I.T.O WD - 7(2),KOLKATA., KOLKATA vs. M/S WINSOME BREWERIES LIMITED, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]

I.T.A No. 622/Kol/2013 Assessment Year: 2009-10

Income-tax Officer, Wd-7(2), Kolkata. Vs. M/s. Winsome Breweries Ltd. (PAN: AAACW0174E) (Appellant) (Respondent) Date of hearing: 30.11.2015 Date of pronouncement: 16.12.2015 For the Appellant: Shri Shital C. Das, JCIT, Sr. DR. For the Respondent: Shri Manoj Kataruka, Advocate ORDER Per Shri Mahavir Singh, JM: This appeal by revenue is arising out of order of CIT(A)-VIII, Kolkata in Appeal No. 305/CIT(A)-VIII/Kol/11-12 dated 07.12.2012. Assessment was framed by ITO, Wd-7(2), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2009-10 vide its order dated 30.12.2011. 2. The first issue in this appeal of revenue is against the order of CIT(A) in deleting the addition made by AO on account of disallowance of job work charges without deduction of TDS u/s. 194C of the Act by invoking the provisions of section 40(a)(ia) of the Act. For this, revenue has raised following ground no.1: “1. That the Ld. CIT(A)-VIII, Kolkata has erred in facts in deleting the addition made by the AO for Rs.1,10,42,997.00 u/s. 40(a)(ia) of the I. T. Act, 1961 for non deduction of tax u/s. 194C.” 3. Briefly stated facts are that during the course of assessment proceedings, the AO noted that the assessee company had made the following payments on account of the job work for procuring printed materials as per the specification of the assessee company from various parties:

Sl. No. Ledger Head Amount 1. Carton Larger 164189.50 2. Carton Bullet 4214639.53 3. Carton KFS 61278.00 4. Crown Bullet 1895343.00 5. Crown KFL 56454.00 6. Crown KFS 96035.00 7. Foil Bullet 1709170.80 8. Foil KFS 68040.00 9. Foil KPL 41925.37

2 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10 10. Label Bullet 1087655.00 11. Label Bullet Back 1138995.00 12. Label KFL 178800.00 13. Label KFL Back 28645.00 14. Label KFS 249828.00 15. Label KFS Back 51999.00 Total : Rs.11042997.20 The Assessing Officer noted that as per the CBDT's Circular No. 715 dated 08.08.1995 Section 194C of the Act is applicable for supply of printed materials as per prescribed specification. He observed from the bills submitted by the assessee company that the assessee had made the above payments under the head ‘procuring printed materials’ from various parties and the suppliers had done the job work of printing on the materials submitted by them as per specifications of the assessee. The materials obtained from the above parties, according to AO, were printed labels, foils and cartons used for labeling and packing bottles of beer manufactured by the assessee. The AO further observed from the bills submitted by the assessee it is quite clear, that the above parties have supplied the printed materials to the assessee after performing exactly specified job work of printing on various materials as per direction of the assessee. Thus, according to AO, the parties had done the job work in such cases and hence, Section 194C of the Act was applicable on above payments of Rs.l,10,42,997/-. Accordingly, he made addition by invoking the provisions of section 40(a)(ia) of the Act on account of disallowance of job work charges without deduction of TDS u/s. 194C of the Act. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assesse by observing as under:- “5.2.5 I have carefully considered the facts of the case, the material placed on record and the submissions and arguments advanced on behalf of the appellant. From a careful reading of the provisions of section 194C and the circulars issued by the CBDT from time to time, it is clear that the term 'work' does not cover the following: (a) Contracts for sale of goods. (b) Where contractor undertakes to supply any article or thing fabricated according to the specifications given by the payer and the property in such article or thing passes to such payer only after such article or thing is delivered. (c) Where the principal objective of work undertaken by the payer of the price is not to transfer of a chattel qua chattel. [chattel- the term in English law includes all kinds of property except the free hold and things which are parcel of it - personal property comprising goods] (d) Contracts for rendering professional service by lawyers, physicians surgeons, engineers, accountants, architects, consultants, etc. can also not be regard as "contract for carrying out

3 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10

any work" and accordingly no deduction of income -tax shall be made under this section. It will covered under section 194J. Where there was an agreement for supply of corrugated boxes with labels printed on them, it was held that predominant object underlying the contract was one for sale of goods and not of work contract. [CIT v. Dabur India Ltd. (2006) 283 ITR 197 (Del.) 5.2.6 In Balsara Home Products Ltd. v. ITO 94 ITJ 970 (Ahd.) : The issue before Ahemadabad Tribunal was that the applicability or otherwise of Section 194C to purchase of preprinted packing materials like tubes, cartons, corrugated boxes, etc. The Assessing Officer contended that printing according to specifications settled by the assessee involves contract of work liable to TDS under Section 194C. The Tribunal did not accepted this view and following Bombay High Court's decision in the case of BDS Ltd. dated 08.03.2004, it held that the transaction is contract of sale not liable to TDS under Section 194C. It held that .the printing on the material is incidental to supply of material i.e. sale of material. The Bombay High Court in the case of BDA Ltd. cited supra held that where an independent establishment was engaged in the business of supplying printed packaging material to various units and was not a captive unit of the assessee, the printing work though carried out to the specifications of the assessee cannot be a contract for work bit was only purchase of material and therefore, there was no need to deduct tax at source under Section 194C. The Bombay High Court held that when the-printing work was being-carried out in the premises of M, though as per the specifications of the assessee, supply was limited to the quantity specified in the purchase order. There was nothing on record to show that, all mother ancillary costs like the labels, ink, papers, screen-printing, screens, etc. were being supplied by the assessee to M. In the facts of this case, the supply of printed labels by M to the assessee was a "contract of sale" and it could not be termed a ''works contract" Hence the provisions of section 194C were not applicable. 5.2.7 While delivering the judgment the Hon.ble Bombay High Court had considered the observations of the Supreme Court in State of Tamilnadu v. Annandam Viswanathan (1989) 73 STC 1 (SC), where the Hem. Supreme Court observed that "Like in the case of painting which is finished product being a work of art, the bill books and vouchers" are new products being printed materials; and the sale of such goods does not involve a composite contact which can be bifurcated into an agreement for the sale of goods - be they canvas and paint or paper and ink - an agreement for work". On the same issue the Income Tax Appellate Tribunal "D" Bench Kolkata in ITA No. 2132/KOL/2005 for A.Yr. 2004-05 in the case of Khadim Shoe Pvt. Ltd. Kolkata vs. ACIT Circle 58 (TDS), Kolkata vide order dated 12.05.2006 also held that in the case of outsourcing of finished goods, there is no liability to deduct tax at source under section 194C as outsourcing of manufacturing activity does not amount to 'work contract' and hence no tax deductible under section 194C. 5.2.8 In the light of the discussion and the legal proposition as discussed above, after perusing the facts of the case and other materials brought on record, I am of the view that the Assessing Officer was not justified in holding that the appellant was liable to make deduction of tax from the total payments made to various parties aggregating to Rs.1,10,42,997/- u/s. 194C of the Act. Therefore, the disallowance made by him u/s. 40(a)(ia) of the Act of the like amount is to be unwarranted. Therefore, the consequent addition made to the income returned is hereby deleted.” 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee before AO argued that the supply of printed materials was a sale and could not be considered as work contract and tax was not required to be deducted u/s.194C of the Act, since the ancillary materials were not supplied by the

4 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10 assessee. It was also contended that Clause (iv)(e) of explanation with section 194C of the Act as introduced by Finance (No.2) Act, 2009, has placed the position beyond doubt by incorporating language to the effect that expression “Work” shall not include manufacture or supply of a material which is purchased from a person other than such customer. The assessee had further relied on Circular No.715 dated 08.08.1995 which provides that supply of printed material is covered by section 194C of the Act is also not applicable in this case since this circular does not mean that all cases of supply of printed material are liable to deduction of tax at source. We are of the view that it was only when the contract is for printing of materials and not for purchasing of material that the circular may be applicable. It is a fact that the assessee made outright purchases of goods for Rs.1,10,42,997/- from various suppliers on which sales tax stands paid and as such, the transaction is one of the sale and not work and does not fall under the scope and ambit of section 194C of the Act. Details of expenses of Rs.11042997 are contained in the paper book along with sample photocopies of some bill. All the original bills were produced at the time of hearing. From the perusal of the bill it is very much apparent that all the expenses are for outright contract of purchases and supplier has charged VAT/Excise in their sale bill. The provisions of section 194C of the Act are applicable only in relation to work contract and does not cover contract of sale of goods. When all the amounts were for outright purchase and in the sale bills the vendor has charged VAT and as such the transaction amounts to contract of sale and section 194C of the Act is not applicable. Even in view of Circular no. 681 dated 08.03.1994, section 194C of the Act does not apply "where contractor undertakes to supply and article or thing fabricated according to specification given by the payer and the property in such article or thing passes to such payer only after such article or thing is delivered”. 5. In section 194C of the Act in the last it has been provided as such, which reads out as follows: "Work 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". As reliance was placed by the assessee on the case of BDA Ltd. vs. ITO (TDS) (2006) 281 ITR 99 (Bom), wherein it is held that supply of printed materials constitutes sale under the sale of Goods Act; and section 194C of the Act is not applicable. In that case it

5 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10 was held that supply of printed packaging labels merely because the printing was done as per requirement/specifications of the assessee, it could not be said that any work was carried out on behalf of the assessee. We find that similar issue was dealt by various courts, wherein it has been held that supply of any article or thing fabricated according to the specification of the purchaser and the property in such article passes to the person only after the same is delivered, the contract will be a contract on sale and as such falls outside the purview of section 194C of the Act. Therefore, the Assessing Officer erred in law in making disallowance of Rs.1,10,42,997/- despite the facts that the said amount is paid for purchases and section 194C of the Act is not applicable. Accordingly, no disallowance by invoking the provisions of section 40(a)(ia) of the Act can be made. The CIT(A) has rightly deleted the addition and we confirm the same. This issue of revenue’s appeal is dismissed. 6. The next issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance by allowing set off of unabsorbed depreciation loss against current year’s income. For this, revenue has raised following ground no.2: “2. For that in the facts and in the circumstances of the case the Ld. CIT(A) is not correct by allowing set off of unabsorbed depreciation loss against the current years income.” 7. Brief facts relating to the case are that in the assessment order, the AO noted that, the unabsorbed depreciation for the AY 1989-1999 & 1999-2000 claimed by the assessee is not allowed to be set off this year since as per the Act, unabsorbed depreciation allowance for the above assessment years are only allowed to be carried forward for 8 subsequent assessment years. As per the scrutiny assessment order for assessment year 2008-09 only the unabsorbed depreciation for assessment year 2002-03 Rs.1,47,98,454/- and unabsorbed depreciation for assessment year 2003-04 of Rs.18,76,759/- were allowed to be carried forward and the same is allowed to be set-off with the income of the assessment year 2009-10. Further, no unabsorbed depreciation is allowed to be carried forward. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by observing as under:- “I have considered the facts of the case and the submission behalf of the appellant. I have also gone through the decision rendered Gujrat High Court. On a plain reading of provisions of section 32(2), it is amply clear that this section does not prescribe any time limit for carry forward an unabsorbed depreciation. In CIT v. Jaipuria China Clay Mines (P) Ltd. [1966] 59 ITR 555 (SC), the Hon'ble Supreme Court has held that ‘it is wrong to

6 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10 assume the section 72 also deals with the carrying forward of depreciation". According to the Hon'ble Court, this carry forward having been provided in section 32(2) in a different manner, on 72 deals with losses other than losses due to depreciation. There is no time limit prescribed under section 32(2) of the Act. From the provisions of the Act and the ratio laid down in the cases cited, supra, the following steps are to be kept in mind while dealing with unabsorbed depreciation: Step one Depreciation allowance of the previous year is first deductible from the income chargeable under the head “profits and gains of business or profession”. Step two If depreciation allowance is not fully deductible under the head “Profits and gains of business or profession" because of absence or inadequacy of profits, it is deductible from income chargeable under other heads of income (except income under the head "Salaries") for the same assessment year. Step three If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent assessment year(s) by the same assessee [see also the points given below] 1. Time limit is fixed for the purpose of carrying forward of unabsorbed depreciation; it can be carried forward for indefinite period, if necessary. 2. In the subsequent year(s), unabsorbed depreciation can be set off against any income whether chargeable under the head "Profits and gains of business or profession" or under any other head (except Income under the head "Salaries"). In the matter of set off, the following order of priority is followed in the subsequent year(s): . a) Current depreciation. b) Brought forward business loss c) Unabsorbed depreciation It may be said that if in the subsequent year(s), there is no brought forward business loss, unabsorbed depreciation can be added to current depreciation for the purpose of claiming deduction. 3. Continuity of business is not relevant for the purpose of above set off and carry forward. 4. Depreciation can be carry forward by the same assessee. This rule is, however, not applicable in some cases. In view of the foregoing discussion, the claim of the assessee company, in my opinion, the disallowance of the claim of set off of unabsorbed depreciation loss against the current income is not justified. The Assessing Officer is hereby directed to allow the same on the basis of the steps given above in accordance with law while giving effect to this order.” Aggrieved, revenue came in second appeal before Tribunal. 8. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee made a claim of unabsorbed depreciation loss of several years starting from A.Y. 1998-99 to 2004-05. The unabsorbed depreciation loss for assessment year 1988-89 is Rs. 19696049/- and for assessment year 1999-2000 is Rs. 25777920/- but the AO in the immediate preceding year i.e. in the assessment year 2008- 09 also did not allow the claim of set off unabsorbed depreciation loss of assessment year 1998-99 and 1999-2000. The claim for the said two years was not allowed on the ground that unabsorbed depreciation loss could be carried forward further for 8 years only.

7 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10 Accordingly, in the assessment year 2008-09 the assessed total income of Rs.37850399/- (inclusive of addition of Rs.22401596/-) u/s. 40(a)(ia) was fully adjusted with the unabsorbed depreciation of assessment year 2001-2002 to assessment year 2002-03 without adjusting unabsorbed depreciation for assessment year 1998-99 and 1999-2000. It is found that in the assessment order for the assessment year 2009-10, the AO adjusted the unabsorbed depreciation loss of Rs.16675213/- (sum total of unabsorbed depreciation loss for A.Y.2003-04 & overdue balance loss of 2002-03) and on the balance amount of total income of Rs.1,20,95,096/- raised the demand of Rs.54,67,796/-. It is also found that in the assessment for assessment year 2009-10 also, the AO has not adjusted the unabsorbed depreciation loss of Rs. 1,96,96,049 for A.Y. 1998-99 and Rs. 2,57,77,920 for A.Y. 1999-2000 on the ground that unabsorbed depreciation loss for these two years are only allowed to be carried forward to 8 subsequent years. In view of these facts, we are of the view that prior to the Finance Act No.2 of 1996 unabsorbed depreciation could be carried forward indefinitely. The Finance Act No.2 of 1996 restricted the period of carry forward & set-off of unabsorbed depreciation to 8 years from AY I997-98. The Circular 762 dated 18.2.1998 clarified that brought forward unabsorbed depreciation for the earlier years would be added to depreciation for AY 1997-98 and period of 8 years would begin from AY 1997-98 onwards. S. 32 (2) was again amended by Finance Act, 2001 w.e.f. AY 2002-03 to restore the position as it was prevailing prior to the Finance Act No. 2 of 1996 and the period of 8 years was done away with. Accordingly, the unabsorbed depreciation loss for assessment year 1998-99 and 1999-2000 became the unabsorbed depreciation loss for assessment year 2008-09 and can be carried forward for set off indefinitely. In Circular No.14 of 2001, the CBDT clarified the removal of the 8 year time period was "with a view to enable the industry to conserve sufficient funds to replace plant and machinery". The effect of the amendment is that the unabsorbed depreciation available to an assessee on 1.4.2002 (AY 2002-03) has to be dealt with in accordance with the s. 32(2) as amended by the Finance Act, 2001 and not by s. 32(2) as it stood prior to the said amendment. 9. Hon'ble High Court of Gujarat in the case of General Motors India Pvt. Ltd V DCIT (2013) 354 ITR 244 (Guj) considering the same issue enunciated the proposition of law as under:- "Had the intention of the Legislature been to allow unabsorbed depreciation allowance worked out in AY 1997-98 only for eight subsequent assessment years even after the

8 ITA No. 622/Kol/2013 Winsome Breweries Ltd. AY 2009-10 amendment of s. 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision and so a purposive and harmonious interpretation has to be taken. Therefore, the unabsorbed depreciation pertaining to AY 1997-98 can be carried forward for set-off indefinitely (A.Y'2006-07). " It is pointed out that in this case, which is as under:- "We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provision of section 32(2) as amended by Finance Act,2001 and once the circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y 1997-98 up to the A.Y 2001-02 got carried forward to the assessment year 2002-03 and became part thereof it came to be governed by the provision of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set Off against the profits and gains of subsequent years, without any limit whatsoever." In view of the ratio laid down by the Hon'ble Gujarat High Court, we are of the considered view that the unabsorbed Depreciation loss of A.Y. 1997-98 & 1998-99 is allowable and should be adjusted with the total computed income unabsorbed Depreciation loss should be carried forward. The CIT(A) has rightly allowed the claim of unabsorbed depreciation loss of the assessee and we confirm the same. This issue of revenue’s appeal is dismissed. 10. In the result, the appeal of revenue is dismissed. 11. Order is pronounced in the open court on 16.12.2015 Sd/- Sd/- (M. Balaganesh) (Mahavir Singh) Accountant Member Judicial Member

Dated : 16th December, 2015

Jd. Sr. P.S

Copy of the order forwarded to:

APPELLANT – ITO, Ward-7(2), Kolkata. 1. Respondent – M/s. Winsome Breweries Ltd., S-521, Greater Kailash 2 Part-II, New Delhi-110048. The CIT(A), Kolkata 3. 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.