BIHAR STATE POWER GENERATION COMPANY LTD.,PATNA vs. ACIT-TDS CIRCLE, PATNA

Being aggrieved by the said order of the AO, the assessee preferred appeal before the Ld. CIT(A). However, the Ld. CIT(A) confirmed the action of the AO in holding the assessee as assessee in default u/s. 201(1)/(1A) of the Act. Being aggrieved by the said order of the Ld. CIT(A), the assessee is in appeal before us.

The Ld. Counsel for the assessee has brought our attention to relevant part of the order of the Ld. CIT(A) to submit that the assessee is a company incorporated under the Companies Act, 1956 and is engaged in the business of generation of electricity. The assessee is owned by the State Govt. of Bihar. That the assessee nominated Bharat Heavy Electricals Ltd. for setting up of Power Plant on turnkey basis. That the assessee after nomination entered into two separate and distinct contracts i.e. first, for supply of plant, machinery and equipment and the other for erection of the project. The agreements, Page 2 of 5 .: 102 to 106/PAT/2024 Bihar State Power Generation Co. Ltd., AYs : 2013-14 to 2017-18 inter-alia, elucidate the value of the contract both in terms of value for supply of goods and the cost of the execution of the contract. The Ld. AR has further submitted that the two contracts, one for supply of goods and the other for erection, were separate and distinct contracts. The assessee in respect of the execution of the works contract has deducted tax at source in accordance with section 194C of the Tax. The same has also been deposited in the Government Account. The assessee, however, has not deducted tax at source on the cost of supplies made by the contractor under a separate agreement. The Ld. Counsel, therefore, has submitted that since there were two separate contracts for supply of material and for erection/establishment of the thermal power station, hence, assessee accordingly, had deducted the TDS on the payment made for services. However, since there was a separate contract for cost of material and the payment was made as per the actual cost of the material, therefore, the provisions of section 194C of the Act were not applicable on the said payment. He, therefore, has submitted that both the lower authorities have erred in holding the assessee as assessee in default u/s. 201(1)(/(1A) of the Act.

We have heard rival contentions and gone through the records. A perusal of the impugned order of the Ld. CIT(A) would reveal that there is no dispute to the factual position that BSEB had awarded contract to BHEL for design, engineering, manufacturing, supply of land and plant and equipment for expansion project at Barauni Thermal Power Station at Begusarai, Bihar. The prices for the material as well as the services were mutually settled. Both the parts of the contract i.e. supply of material as well as the cost of services were separate and segregated. However, the Ld. CIT(A) noted that though there were two separate contracts i.e. one relating to supply of material and the other relating to the erection/setting up of power plant, however, there was a clause that any breach to any one of the two contracts shall automatically be deemed as breach of both the contracts. He, therefore, upheld the finding of the AO that it was a composite contract. He observed that it was clear that all the material supplied was meant for setting up of Barauni Thermal Power Station. He observed that had the work of setting up

After going through the order of the Ld. CIT(A) and after hearing the Ld. Representatives of the parties, we are of the view that the approach of the lower authorities in this case is not correct. The contract in question cannot in any terms be said to be a work contract only. Admittedly, there were two separate contracts in this case. The first contract was relating to the supply of plant, machinery, equipment etc. and the rates for the same were also separately settled. The second contract was for setting up of the thermal power plant which was a work contract. Both the contracts were separate contracts. In our view, in no terms, it can be said to be a composite contract of services only. Merely because both the contracts were dependant upon each other i.e. BHEL will be able to set up the plant only if it would have the requisite plant, equipment and machinery and without that it cannot set up and as the services cannot be performed without the supply of material, cannot, in itself, would make it a composite service contract. This, in almost every case, where same plant is to be set up there would be need of plant and machinery. It is upon the assessee either to get the plant and machinery from one party and get the execution/setting up work from the other party or the assessee may give both the contracts to one party. It is almost obvious that the erection/setting up part of the contract would always be dependant upon the availability of material. If both the contracts are given to one party and the said party supplies only the material and would not perform its service part of setting up the project then such material/plant and machinery would be of no use for such an assessee. It is to ensure that the other contracting party performs its obligations in full and to the satisfaction and as per the contract between the parties, the first contracting party if insists upon a clause that in the event of breach of one contract it will be considered breach of both the contracts that itself, does not make both the contracts, as a composite service contract. The provisions of section 194C of the Act are attracted for paying any consideration to any recipient for carrying out works

In the result, all the appeals of the assessee stand allowed. Order pronounced in the open Court on 15th January, 2025. Sd/- Sd/- [Sanjay Awasthi] [Sanjay Garg] Accountant Member Judicial Member Dated: 15.01.2025 J.Dey (Sr. P.S.) Copy of the order forwarded to: