Commissioner Of Income-Tax, Chandigarh v. The Chief Electoral Officer, Haryana Chandigarh

Income Tax Reference No. 183 of 1999 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH --- Income-tax Reference No. 183 of 1999 Date of decision: 23.11.2010 Commissioner of Income-Tax, Chandigarh ...Petitioner Versus The Chief Electoral Officer, Haryana Chandigarh ..Respondent --- CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOELHON'BLE MR.JUSTICE AJAY KUMAR MITTAL ---- Present: Mr. Yogesh Putney, Senior Standing Counsel for the petitioner. Mr. Pankaj Jain, Advocate for the respondent. **** AJAY KUMAR MITTAL, J. This order shall dispose of Income Tax Reference Nos. 183 and 184 of 1999 as common question of law is involved therein.However, the facts are being extracted from ITR No.183 of 1999. At the instance of the Revenue, the Income-tax Appellate Tribunal Chandigarh Bench, Chandigarh (in short “theTribunal”), vide order dated 15.12.1998 passed in RA Nos. 85 and86/Chandi/98 in Income Tax Appeal Nos. 1015 and 1016/Chandi/97,relating to the assessment years 1994-95 and 1995-96, has referredthe following question for the opinion of this Court: “Whether on the facts and in the circumstances of thecase, the Tribunal was right in law in holding that thetransaction of preparing I-cards according tospecifications laid down by the assessee is covered bythe provisions of para 7(vi)(b) of CBDT circular no. 681dated 8.3.94 and therefore did not fall within the purviewof Section 194C of the I.T. Act?” The facts leading to the filing of the present reference are that the respondent-assessee made some payments to the HaryanaState Electrical Development Corporation Limited (HARTRON) forpreparation and supply of laminated photo identity cards. Theassessee did not deduct tax at source on the said payments. Theassessing officer issued show cause notice asking the assessee toexplain the reasons for not doing so. The plea raised by theassessee in response to the show cause notice was that no ‘taxdeduction at source’ (TDS) was made as the supply order was to beconsidered as supply of goods and not as a contract payment, andas such the same did not fall within the purview of Section 194C ofthe Act, in view of the CDBT circular No. 681 dated 8.3.94, para 7 (vi-b). After considering the reply furnished by the assessee, the Assessing Officer held that the provisions of Section 194-C of the Actwere applicable and the respondent-assessee was assessee indefault and liable to pay tax under Section 201 of the Act. Theassessing officer also held the assessee to be liable to pay simpleinterest at the rate of 15% per annum, under Section 201(1A) of theAct. For the financial year 1994-95, the assessing officer computedtax at Rs. 20,13,810/- and interest at Rs. 6,60,390/- and for thefinancial year 1995-96, the tax computed was Rs. 78,070/- andinterest at Rs. 16,510/-. Aggrieved by the order of the assessing officer, theassessee went up in appeal before the Commissioner of Income Tax(Appeals), [hereinafter referred to as “CIT(A)”]. The CIT(A), afterconsidering the submissions made on behalf of both the sides cameto the conclusion that the assessee was not entitled to the benefit ofthe aforesaid circular dated 8.3.1994 because this circular was heldto be illegal and accordingly struck down by the Bombay High Courtin the case of Advertising Agency Association of India v. CBDT (1994)210 ITR 152and also by Delhi High Court and Madras High Court,and, therefore, the assessee was rightly held liable to pay tax andinterest for non-compliance of the provisions of Section 194C of theAct. Aggrieved by the order of the CIT(A), the assesseepreferred further appeal before the Tribunal. The Tribunal allowedthe appeal of the assessee. We have heard learned counsel for the parties andperused the record. The Tribunal while allowing the appeal of the assessee noticed as under: Aggrieved by the order of the CIT(A), the assesseepreferred further appeal before the Tribunal. The Tribunal allowedthe appeal of the assessee. We have heard learned counsel for the parties andperused the record. The Tribunal while allowing the appeal of the assessee noticed as under: “We may have to agree with the contention of ld. D.R. thatthe work of preparation and supply of I-cards by HARTONis covered within the meaning of section 194C, as thecase of preparation and supply of I-cards is aconsolidated case of expenses on labour and rawmaterial which has gone into production of I-cardsrequired to be supplied by HARTON to the assessee.However, at the same time the contents of para 7(vi)(b)and (c) of circular No.681 which are still valid and bindingon the departmental authorities cannot be ignored. It isclearly mentioned in sub-clause (b) of clause (vi) of para 7that where the contractor undertakes to supply any articleor thing fabricated according to the specifications given bythe Govt. or any other specified person and the propertyin such article or thing passes to the Govt. or such persononly after such article or thing is delivered, the contractwill be a contract for sale and outside the purview ofsection 194C of the Act. We feel that the transaction of preparing I-cardsaccording to the specifications laid down by the assesseecan also be said to fall within para 7(vi) of the saidcircular, issued by CBDT. It is also observed that theassessee had submitted before CIT(A) (pages 66-70 ofthe paper book) that its case squarely falls within the said paragraph (vi)(b) and it accordingly did not deduct tax atsource. The said pleas of the assessee also find mentionin order of CIT(A). Thus, in such a situation, we feel thatwhere two interpretations are possible, suchinterpretation which favours the assessee has to beadopted having regard to the decision of the apex Courtin the case of Vegetable Products Ltd. (1973) 88 I.T.R.192. Further, the assessee acted bona fide in this caseon the basis of the said belief and did not deduct tax atsource. It is also observed that the tax due on paymentsin question in both the assessment years has been paidby the contract and, therefore, we feel that the alternativesubmission of the assesee that the object of provisions ofsection 194C read with section 191 has been met, has tobe accepted. Ultimately, no loss of revenue has beencaused to the Department as the tax due has been paidby one of the parties. We may also mention that the workof preparation of I-cards was a stupendous work andundertaken for the first time by various Govt. agencies onthe basis of directions issued by the CEC and the Govt.agencies were obviously not very clear about their liabilityto deduct tax at source. On the facts and circumstancesof the case, we, therefore, feel that the default, if any, isonly of technical nature and that the assessee acted inbona fide belief and considering overall circumstances ofthe case we feel that no interest is chargeable u/s 201(A)in this case. While holding so, we have taken into account the submissions made by Ld. D.R. that thisdecision of ours should not be taken as laying a generalprinciple/proposition which may set in a chain reaction insimilar cases enabling the assessee not to deduct tax atsource u/s 194C. We may make it clear that our decisionrests on the peculiar facts of the case wherein two Govt.Departments are involved and that the same has beentaken in the context of particular transactions and shouldnot be taken as a precedent laying down a generalproposition that such items of work are treated as sale ofgoods. Accordingly, order of CIT(A) is set aside inrelation to both the assessment years underconsideration.” account the submissions made by Ld. D.R. that thisdecision of ours should not be taken as laying a generalprinciple/proposition which may set in a chain reaction insimilar cases enabling the assessee not to deduct tax atsource u/s 194C. We may make it clear that our decisionrests on the peculiar facts of the case wherein two Govt.Departments are involved and that the same has beentaken in the context of particular transactions and shouldnot be taken as a precedent laying down a generalproposition that such items of work are treated as sale ofgoods. Accordingly, order of CIT(A) is set aside inrelation to both the assessment years underconsideration.” The Tribunal held that the assessee had acted bona fidein not deducting the tax at source. It was further observed by theTribunal that tax due for payment in question for both the assessmentyears had already been paid by the contractor and, therefore,alternative argument of the assessee that recourse to provisions ofSection 194-C read with Section 191 of the Act was not justified asthere is no loss of revenue to the Department had weight. Stillfurther the default, if any, was only of a technical nature and in thepeculiar facts of the case, wherein the two Departments of theGovernment were involved, the action against the assessee was notrequired. We are in agreement with the observations recorded bythe Tribunal and dispose of the question referred, accordingly. Income Tax Reference No. 183 of 1999 7 (Ajay Kumar Mittal)Judge November 23, 2010 *rkmalik* (Adarsh Kumar Goel) Judge