Commissioner Of Income Tax,Ludhiana-Ii v. The Deputy Chief Accounts Officer, Markfed Khanna Branchkhanna

In the High Court for the States of Punjab and Haryana at Chandigarh… ITA No. 569 of 2007 Date of decision: 28.2.2008 Commissioner of Income Tax,Ludhiana-II Versus The Deputy Chief Accounts Officer, Markfed Khanna BranchKhanna Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Sanjiv Bansal, Advocatefor the Revenue/appellant. ... Appellant ...Respondent Rakesh Kumar Garg,J 1.The Revenue has filed the present appeal under Section 260-A ofthe Income Tax Act, 1961 (for short 'the Act')against the order dated 12.4.2007passed in ITA No.340/Chandi/2006 by the Income Tax Appellate Tribunal,Chandigarh Bench (B), Chandigarh for the assessment year 2006-07, raising thefollowing substantial questions of law:- “Whether on the facts and in the circumstances of the case, ITATis correct in law in confirming the order of the CIT(Appeal) inholding that the purchase of preprinted packing material by theassessee was a contract for sale and outside purview ofdeduction of tax u/s 194C of the Act”. 2.The Deputy Chief Accounts Officer, Markfed Khanna(hereinafterreferred to as the Responsible Person) had purchased printed packing materialon which he had not deducted tax at source under the provision of Section 194Cof the Act. The Responsible Person was summoned under Section 131 of theIncome Tax Act,1961, and was required to explain as to why he may not bedeemed to be an assessee in default for his failure to deduct tax in respect ofpayment made on printed packing material. The Responsible Person vide his letter dated 17.8.2005 submitted that the packing material is purchased from themanufacturer and no raw material is supplied by them to supplier of packingmaterial. Therefore, the purchase of such printed packing material by themanufacturer is a 'Contract of Sale' and it cannot be termed as 'Works Contract'.The Assessing Officer vide his order dated 26.9.2005 passed the order underSection 201(1) and 201(1A) of the Income Tax Act,1961 treating the respondent/assessee in default on the payments amounting to Rs.3,62,88,741/- made todifferent parties for not deducting tax at source at the rate of 2.25 % i.e., a totalamount of Rs.8,16,496/-. Interest amounting to Rs.48,990/- under Section 201(1A) was also charged. 3.Being aggrieved by the order of the Assessing Officer, therespondent went in appeal. The Commissioner of Income Tax (Appeals)-II,Ludhiana vide his order dated 27.12.2005 allowed the appeal of the respondentand penalty and interest imposed under Section 201 and 201(1A) of the Actwere deleted. By not satisfied with the findings of the Commissioner of IncomeTax(Appeals)-II, Ludhiana, the Revenue has preferred an appeal before theITAT. The ITAT, Chandigarh Branch(B), Chandigarh vide his order dated12.4.2007 passed in ITA 340/CHANDI/2006 for the Assessment Year 2005-06dismissed the appeal and uphold the decision of the Commissioner of IncomeTax(Appeals)-II, Ludhiana that purchase of pre-printed packing material by therespondent was a contract for sale and outside the purview of Section 194 C ofthe Act. 4.Shri Sanjiv Bansal, Advocate, learned counsel for the Revenue hasargued that the respondent had purchased the material under consideration withspecific requirement. As such, the said material could be purchased only by therespondent as the name and trade mark of the respondent were printed on it andthe respondent had called for tenders for execution of work and orders toexecute work were placed with sellers with certain conditions with their right to change the design, colour and scheme of packs during the period of contract.Thus, the case of the respondent is not the simple case of purchase/sale but isdefinitely a case covered under Section 194 C of the Act. 4.Shri Sanjiv Bansal, Advocate, learned counsel for the Revenue hasargued that the respondent had purchased the material under consideration withspecific requirement. As such, the said material could be purchased only by therespondent as the name and trade mark of the respondent were printed on it andthe respondent had called for tenders for execution of work and orders toexecute work were placed with sellers with certain conditions with their right to change the design, colour and scheme of packs during the period of contract.Thus, the case of the respondent is not the simple case of purchase/sale but isdefinitely a case covered under Section 194 C of the Act. 5.We have considered the submissions made by the learned counselfor the Revenue. There is no dispute that the main purpose of the assessee tobuy packing material is to obtain goods for the purpose of packing of its finishedproducts. The factum of such packing material carrying some printed work canonly be regarded as the work executed by the supplier incidental to the sale tothe assessee. This fact of some printing being done as a part of supply is of noconsequence to the contract being essential of a sale of chattel. The predominant object under lying the contracts were sale/purchase of goods and onlyintention of the respondent was to buy packing materials. Admittedly, the rawmaterial for the manufacturing of such packing material was not supplied by therespondent. Thus it was a case of sale and not a contract for carrying out anywork. In the case of Commissioner of Income Tax Vs. Dabur India Ltd. (2006)283 ITR 197 (Delhi), the Hon'ble Delhi High Court held that printing labels oncorrugated boxes did not require any special skill or involve any confidence orsecrecy and the Tribunal was justified in holding that the predominant objectunderlying the contract was one for sale of goods which took the contract out ofthe purview of Section 194C of the Income Tax act,1961. In BDA Ltd. Vs.Income Tax Officer (TDS)cited as (2006)281 ITR 99 (Bom), held that if amanufacturer purchases material on his own and manufacturers a product as perthe requirement of a specific customer, it is a case of sale and not a contract forcarrying out any work. The fact that the goods manufactured were according tothe requirement of the customer does not mean or imply that any work wascarried out on behalf of that customer. 6.We are in respectful agreement of the above cited judgments andheld that the purchase of particular printed packing material by the respondent was a contract for sale and outside the purview of Section 194C of the Act. Nosubstantial questions of law as proposed are arises for determination of theCourt. Thus, we find no infirmity in the order of the Tribunal, the appeal is withoutany merit and the same is dismissed. (RAKESH KUMAR GARG) JUDGE February 28,2008 nk (SATISH KUMAR MITTAL) JUDGE