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

The aforesaid appeal has been filed by the revenue against order dated 26.10.2012, passed by Ld. CIT(Appeals)-VIII, New Delhi for the assessment year 2007-08. The revenue has raised following grounds:-

1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) had erred in deleting the addition of Rs. 1,34,08,792/- for non deduction of TDS made by the AO u/s 40(a)(ia) read with section 194C inspite of there being relation of “Contractor” and “Contractee” between the owner and the supplier as per terms of agreement dated 13.7.2005, in the name and style of “FOOD SUPPLY ARRANGEMENT”.

2. At the outset Ld. Counsel for the assesse submitted that exactly similar issue was involved in the assessment year 2006-07 and matter has been heard by the Tribunal on 31st July, 2018. On the other hand Ld. DR also accepted that the issue involved is exactly the same as was there in the assessment year 2006-07. The brief facts of the case are that assesse company is engaged in the business of running a restaurant with the name of Zen Restaurant. The AO observed that assesssee had made purchases of food items from M/s. Zen Chinese Foods for amount of Rs. 1,34,08,792/- on which no TDS deducted on the payments. Accordingly, he has disallowed the said payment u/s 40(a)(ia). He held that since payment made by the assessee to M/s.Zen Chinese Foods for supply of chinese good was as per the terms of contract, therefore, TDS should have been deducted at the provision of section271(1)(c). Ld. CIT(A) following the first appellate order for the assessment year 2006-07 has deleted the said disallowance holding that purchases made by the assessee from M/s Zen Chinese Foods i.e food was based on same food supply arrangement agreement dated 13.7.2005 and since facts and circumstances are the same therefore he has no reason to defer from his predecessor’s order, 3. After considering the relevant material placed on record and the findings given in the impugned order we find that precisely the same issue is involved in the assessment year 2006-07 which has given for consideration before the Tribunal in vide order date 13.8.2018 the relevant facts and the findings given by the Tribunal reads as under :- “2. The facts in brief are that the assessee is engaged in the business of running a restaurant with the name of ‘Zen Restaurant’ which mostly serves Chinese foods, snacks, etc. Learned Assessing Officer noted that from 13.07.2005, the assessee had entered into an agreement with M/s. Zen Chinese Food for ‘Food Supply Arrangement’, wherein the assessee company is the owner and M/s. Zen Chinese Food is a supplier. As per the agreement assessee was to make available kitchen space to cook Chinese Food with free electricity and water and the supplier has to arrange for all kitchen equipment, trained cooks, helpers and other staff and also purchase the material. Prior to this agreement, the agreement between the assessee company and the M/s. Zen Chinese Food was that the assessee was selling the Chinese food prepared by M/s. Zen Chinese Food and commission @45% of the sale was paid to it. After this period, the arrangement was only for supply arrangement which is evident from the relevant clauses as noted by the Assessing Officer:- “As mentioned supra, the Assessee Company and M/s Zen Chinese Food have entered into a new “FOOD SUPPLY ARRANGEMENT”, wherein the assessee company is now the “owner” and M/s Zen Chinese Food is the “supplier”. The relevant portions of this arrangement document to be discussed in the following paragraphs are reproduced as follows: 3 "...whereas for purpose of running a restaurant at B-25 Connaught Place, New Delhi- 110001 the “Owners" have available an air- conditioned hall with kitchen space. And whereas the “suppliers” have offered to enter into a food supplying arrangement with the “owners” by supplying Chinese Food on the terms and conditions hereafter mentioned. That the “suppliers" shall use the premise for purpose of 4. business of supplying "Chinese Food” to “Owners” only and for no other purpose whatsoever.

5. The “suppliers” shall provide and maintain throughout the term of the contract, in sufficient quantities, cooking utensils, containers, cooking ranges, fridge and gas, with sufficient cooks and masalchies and shall keep the raw material ready for providing wholesome “Chinese Food”.

Zen Chinese Food which has been termed as ‘Food Supply Arrangement’. Since assessee was making the payment to the M/s. Zen Chinese Food which is nothing but works contract and therefore, TDS should have been deducted u/s.194C. Accordingly, he disallowed sum of Rs.73,98,662/- u/s. 40(a)(ia).

4. Ld. CIT (A) deleted the said disallowance on the ground that it was not works contract but payment was for purchase of food material from another entity on which sales/VAT has been charged and after referring to various judgments, he held that there is no requirement for deduction of tax on supply of materials, and thus, he held that provision of Section 40(a)(ia) cannot be invoked.

5. After hearing both the parties and on perusal of the impugned order, we find that from 13.07.2008 the assessee had entered into an agreement viz., ‘Food Supply Arrangement’ with M/s. Zen Chinese Food, whereas assessee was the owner of the restaurant and M/s. Zen Chinese Food was a supplier. The relevant terms 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. Here it is not disputed by the department that the supplier was procuring the equipments as well as raw materials and supplying Chinese food to the assessee. Once that is so, then such a supply agreement ostensibly will fall 5 in the category of ‘works contract’ so as to invoke TDS provision u/s. 194C. Thus, the order of the ld. 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 will not entail TDS provision u/s.194C and accordingly, no disallowance u/s.40(a)(ia) can be made.”