ACIT, NEW DELHI vs. M/S K.S.HOTELS PVT. LTD, NEW DELHI

Date of hearing 31.07.2019 Date of pronouncement 06.08.2019 ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 28/10/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-5, New Delhi [in short ‘the Ld. CIT(A)’ ] for assessment year 2012-13, raising following grounds:

1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to facts and law.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in law in deleting the disallowance u/s 194C for non-deduction of TDS of Rs.2,78,67,446/-

3. The appellant craves leave to add, to alter, or amend any ground(s) of the appeal raised above at the time of hearing.

2. Briefly stated facts of the case are that the assessee, a domestic company, is engaged in the business of running Tao’ in Cannaught place, which sell primarily Chinese food, beverages and liquor. The assessee company outsourced its Chinese kitchen to another entity called ‘Dawa Enterprises’. For the year under consideration i.e. assessment year 2012-13, the assessee filed return of income on 29/09/2012 declaring total income of Rs.93,19,467/-. The scrutiny assessment under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) was completed on 9/02/2015 at total income of Rs.3,74,71,710/-, which included disallowance of Rs.2,78,67,446/- in terms of section 40(a)(ia) for non-deduction of tax at source on the payment made to the Dawa Enterprise. The Ld. CIT(A) deleted the disallowance holding that payment to Dawa Enterprises was for supply of material and not for works contract. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

3. The sole issue in the grounds raised

is in relation to disallowance under section 40(a)(ia) of the act for non-deduction of tax at source on the payment of Rs.2,78,67,446/- paid to Dawa Enterprises .

4. We have heard the rival submission of the parties on the issue in dispute. According to the Assessing Officer payment to Dawa Enterprise is for works contract whereas according to the assessee contract is of supply of Chinese food and thus it is a contract for sale of goods and not works contract, which could become liable for tax deducted at source (TDS) under section 194C of the Act. The Ld. CIT(A) in para 4.1 of the impugned order has reproduced relevant part of the agreement of food supply

M/s Dawa Enterprises . After perusal of the food supply agreement, the Ld. CIT(A) concluded as under: “4.4. Perusal of the agreement in its entirety reveals that the agreement is in the nature of food supply agreement and the supplier M/s Dawa Enterprises is to supply food for which as per the terms of the agreement, the supplier is not only required to get the raw materials but also the kitchen along with well trained and specialized cook, helpers, sweepers, masalchies, Security guards etc. As per the agreement the suppliers will be liable to pay VAT on the food so supplied to the authorities concerned. The suppliers are also liable for any deficiencies found in any food sample by the PFA Act Authorities. Moreover perusal of the Tax Invoice of the supplier shows that they have billed the appellant in respect of cooked items of food such as Dimsum, Prawn, Fish, Lamb, Soup, Salad, Dessert etc. and paid DVAT @ 12.5% on the supplies. I have also perused the quarterly VAT returns of both the parties and find that the appellant company also paid VAT on the sales made to its customers after claiming the input credit of VAT paid by the supplier. Thus it is clear that the transactions between the two parties are in the nature of purchase and sale respectively on goods that are entirely procured and manufactured by the supplier. It is not the case that the materials are supplied by the appellant nor has the AO brought any facts to the contrary rr, record to prove that the agreement falls within the expanded scope of a works contract envisaged u/s 194C. In the case of CIT vs. Reebok India Company (306 ITR 124) the Delhi High Court has held that when there is a finding of fact that the transaction between the assessee and the manufacturer is one of sale of goods and is not in the nature of a works contract and the assessee was not liable to deduct TDS u/s 194 C read with Section 40(a)(ia), no substantial question of law arises for consideration. I am also supported is arriving at this view with the orders of my learned predecessors for the A.Ys 2006-07 to 2011-12. In conclusion therefore the first part of ground no.2 is allowed.”

of the contract has already been incorporated above from which it can be seen that it is purely a supply arrangement and there is nothing to interfere that there is any kind of works contract. Whereas it is not in dispute that the supplier was procuring the equipments as well as raw materials and supplying a Chinese food to the assessee, then such a supply agreement cannot comes into the category of works contract so as to invoke TDS provision u/s.194C. Thus, the order of the Id. CIT(A) holding that it is a goods of supply and purchase of material on which VAT has been charged then such a payment for supply was not entail TDS provision u/s 194C and no disallowance u/s 40(a)(ia) can be made.”