Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Shri Sudhir Jajoo , D-41, Ambabari, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 46 / 2014 COMMISSIONER OF INCOME TAX, JAIPUR-II, JAIPUR ----Appellant Versus SHRI SUDHIR JAJOO , D-41, AMBABARI, JAIPUR ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat on behalf ofMr. R. B. Mathur For Respondent(s) : Mr. Mahendra Gargieya _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 14/09/2017 1. By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the Department for statistical purposes andconfirmed the order of CIT (A) which has reversed the order ofAO. 2.While admitting the appeal, this Court framed the followingsubstantial question of law:- “Whether on the facts and circumstances of the case, theITAT was justified in law in holding that the contract ofpurchase, installation and commission of windmill was nota works contract. Whether on the facts and circumstances of the case, theITAT was justified in law in confirming the order of CIT(A) holding that no disallowance of depreciation could bemade u/s 40(a)(ia) without considering the facts that itwas a case of composite works contract and not salecontract as such the Provisions of deduction of tax atsource u/s 194C applies” 3.The counsel for the appellant has taken us to the order of AOwhere the AO observed as under:- Thus, a perusal of the clauses of the contract with sulzlon Group leaves no doubt that it is a work contract onturnkey a basis and not various different contract. TDShas to be deducted on the entire amount in the caseswhere the contract has been awarded on turnkey basis.Since contracts for the construction of buildings or damsor laying of roads and airfields or railway lines or erectionor installation of plant and machinery are in the nature ofcontracts for work and labour, income-tax will have to bededucted from entire payments made in respect of suchcontracts. From the facts mentioned above, it is clear that- A.The contracts awarded by the assessee arecomposite type of turnkey contracts. B.The purpose of giving orders on turnkey contractbasis is installation of plant & machinery and notexclusively the purchase of plant & machinery. C.There are many interlinking condition in work order,which indicates that this is a single contract for all thework orders. D.Intention is not to purchase the article but toimprove the utility. E.Consideration is not for the transfer of property butfor the labour and work done and the material furnished. F. The subject and substance of the ordrs placed under consideration is to carry out the work of erection, testing,commissioning, on turnkey basis including supply ofmaterial which makes it “works contract” liable fordeduction of tax at source u/s 194C on the total payment. Summary of the facts and evidence for this contract beingcomposite contract Following is the summary of the facts and evidence on thebsis of which, it can be easily concluded, that theassessee company’s contract with the SUZLON group is acomposite contract. 1. Brochure of SUZLON Group show that the companyoffers not only services of manufacturing, commissioningand installation of wind mill but also offers services ofselection and requisition of sites, assistance in obtainingregulatory and statutory clearances and assistances isavailing finances. Therefore, SUZLON Group offerscomprehensive and composite deal on wind mill. 2. The offer made by the SUZLON Group to the assesseecompany is a composite offer for supply, foundation,erection and commissioning of wind every converters. Following is the summary of the facts and evidence on thebsis of which, it can be easily concluded, that theassessee company’s contract with the SUZLON group is acomposite contract. 1. Brochure of SUZLON Group show that the companyoffers not only services of manufacturing, commissioningand installation of wind mill but also offers services ofselection and requisition of sites, assistance in obtainingregulatory and statutory clearances and assistances isavailing finances. Therefore, SUZLON Group offerscomprehensive and composite deal on wind mill. 2. The offer made by the SUZLON Group to the assesseecompany is a composite offer for supply, foundation,erection and commissioning of wind every converters. 3.The assessee company has treated the transactionas a composite order by placing order on the same day.According to the intention of the assessee company, theseorders are not separate orders but is a single compositeorder. 4. The assessee company has made payment bytreating the order as a whole single order withoutapportioning it accordingly to the different order value. 5. Analysis and study of various clauses and terms andconditions of payment of so called ‘separate’ orders showthat all orders are interdependent and performances ofthese orders are linked with other orders. Hence all ordesare a single composite order. 6.As laid down by the Supreme Court in the abovementioned cases, erection, installation and commissioningare fundamentality and intergral part of the contract aswithout which wind mill does not come into being.Therefore, like rolling shutter and crane, manufacture,supply and installation of a wind mill is a commoncomposite work order. 3.1He contended that both the authorities have committed error in reversing the view taken by the AO. 4.However, while considering the matter and taking intoaccount finding of CIT (A), the Tribunal held as under: “2.4 We have heard the rival submissions, perused thematerials available on record and the orders of theauthorities below. The undisputed facts are that the claim ofthe assessee in respect of depreciation was disallowed bythe AO by invoking the provision of Section 40(a)(ia) of theAct. However, we find that the ld. CIT(A) has decided thisissue in favour of the assessee by observing as under:- 3.1He contended that both the authorities have committed error in reversing the view taken by the AO. 4.However, while considering the matter and taking intoaccount finding of CIT (A), the Tribunal held as under: “2.4 We have heard the rival submissions, perused thematerials available on record and the orders of theauthorities below. The undisputed facts are that the claim ofthe assessee in respect of depreciation was disallowed bythe AO by invoking the provision of Section 40(a)(ia) of theAct. However, we find that the ld. CIT(A) has decided thisissue in favour of the assessee by observing as under:- ‘’3.1 I have duly considered the submissions of theappellant. On perusal of the assessment order, it is seenthat the AO has disallowed depreciation of Rs 1,10,19,200/-u/s 40(a)(ia) of the I T Act on the ground that no TDS wasdeducted by the assessee in respect of payments made forWindmill project at village Jethwai, Jaisahner. The AOnoticed that the assessee had made payments to M/s SuzlonEnergy Ltd, M/s Suzlon Infrastructure Services Ltd, M/sSuzlon Power and Infrastructure Ltd and M/s Suzlon GujaratWind Park Ltd for supply of Windmill, Installation, Operationand Maintenance but not deducted TDS. The AO hassummarized the details of expenditure on pages 3 & 4 of theassessment order wherein out of total payments of Rs3,56,02,143/-, the cost of machinery, parts & othermaterials was shown at Rs 2,66,48,000/- on which no TDSwas deducted by the assessee. The cost of servicecontract/erection/commissioning was at Rs 89,54,143/- andTDS was deducted by the assessee on payments of Rs80,54,143/-made to M/s Suzlon Infrastructure Services Ltdand M/s Suzlon Power and Infrastructure Ltd. The AOnoticed that though separate orders had been placed butthe intention of the assessee and Suzlon Group was toaward the work on turnkey basis and there was noinvolvement of third party. The AO held that the contractsawarded by the assessee were composite types of turnkeycontracts. The purpose of giving orders on turnkey contractbasis was installation of plant & machinery and notexclusively the purchase of plant & machinery. There weremany interlinking condition in the work order whichindicated that it was a single contract for all the workorders. The intention was not the purchase of the article butto improve the utility. The consideration was not for thetransfer of property but for the labour and work done andthe material furnished. The subject and substance of theorders placed under consideration was to carry out the workof erection, testing, commissioning on turnkey basisincluding supply of material which made it "works contract"liable for deduction of tax at source U/s 194C on the totalpayments. When confronted, the appellant explained that subject provisions envisaged deduction of tax at source onlyin the case of a contract involving work and not a contractfor supply of material. Thus provisions for TDS were notapplicable to the contract for sale of goods. This fact wasalso recognized and accepted by CBDT vide its circular No681 dated 08.03.1994. The Legislature has recognized thatthe value of material should be excluded while deducting taxU/s 194C and supply of material could not be treated asworks contract. The provisions of section 40(a)(ia) were notapplicable to the claim of depreciation. Further it wasargued that even in the turnkey contract, no TDS wasrequired to be deducted on supply of material as it wasdistinct and separate from the activity of erection andcommissioning. Reliance was placed on the decision of ITAT,Hyderabad in the case of Power Grid Corporation Ltd VsACIT (108 ITD 340). It was argued that the assessee hadtaken consultancy services from M/s Suzlon Energy Ltd andin pursuance thereof, he had placed orders for machineryand other parts of Windmill with the various suppliers andpayments were made to them directly. The assessee hadpurchased Windmill and its parts from M/s Suzlon EnergyLtd on which no TDS was deducted. Similarly no TDS wasdeducted on the purchases of transformer of Rs 9,38,000/-from M/s Suzlon Infrastructure Services Ltd and purchase ofland of Rs 9,00,000/- from M/s Suzlon Gujarat Wind ParkLtd. Further copies of delivery challans for machinery and itsparts from various suppliers were also submitted. On carefulconsideration of the facts, I find that the AO was of theopinion that the contractor had not only supplied themachinery but also installed the same, commissioned theproject, operated and maintained the plant. However thedistinguishing factor in the present case was that it was acontract for sale of goods and there was no work contract.Out of total payment of Rs 3,56,02,143/-,the payment forsupplyofmachineryandpartswasatRs.2,66,48,000/-.Furtherthecostofinstallation/commissioning the plant was at Rs 80,54,143/-.It also included service charges and labour charges on whichTDS was deducted by the assessee while making payments.Due to heavy size of Windmill, considerable amount ofpayment related to civil work including foundation. Howeverthe appellant had not given any work contract to the SuzlonGroup or other suppliers. On the other hand, the examplescited by the AO on page 15 & 16 of the assessment orderrelated to works contract. In fact, the AO had relied on the,decision of Hon'ble Supreme Court in the case of VanguardRolling Shutters but in the cited decision it was held that if the contract was for the sale of material, the sale proceedswould be exigible to sales tax. In the present case thesuppliers had charged VAT on sale of material to theappellant. Further the terms of payment showed that 30%of the total cost was to be paid in advance, 20% of the costof Windmill was to be paid on supply of Tower material atsite, 20% of the cost was to be paid on supply of Nacelle atsite, 25% of the cost was to be paid on supply of RotorBlades at site and only 5% of the cost was to be paid atcompletion of erection of the Windmill. Neither from thebills/agreement nor from other documents submitted by theappellant, it could be concluded that the appellant had givena work contract to the Suzlon Group/other suppliers. In thecase of SMS Demag Pvt Ltd Vs DCIT (132 TTJ 498), theassessee M/s SMS Demag (P) Ltd was a subsidiary of M/sSMA, Demag AG Germany. M/s SMS Demag India (P) Ltd.was engaged in the business of supply as assemblies/sub-assemblies of metallurgical equipment, profession ofconsultation and technical service in design and engineeringto ferrous and non-ferrous sectors. As per the order undersection 201/201(1 A) of the Act passed by the Income TaxOfficer, TDS-1(2) (International Taxation), the assesseemade SAP maintenance expenses of Rs 1,82,48,673/- to theparent company M/s SMA Demag AG Germany withoutdeducting tax in India during the financial year 1999-2000relevant to assessment year 2000-01. The assessing officerissued show-cause notice as to why the payment of Rs.1,82,48,673/- should not be disallowed under section 40(a)(i). It was submitted by the assessee that the amount of Rs.1,82,48,673/- was not charged to profit & loss accountrelevant to assessment year. The amount represented thecharges payable to SAP installation charges which werecapitalized in the books of- account under the headComputer in the relevant assessment year. The amountreferred to in the notice formed part of the total additionunder the head "Computer". The assessee filed the copy ofaudited accounts showing the additions to the computeramounting to Rs. 4,32,23,878/- which included the amountof Rs. 1,82,48,673/-. Since the amount was not charged toprofit & loss account, the provisions of section 40(a)(i) hadno applicability. However, this contention of the assesseewas rejected by the assessing officer relying on provisions ofsection 40(a)(i) under which deduction was not to beallowed unless tax was deducted at source. It wassubmitted that the expenditure of Rs.1,82,48,673/-wasincurred on installation/maintenance of software andconsidering the nature of cost, the assessee had chosen to capitalize the said amount in the books of account. It washeld by Hon'ble Tribunal that it was clear that the assesseehad made payment for the purchase of software named asSAP. The assessee had capitalized the cost of installation ofSAP in the books of account and had claimed depreciationas applicable to computers. The assessee while makingpayment in 2006 to the parent company had not deductedtax at source. The assessing officer had disallowed the claimof the assessee for depreciation on the ground that tax wasnot deducted under section 40(a)(i). Under section 40(a)(i)any interest (not being interest on loan issued for publicbefore 1-4-1938), royalty fee for technical services or sumchargeable under this Act, which was payable outside Indiaor inside India to a non-resident not being a company or toa foreign company on which tax was deductible at sourceand such tax had not been deducted or, after deduction, hadnot been paid during the previous year or in the subsequentyear before the expiry of time prescribed under sub-section(1) of section 200 shall not be allowed as deduction whilecomputing the income chargeable under the head Profitsand gains of business or profession. From the language ofsection 40(a)(i), it was clear that payment made outsideIndia should be in the nature of interest, royalty, fee fortechnical services or other sum chargeable under the Act.The assessing officer has simply reopened the assessmenton the basis of information received from Additional Directorof I T (International Taxation) Range-2, New Delhi anddisallowed depreciation on assets capitalized in the books ofaccount. The Commissioner (Appeals) had also notexamined the nature of the expenditure incurred towardsinstallation of software named SAP. She had treated thepayment without any discussion in the nature of royalty /feefor technical services or interest. According to her, thepayment made might fall in any of the categories.Apparently, the payment made towards installation ofsoftware was not in the nature of interest. The assessee hadmade payment to parent company for the purpose ofsoftware. The payment made for purchase of software couldnot be treated either as royalty or even for technicalservices. Therefore, the payment for SAP software could notbe charged to tax in India as interest or royalty or fee fortechnical services. In the considered opinion of members ofTribunal, the payment made for acquisition of an assetwhether it was a revenue expenditure or capital, provisionsof section 40(a)(i) of the Act would not be applicable in caseof resident assessee for assessment year 2000-01.Therefore, it was held that the Commissioner (Appeals) was not justified in holding that the amount paid by the assesseefor acquisition of computers was chargeable to tax in India.Accordingly, this ground of appeal was decided in favour ofthe assessee. As regards the claim of assessee fordepreciation on assets capitalized, it was held thatdepreciation could not be disallowed on the ground that atthe time of remittance no tax was deducted at source.Provisions of section 40(a)(i) were not applicable for claimfor deduction under section 32 of the Act. Accordingly, intheir considered opinion, the assessing officer was notjustified in disallowing 50 per cent of depreciation on theground that provisions of section 40(a)(i) were applicable.Similarly in the case of S. T. Reddiar and Sons Vs DCIT (007ITR Trib. 001), it was found that only a small fraction of thetotal expenditure was in the form of labour charges.Therefore, the contract was not for supply of labour or forwork but for purchase of goods for which some labour workwas performed. It was not the case of the Department thatthe goods were bought in unprocessed form and then givenfor job work. Any goods purchased from the marketincluded some component of labour due to servicesperformed on the input material procured by the supplier.Each "good" could be broken into composite services inorder to essentially form a tangible form of labour and itwould not attract the provisions of section 194C andconsequently section 40(a)(ia) of the Act. In the absence ofany finding by any of the authorities below regardingexistence of a separate contract in respect of labour work,the disallowance was deleted by the Hon'ble CochinTribunal. 3.2 It is pertinent to mention here that in thepresent case, the contract of manufactured goods was onprinciple to principal basis and was not a contract forcarrying out any work. Accordingly the contract underconsideration was a contract for sale of goods for thereasons that the purchase of goods was on principal-to-principal basis and was not a contract for carrying out ofwork; the finished goods were transferred and title thereonwas passed on to the appellant at the time of sale thereofuntil such time ownership in the goods and the risksassociated thereto rested with the vendor: the invoicesraised by the manufacturer did not contain any breakup ofthe cost of material and cost of labour: the manufacturerindependently purchased all the input raw materials used forproduction of the products equipment: in the invoices, thesuppliers had charged taxes as applicable on sale ofproducts. The findings of Hon'ble Delhi Tribunal in the caseof DCIT Vs Seagram Manufacturing Pvt Ltd (19 SOT 139) are pertinent for the issue under consideration:- "Therequirement of section 194C is that in order to attract theprovisions, the assessee should have made the payments toa contractor for carrying out any contract, including supplyof labour for carrying out any work. The expression contractfor carrying out any work implies that the contractor shouldhave carried out such activities. The term carried outsuggests an executory contract, rather than as case of meresupply or sale of goods. Where a person engages in theservices of another and give him a job of manufacturinggoods and for this purpose supplies him raw material, etc.,it would be a clear case of contract of work and theprovisions of section 194C would be attracted. But if on theother hand, the manufacturer on his own purchases materialand manufacture products which he sells to the anotherperson and it may be that such products might be customerspecific as per the requirements of the customer, it is still acase of sale and not for carrying out any work. Even in caseof customer specific sale, the fact that the goodsmanufactured were according to the requirements of thecustomer, does not mean that any work has been carriedout on behalf of contractee. So, the customization of thepacking material supplied in accordance with thespecifications laid down by the assessee, would not madethe transaction into a transaction of contract. In the case ofBDA Ltd. Vs ITO (281 ITR 99), the Aurangabad Bench of theBombay High Court, after a consideration of all theauthorities on the point, held that for the purpose of section194C of the I.T Act the difference between a sale contractand a works contract should be kept in mind and where amanufacturer purchased material on his own andmanufactured a product as per the requirements of aspecific customer, it was a case of sale and not a contractfor carrying out any work. The High Court further observedthat the fact that the goods were manufactured according tothe specifications and requirements of the customers did notmean or imply that any work was carried out on behalf ofthat customer so as to attract the provisions of section194C. In the case of KRIBHCO Vs DCIT (10 ITR Trib. 527), itwas held by Hon'ble Delhi ITAT that the contract for supplyof gas from the producers for the purpose of use of this gasfor burning in the assessee's factory was a contract for saleof goods and not a works contract. Therefore the order ofthe Commissioner (Appeals) deleting the disallowance of thepayment made was to be upheld. In the case of Power GridCorporation of India Ltd Vs. ACIT (108 ITD 340), theassessee was a Central Government undertaking engaged in the activity of transmission and power distribution ofelectricity to various constituents across the country. Duringthe year under consideration, the assessee was involved inthree projects for which contracts were awarded to differentcontractors. The assessee awarded contracts to variousparties to construct/execute the transmission line/sub-station. The categories of contracts entered into by theappellant with various contractors for the above purposewere for Pure Supply Contracts; Pure Erection Contracts;and Supply-cum-Erection Contracts (but with separateagreements in respect of supply portion). The contractsentered into with the respective contractors were identicaland the scope of various contracts consisted of supply ofconductors, insulators, towers and sub-stations and theerection part was incidental. In respect of erectioncontracts, the assessee had deducted taxes at source dulyapplying the provisions of section 194C. In so far as thesupply contracts were concerned, the assessee did not makeany deduction, on the ground that provisions of section194C are not attracted to the said payments. The case ofthe assessing officer was that the supply of transmissiontowers/cables involved design and manufacture of thegoods, and hence it was a contract of works and not acontract of sale. The assessing officer was not convincedwith the reply filed by the appellant and passed an orderunder section 201(1) read with section 201(1A) holding theassessee as "assessee in default" for not having deductedtaxes in respect of the various contracts entered into by it,which according to him, were contracts in the nature ofworks contracts. The CIT(A) upheld the order of the AO. Itwas held by Hon'ble Mumbai Tribunal that the AO was notjustified. It was held that if equipments were manufacturedas per design engineering, etc., specified by the customer(assessee) it would not result in a work contract, especiallywhen all the materials belonged to supplier, even though itproduced a tailor made product. The facts of the case clearlyshowed that it was a contract for sale and provisions ofsection 194C were, therefore, not applicable. The contracts,though contained in the same document in some cases werein two parts. Simply because the supply and erection partsof the contract were entered into with the same party insome cases and in some other cases, were in two separateparts in the same agreement the nature of each part of thecontract would not alter. It was held that if the facts of thepresent case were tested by applying the principles laiddown by the jurisdictional High Court and the Hon'bleSupreme Court, the obvious answer that would emerge was that this was a "supply contract" and not "works contract".The nature of a contract as to whether it was a contract forsale or "works contract" would depend on the terms of thecontract and its execution. In the present case, thecontractors had to fabricate towers as per tested quality ofconformity with International Standard (IS) 2062. Furtherthe contractor had been given the option to use otherequivalent grade of structural steel angle sections and platesconforming to latest International Standards. The contractorfabricated and manufactured the tower with steel sectionsas per International Standards. The material was that of"the supplier" and not of "the purchaser". The "supplier" didnot work on the material supplied by the "purchaser". Therewas no accretion of material to the purchaser, part by part,unit by unit. The rest of the equipment such as insulators,conductors, Transformers, Circuit Breakers, etc., werestandard equipments. The relevant technical specificationwas specified by the "purchaser". The title in the goodspassed as a chattel on delivery though certain obligationswere still necessarily to be performed by the supplier.Though the assessee claimed that the design specificationwere not unique in the sense that the same specificationswere used by many other concerns, however it was held tobe not a relevant test. The issue was as to the time andsitus of passing of the property and as to whether theproperty passed "Brick by Brick" on the theory of accretionor as a chattel qua chattel. The mere fact that the supplierhad to perform many other obligations cast on it by virtue ofthe contract after delivery of goods did not change thenature of transaction. The "supply" portion of the contractwas the predominant object and intention of the parties.Erection was a relatively minor portion as compared to thesupply portion. If the erection portion could not be taken asthe main object of these contracts, title in goods wastransferred as movables prior to erection. If equipmentswere manufactured as per the design engineering, etc.,specified by the customer, it would not result in a workscontract especially when all the material belonged to thesupplier, even though it produced a tailor made product. Theerection portion being subsequent to passing of title byexecution of the supply portion, it could not be said that theerection, portion controlled the supply portion though thefulfillment of the conditions of the erection contract had abearing on the fulfillment of the condition of supply portionof the contract, and though in some cases both thecontracts were in the same document. The scope and objectof each part of the contract was different. Though the supply portion and erection portion dovetailed into eachother, the erection portion did not control the supply portionand the supply contract did not become a works contract,just because there was an obligation cast on the supplier toerect the equipment which by that time had become theproperty of the purchaser. The title in the goods in respectof equipment/material to be supplied as per the terms ofcontract was to be transferred "ex-work" on dispatch asmovable property. The critical test to be applied was as towhen the title in the goods was transferred. Thus as the titlein the goods were passed on to the assessee, before thecommencement of the works or erection contract and asadmitted by the assessee it had treated these goods as itsproperty and entered the same as such in its stock registerbefore issuing the same for erection, it was a contract ofsale and section 194C had no application. On erectionportion as admitted TDS was made. The test was whether,in substance, the contract was one of work or labour or not.Section 194C would apply, when payment was made to thededucted for carrying on any work or for supplying labourfor carrying out any work and would not cover contracts forsale of goods. The CBDT recognized this position and issuedthe following guidelines in regard to the applicability of theprovisions of section 194C vide Circular No. 681, dated 8-3-1994. A plain reading of the section 194C along with CBDTCircular referred above and applying the same to the factsof this case, where the supplier did not work or processedthe material supplied by the purchaser and that the sellersupplied goods the title in which passed on to thepurchaser/assessee, as a chattel, on delivery ex-workdispatch and as the assessee had already deducted tax atsource from the erection portion of the contract treating itas a separate contract, section 194C was not applicable tothe supply contract in question. In the result, the appeal ofthe assessee was allowed. The AO has placed reliance onthe decision of Mumbai ITAT in the case of SpacoCarburettors (I) Ltd Vs ACIT (3 SOT 798) and the decisionof CIT(A)-III, Jaipur in the case of Sankalp International. Inthe case of Spaco Carburettors Ltd, it was held that anypayment for technical know-how whether to be coveredunder section 37(1) or under section 35AB could only beallowed when TDS was not only deducted but also paid.Further section 35AB was quite clear on the issue that l/6thof the total payment to be covered under section 35ABwould be allowed only when it was paid, i.e., l/6th paymentwould be allowed in the first year when it was paid and l/6theach would be allowed in subsequent five assessment years. In view of this, it was held by Mumbai ITAT that deductionunder section 3 SAB would be allowed (i) when it wasactually paid (ii) when TDS was deducted and paid to theGovernment account. It is not the case here. In fact, theHon'ble Mumbai Tribunal (Bench C ) in the case of M/sCrescent Chemsol Pvt Ltd Vs. ACIT ( ITA No.l497/Mum/2010dated 09.03.2011) held that the decision in the case ofSpaco Carburettors (I) Limited (3 SOT 798) could not beapplied when depreciation was disallowed by invokingprovisions of section 40(a)(ia). The observations of theHon'ble Tribunal in para 10 of its order dated 09.03.2011are reproduced as under.- " We have heard the rivalsubmissions. A perusal of the section 40(a)(ia) shows that itis only when a deduction is claimed in computing the incomechargeable under the head 'Profit and grains of business orprofession' that the above provision are attracted. Thededuction claimed should be of interest, commission orbrokerage, rent, royalty, fees for professional services orfees for technical services. The claim for depreciation madeby the assessee does not fall within any of the categoriesmentioned in the aforesaid provision. Therefore, it is notpossible to make the impugned disallowance by resorting tothe provisions of section 40(a)(i) of the Act. The learnedD.R. however submitted that provisions of sec. 40(a)(i) ofthe Act were held to apply even to capital expenditure bythe ITAT Mumbai in Spaco Carburettors (I) Ltd. Vs. ACIT2005(3) SOT 798 (Mum). We find that the said decision wasrendered in the context of deduction of capital expenditurewhile computing income, claimed by an assessee U/s. 35ABof the Act. We therefore do not find any relevance of thesaid decision to the present case. In that view of the matterwe direct that disallowance made be deleted. Ground No.3raised by the assessee is accordingly allowed". Similarly thedecision in the case of Sankalp International was withreference to the order u/s 201(1) and 201(1A). Thedistinguishing feature was whether the contract awarded inthe present case could be termed as work contract or not.The appellant in the present case had primarily purchasedWindmill and its parts including transformer from varioussuppliers. The contract entered by the assessee related tosale of goods. The payments for erection & commissioningas a logical corollary were 'ancillary and subsidiary, as wellas inextricably and essentially linked to such a sale were tobe treated as an integral part of the sale. The Windmill andits parts were not manufactured by the alleged suppliersafter placing of order by the appellant but much prior to it.The suppliers had paid VAT on these sales and title in the goods had passed on the appellant much prior to erection &commissioning. Going by the facts of the present case, I amof the opinion that same was not a work contract thereforedecision of Hon'ble Supreme Court in the case of AssociatedCement Company Ltd Vs CIT (201 ITR 435) relating toloading of Cement Bags in to trucks for a work contractcould not be applied to the present case. Without prejudiceto above, even if the appellant had defaulted in complianceof TDS provisions, then the necessary action could be takenby ITO, TDS. However in the present case, since theexpenditure was not charged to the profit and loss account,the AO was not justified in invoking the provisions of section40(a)(ia) of the I T Act. I therefore direct the AO to allowdepreciation of Rs 1,10,19,200/- on the Windmills installedat village Jethwai, jaisalmer. These grounds of appeal areallowed.’’ 4.In view of the concurrent finding of fact especially when theTribunal has considered the matter in detail, the finding of boththe authorities requires no interference. The question is answeredin favour of assessee and against the Department. 5.The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. //bm gandhi 40