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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & SHRI SANDEEP GOSAIN
O R D E R PER SANDEEP GOSAIN, JM: These three appeals are filed by the Revenue challenging the common order dated 12.3.2014 passed by the ld.CIT(A)-14, Mumbai for the assessment years 2003-04 to 2005-06. Since issue urged in these appeals are common, therefore, these appeals were heard together and for the sake of convenience, are being dispose of by this consolidated order.
2 to 3995/Mum/2014 2. Since issue and facts for all the appeals are common, for the sake of brevity we are dealing with the appeal pertaining to assessment year 2003-04 to avoid repetition of amount and tax involved. The only issue urged by the revenue is whether ld.CIT(A) was right in law in holding that the assessee is not liable to deduct tax at source u/s 194C of the Act in respect of contract manufacturing.
The facts of the case are that the assessee is engaged in the business of purchases and sale of pharmaceutical products. A survey u/s 133A of the Income Tax Act, 1961 was conducted at the business premises of the assessee on 22.3.2006. During the course of survey operation, the AO observed that there was discrepancy in deduction of TDS. Therefore, the AO issued notice u/s 201 and 201 (1A) of the Act calling upon the assessee to show cause as to why the TDS is not deducted from the payments made to the third parties for getting products manufactured by assessee according to assessee’s prescription and requirement. During the course of assessment proceedings, the payment made by the assessee is towards “finished goods” and hence, TDS is not deducted. The AO observed that the clause of agreement show the manufacturing contract a s works and hence TDS should be deducted. The assessee explained that it is a contract for sale of goods, therefore, the assessee did not TDS. The assessee later on deducted TDS and paid to the Government treasury from the assessment year 2006-07 to buy peace of mind. The detailed submissions made by the assessee is forming part of assessment order from pages 2 to 8. Therefore, for the sake of brevity we are not reproducing the same here. The AO did not favour the assessee and held that the assessee committed fault u/s 201(1) of the Act. Therefore, the AO did not allow the claim of the assessee. Aggrieved, the assessee filed appeal before the ld.CIT(A).
3 to 3995/Mum/2014 4. Before the ld.CIT(A), the assessee submitted that it had made payment to purchase goods from the manufactures according to their requirement. The manufacturers have not extended any services to the assessee therefore it is not in violation of provisions of section 194C of the Act. The assessee submitted before the ld. CIT(A) that the recipient of the payment has paid the taxes on its receipts and they have filed return of income showing receipts accordingly. With regard to the interest issue, the assessee submitted that it is a consequential in nature. Since the provisions of section 194C of the Act are not attracted, this issue does not have legs to stand on its own. In support of this contention, the ld.AR relied on the decision in CIT V/s Silver Oak Laboratories Pvt. Ltd (SLP No.18012/2009).
The ld. CIT(A) after considering the facts of the case and nature of payment including the contract documents and the decision relied upon by the assessee, allowed the claim of the assessee and granted relief. Aggrieved by the decision of the ld. CIT(A), the revenue has filed this appeal before us.
We have heard both the parties and perused the record. We find that the assessee has paid a consideration to third parties for getting manufactured goods according to assessee’s requirement. While paying, it did not deduct TDS. The revenue invoked the provisions of 194C of the Act and made assessment accordingly. We find that the ld. CIT(A) deleted the addition made by the AO on the ground that explanation tendered by the assessee is in accordance with law. As the provisions of section 194C speaks about services provided by the payee, or labour services tendered payee to the payer or contract of any services to be provided to the payee. In the present case, the assessee has purchased goods manufactured by the third party and payments made towards goods purchased by assessee.
4 to 3995/Mum/2014 In the section 194C, there is no whisper about the goods purchased from other person and TDS is to be deducted on this payment. The Hon’ble Supreme Court also made clear that for purchasing of goods no TDS is to be deduced as held in CIT V/s Silver Oak Laboratories Pvt. Ltd (supra) as under : “On examining the terms and conditions and also on examination of the invoices, purchase orders as well as the challans indicating payment of excise duty, we are of the view that there is no material on record to indicate that the transaction in question is a "contract for carrying out works". Hence, Section 194C of the Income Tax Act, 1961, [`Act', for short] is not attracted. Our attention, in fact, is invited to the amendment in Section 194C of the Act vide Finance (No.2) Act, 2009, with effect from 1st October, 2009, which defines "work" to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. In fact, it is clarified that the definition of the word "work" will 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. However, this amendment came into force only with effect from 1st October, 2009, which will not apply to the period in question in the present case(s). For the aforestated reasons, we find no reasons to interfere with the impugned judgments of the High Court. The special leave petitions are, accordingly, dismissed.”