ITO(TDS),WD-58(4),KOLKATA, KOLKATA vs. M/S. PACEMAN SALES PROMOTION PVT LTD., KOLKATA

SHRI M.BALAGANESH, AM

This appeal of the revenue and cross objection of the assessee arise out of the order of the Learned CIT(A)-1, Kolkata in Appeal No. 50/CIT(A)-I/Wd-58(4)/11-12 dated 29.6.2012 against the order passed by the Learned AO for the Asst Year 2006-07 under section 201(1) / 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

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consequently whether the assessee could be invited with the levy of tax and interest u/s 201(1) and 201(1A) of the Act in the facts and circumstances of the case.

(i) With M/s Suzlon Energy Ltd for supply of WEC (ii) With M/s Suzlon Infrastructure Ltd for installation, erection & commissioning (iii) With M/s Sarjan Realities Pvt Ltd for arrangement of suitable land and for its developments.

The assessee had duly deducted tax at source on the installation, erection and commissioning contracts and remitted the same to the account of the Central ITA No. 1296/Kol/2012 & 2 & CO No.12/Kol/2013 C-AM M/s.Paceman Sales Promotion Pvt. Ltd

Government on which fact there is no dispute. The Learned AO observed that the supply of wind electric generators would be liable for levy of sales tax and asessee had not paid any VAT in the sale bill. Hence the supply of wind electric generator cannot be treated as sale transaction and hence TDS provisions are applicable. According to the Learned AO , the assessee had entered into a composite / indivisible contract and hence the assessee ought to have deducted tax at source on the value of all the contracts including supply of wind electric generators and purchase of land. Accordingly, the Learned AO treated the assessee as assessee in default in terms of section 201(1) of the Act and levied tax thereon and also charged interest u/s 201(1A) of the Act.

“After careful consideration of the assessment order and written submission along with paper book, it is noticed that 1st contract was entered with M/s Suzlon Energy Ltd for supply of windmill components for generation of electricity and 2nd contract was entered with M/s Suzlon Infrastructure Ltd for the erection and installation of windmill. Similarly, two separate contracts were entered with M/s Enercon India Ltd , one for supply of wind energy converter and 2nd for foundation word. Assessee had produced the relevant tax invoices to support its claim that provisions of section 194C were not applicable for payments made to M/s Suzlon Energy Ltd and M/s Enercon India Ltd to support its claim that these payments were in the nature of supply of goods as per prescribed specifications. In respect of the erection and foundation work, assessee had deducted TDS as per provisions of section 194C in respect of contracts with above companies. Assessee had relied upon the CBDT Circular No. 681 to support its contention. Assessee further produced a certificate and evidence of filing of income tax return from M/s Enercon India Ltd and further relied upon judgement of Supreme Court in 293 ITR 226 in support of its contention. Keeping in view the above facts and circumstances, ground no.1 to 6 are allowed.

In the result, the appeal of the assessee is allowed.”

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21 & 22 of Paper Book, there is a note appended at the bottom of the invoice as below:-

“We hereby declare that sales of goods evidenced by this invoice is exempt from payment of Value Added Tax in our hands on account of exemption duly granted to us and as such, our immediate purchaser shall not be entitled to claim any input tax credit in respect of this transaction under any provision of Daman and Diu Value Added Tax Regulation, 2005 or the Rules made thereunder and that transaction shall be accounted for in the turnover of sales while filing our return.”

We also find from the tax invoice of M/s Enercon India Ltd enclosed in page 54 of the Paper Book, it has been clearly stated that “CST nil against Form C”. Hence in view of these undisputed facts , the allegation raised by the Learned AO that no VAT was paid is not well founded and contrary to evidences available on record. We find that the Learned AO contrary to various evidences available on record in the form of separate contracts / agreements entered into with various parties for various activities, proceeded to decide the entire issue based on the data available in the website of M/s Suzlon Energy Ltd and M/s Enercon India Ltd for providing end to end solutions on turnkey basis. We find that the data available in website is meant for marketing of the products of the company and to attract the customers for improving their business and the same cannot be used as an evidence against the assessee in the facts of the instant case.

7.1. We find from the documents available on record that first contract was entered by the assessee with M/s Suzlon Energy Ltd for supply of windmill components for generation of electricity :

(a) Supply of Rotor Blades of Suzlon WTG 1.25 MW S70 Tub Tower 72M Ht-SCS Wind Turbine Generator ;

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(b) Supply of Suzlon WTG 1.25 MW S70 Tub Tower 72M Ht-SCS Wind Turbine Generator.

We find that the assessee had entered second contract with M/s Suzlon Infrastructure Ltd for civil work construction of windmill foundation, transformer plinth & electrical yard fencing , road for movement of crane and preparation of crane platform and one for erection & installation of windmill tower and Wind Turbine Generator consisting of unloading safe keeping of materials and assembly.

Similarly we find that the assessee had entered first contract with M/s Enercon India Ltd for complete supply of Enercon make Wind Turbine Converter, 800KW, Type E- 48, with 56 meters height tubular steel tower and tower mounted 950 KVA transformer, including packaging, handling, loading, transportation, unloading, insurance cover upto commissioning at site. We find that the assessee had entered second contract with M/s Enercon India Ltd for earth work and foundation for Enercon make Wind Turbine Converter, 800KW, Type E-48 , including construction of approach and internal / external lines including DP structure poles at site and for erection and commissioning of Enercon make Wind Turbine Converter, 800KW, Type E-48, along with 950KVA transformer on WEC’s tower at site.

We find that first contract was for complete supply of goods and second was towards works contract. The scope of both the contracts entered by the assessee with the above mentioned parties are precisely divisible and distinguishable. Under ‘Contract of sale’, the main object is the transfer of property and delivery of possession of the property, whereas under ‘Contract of work’, the main object is not the transfer of the property, but it is one for work and labour.

7.2. We find that the provisions of section 194C of the Act specify that any person responsible for paying any sum to any contractor for carrying out any work was ITA No. 1296/Kol/2012 & 6 & CO No.12/Kol/2013 C-AM M/s.Paceman Sales Promotion Pvt. Ltd

required to deduct tax at source. Hence the very emphasis is ‘any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall……………. .”

The provisions of section 194 C of the Act defines the term “Work” as below- “work” shall include – (a) …. (b) ….. (c) ….. (d) …… (e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

The assessee had only purchased wind electric converters from M/s Suzlon Energy Ltd and M/s Enercon India Ltd for generation of power . The assessee had not supplied any materials/ components to them as could be evident from the work orders placed with them by the assessee. Hence the transactions of the assessee are squarely out of the ambit of definition of ‘work’ as per section 194C of the Act. Hence it can be safely concluded that the contracts entered into by the assessee cannot be categorized as a works contract. We find that the reliance placed by the Learned AR on the decision of the Hon’ble Karnataka High Court in the case of CIT vs Karnataka Power Transmission Corporation Ltd reported in (2012) 21 taxmann.com 473 (Kar) is well founded. The Head notes of the said decision is reproduced hereunder:- Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/Sub-contractors, payments to - Assessment year 2004-05 - Assessee- company was carrying on business of transmission of electricity from electricity generating point to various electrical sub-stations in State through its network of transmission lines and sub-stations - It had entered into contract agreements with various contractors for setting up of its electrical sub-stations - Thereafter, assessee entered into three separate

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contracts with contractor one for supply of goods; secondly, for erection works; and thirdly, for civil engineering works - While tax was being deducted at source for civil work and erection work, tax was not deducted at source towards payments made on supply portion on ground that section 194C was not attracted on payment for supply of material - Assessing Officer held that performance and execution of contract was as a 'composite contract and, therefore, tax was deductible by assessee on entire consideration paid under three contracts treating same as a composite contract - Whether when from terms and conditions of contract, intention of parties was clear that contract to be entered into would be treated as divisible contract resulting in three separate contracts, one for supply of goods, second for erection and third for civil engineering works, mere fact that obligation of contractor under contract continued till work entrusted to it was complete, by itself, would not make it a composite contract - Held, yes - Whether carrying out any work is a sine qua non to attract section 194C and, therefore, no TDS was deductible under section 194C in respect of agreement for supply of material – Held, yes [In favour of assessee]

Words And Phrases : Word 'work' as occurring in section 194C of the Income-tax Act, 1961.”

7.3. We find that the Learned CIT(A) had also placed reliance on the CBDT Circular No. 681 dated 8.3.1994. We find that the issue under dispute is squarely covered in favour of the assessee by the decision of co-ordinate bench of Bangalore Tribunal in the case of Abhilesh Garments & Estates Pvt Ltd vs ACIT reported in (2015) 44 CCH 426 BangTrib in ITA Nos. 1255 to 1257(B)/ 2014 dated 17.7.2015 The Head notes of the said decision is reproduced hereunder:- “TDS-Consequences of failure to deduct TDS-Assessee private ltd. company deriving income from lease and power generation charges had filed an application seeking certificate of exemption from deducting TDS in respect of the rent paid to one 'N' - Assessee had also entered into an agreement with 'E' for supply erection and commissioning of windmill for a total consideration of Rs. 3.83 Crores and payment was spread over for three A/y's 2006-07 to 2008-09-Pursuant to survey conducted u/s 133A in the business premises of the assessee AO had that assessee has made payments to 'E' amounting to Rs.3,83,00,000/- without deducting tax at source-Consequently, the AO passed a common order u/s 201 & 201(1A) holding that the payments made by the assessee to 'E' were liable to tax deducted at source - Assessee claimed that he had already deducted the

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tax and paid the same to the Government in respect of the remaining amount of Rs.46.00 Crores towards civil and industrial construction work as well as commissioning charges and not liable to TDS deduction in respect of the payment towards the supply of windmill equipment with its accessories of Rs.3.37 Crores-Rejecting assessee's version, AO quantify the amount of TDS and the interest u/s 201 & 201(1A)-CIT(A) had rejected the contention of the assessee and held that the contract under which the payments were made was an indivisible and composite contract and the assessee paid the remuneration for comprehensive composite deal of setting up of windmill-CIT(A) had held that the entire value of contract was liable for TDS at the rate of 2 percent-Held, even in the clarification as per the definition of work as contained in the Explanation to clause- 4(e) to section 194C, the value of the material purchased from such customer was required to be excluded if such value mentioned separately in the invoice-In the instant case it was clear from evidence on record that separate payments were made by the assessee for purchase of windmill for civil and industrial construction work and for commissioning of windmill- All these work and supply of windmill are covered under the single contract, however, each and every item of work as well as supply has been separately valued and priced-In fact separate invoices were issued for supply of wind mill device and civil and industrial construction-Contract in question was more of supply of windmill equipment and turbine converter than the work of civil and industrial construction as well as commissioning-Thus, where the value/consideration of supply of windmill turbine converters and other equipment was separately given in the invoices and rather separate invoices are placed by the supplier, then the assessee was not liable to deduct any tax at source as per the provisions of section 194C so far the payment was made for supply of the windmill turbine and other equipment's -Orders of the authorities below was set aside-Assesse's appeal allowed.”

We find that the issue is also covered in favour of the assessee by the co-ordinate bench decision of Delhi Tribunal in the case of Haryana Power Generation Corporation Ltd vs ITO reported in (2006) 103 TTJ 584 (Delhi- Trib.) wherein it was observed that :

On the facts of this case, we find that the primary object of the appellant was to purchase the plant in question and the civil work, erection and commissioning was only incidental to purchase the material by the appellant. In other words, the contract for supply of the ITA No. 1296/Kol/2012 & 9 & CO No.12/Kol/2013 C-AM M/s.Paceman Sales Promotion Pvt. Ltd

equipments and the contract for erection and commissioning of the plant are two separable contracts.

Held that

“in each case the terms of the contract need to be analysed before coming to the conclusion whether it was a composite contract or not. As already stated, the present case, the contract, in so far as it relates to supply of the material, freight, insurance and supply of spare parts, is clearly separable from the other part of the contract relating to carrying out civil work, commissioning and erection of the power generators. In view of the above discussion above, we direct the A.O. to work out the short deduction of tax at source, if any, by excluding the payments towards supply of machinery, spare parts as well as freight and insurance.”

In view of the aforesaid facts and findings given hereinabove and various judicial precedents relied upon hereinabove, we find no infirmity in the order passed by the Learned CIT(A). Accordingly, the grounds raised by the revenue are dismissed.

The assessee has raised the following grounds in its cross objections :-

We find that there is delay in filing cross objections by the assessee by 42 days which is condoned with the consent of the Learned DR. We find that the cross objections of the assessee is squarely covered by the decision of the Hon’ble Supreme Court in the case of Hindustan Coco Cola Beverages P Ltd vs CIT reported in (2007) 293 ITR 226 (SC), wherein it was held that where the payee has already paid the tax on the income on which there was a short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor. However, we find that in view of our aforesaid findings and decision that no tax need to be deducted on the purchase contract for wind electric generator and purchase of land, the adjudication of cross objections of the assessee becomes infructuous. Hence the cross objections of the assessee are dismissed as infructuous.

THIS ORDER IS PRONOUNCED IN OPEN COURT ON 11-5 - 2016

Sd/- Sd/- ( N.V.Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member) Date:

Date 11-5- -2016

Copy of the order forwarded to:-

1.. The Appellant/department: The I T O (TDS) Ward 58(4), 10B Middleton Row, 8th floor,Kolkata 700 071. 2 The Respondent/Assessee: M/s. Paceman Sales Promotion Pvt. Ltd 14 N.S Road, 4th Floor, Kolkata-700 001. 3 /The CIT, 4.The CIT(A) ITA No. 1296/Kol/2012 & 11 & CO No.12/Kol/2013 C-AM M/s.Paceman Sales Promotion Pvt. Ltd

**PRADIP SPS

ITA No. 1296/Kol/2012 & 12 & CO No.12/Kol/2013 C-AM M/s.Paceman Sales Promotion Pvt. Ltd