan Lever Ltd. Revenue's Contention: The Revenue did not dispute the proposition of law cited by the assessee or point out any contrary decisions.