Iapl/111/2018 Of The Commissioner Of Income Tax (Tds) And Another v. Lalitpur Power Generation Co. Ltd

Court No. - 39 Case :- INCOME TAX APPEAL No. - 111 of 2018 Appellant :- The Commissioner Of Income Tax (Tds) And Another Respondent :- Lalitpur Power Generation Co. Ltd. Counsel for Appellant :- Gaurav Mahajan Counsel for Respondent :- Dev Kaushik,Rahul Agarwal,Piyush Kaushik With Case :- INCOME TAX APPEAL No. - 104 of 2018 Appellant :- The Commissioner Of Income Tax (Tds) And Another Respondent :- M/S Bajaj Energy Pvt. Ltd. Counsel for Appellant :- Gaurav Mahajan Counsel for Respondent :- Dev Kaushik,Rahul Agarwal,Piyush Kaushik With Case :- INCOME TAX APPEAL No. - 105 of 2018 Appellant :- The Commissioner Of Income Tax(Tds), Kanpur And AnotherRespondent :- Lalitpur Power Generation Co. Ltd. Counsel for Appellant :- Gaurav Mahajan Counsel for Respondent :- Dev Kaushik,Rahul Agarwal,Piyush Kaushik With Case :- INCOME TAX APPEAL No. - 106 of 2018 Appellant :- The Commissioner Of Income Tax (Tds) And Another Respondent :- M/S Bajaj Infrastructure Development Co. Ltd. Counsel for Appellant :- Gaurav Mahajan Counsel for Respondent :- Dev Kaushik,Rahul Agarwal,Piyush Kaushik Hon'ble Saumitra Dayal Singh,J. Hon'ble Shiv Shanker Prasad,J. 1.Heard Mr. Gaurav Mahajan, learned counsel for the revenue-appellant and Mr. Rahul Agarwal and Mr. Dev Kaushik, learned counselfor the assessee-respondent. 2.The above Income Tax Appeals have been filed under Section 260Aof the Income Tax Act, 1961 (hereinafter referred to as the “Act”) against the order dated 20[th] February, 2018 passed by the Income Tax AppellateTribunal, Delhi Bench “C” New Delhi. 3.The facts are more or less identical in all the above appeals. For thesake of convenience, all appeals have been clubbed and heard togetherwith the consent of the parties and are being decided by this commonorder. Learned counsel for the parties have been heard on the factsobtaining in Income Tax Appeal No. 111 of 2018 (Assessment Year 2013-2014). 4.Earlier, the appeal was admitted on Question nos. 1 and 2, asframed in the memo of appeal. Today, with the consent of the parties,those questions have been refined as below: Question No. 1 Whether the Tribunal has erred in annulling the assessment order andreaching to a conclusion that Tax Deduction at Source (for short “TDS”)was required to be made under Section 194C of the Act and not underSection 194J of the Income Tax Act, 1961 without first dealing with thereasons and findings recorded by the assessing authority, as affirmed infirst appeal? Question No.2 Whether, in absence of proper books maintained to establish the exactexpenditure incurred by the assessee in availing technical services, theTribunal has erroneously granted relief to the assessee? 5.The facts found by the Tribunal are, the assessee was engaged inbusiness of generation of power. It set up a 3 x 660 MW (Mega Watt)Super Critical Thermal Power Plant at District-Lalitpur, Uttar Pradesh. Forthat purpose, the assessee was incorporated as a Special Purpose Vehicle(for short “SPV”) by the State Government of Uttar Pradesh. Later, itsownership was transferred to a private company. 6.To set up that thermal power plant, the assessee entered into twosets of contracts. First, with Bharat Heavy Electric Ltd. (for short “BHEL”)to set up a Boiler Turbine Generator (for short “BTG”) and the second with Carbery Infrastructure Pvt. Ltd. (for short “CIPL”) to set up Balance of Plant(for short “BOP). 7.The contract entered into between the assessee and the BHELinvolved services of Transportation, Insurance, Erection, Installation,Testing and Commissioning of BTG, for consideration Rs. 689/- crores.Similarly, the contract with CIPL involved Erection, Installation andCommissioning of BOP for Rs. 197 crores. 6.To set up that thermal power plant, the assessee entered into twosets of contracts. First, with Bharat Heavy Electric Ltd. (for short “BHEL”)to set up a Boiler Turbine Generator (for short “BTG”) and the second with Carbery Infrastructure Pvt. Ltd. (for short “CIPL”) to set up Balance of Plant(for short “BOP). 7.The contract entered into between the assessee and the BHELinvolved services of Transportation, Insurance, Erection, Installation,Testing and Commissioning of BTG, for consideration Rs. 689/- crores.Similarly, the contract with CIPL involved Erection, Installation andCommissioning of BOP for Rs. 197 crores. 8.It may be further noted, those two contracts included description andexecution of other work as well, inasmuch as the contract with BHEL forBTG involved supply of BTG package equipments of value Rs. 5,311/-crores, whereas the contract for BOP with CIPL involved procurement andsupply of equipments and civil constructions, structural works, engineering,information, design and drawings and project management of value Rs.2008/- crores. The supply component under the two contracts entered intoby the assessee with BHEL and CIPL do not form subject matter of disputein these appeal proceedings. 9.On 19[th] June, 2014, individual orders came to be passed underSection 201 of the Act describing the assessee to be in default ofdeduction of TDS required to be made by it at the higher rate of 10%(under Section 194J of the Act) against the lower rate of 2% (under Section194C of the Act) applied by the assessee, to the payments made by theassessee in each year, against the two contracts for the works done underthe head of “services of Transportation, Insurance, Erection, Installation,Testing and Commissioning of BTG”, awarded to BHEL and also the workdone under the head of “Erection, Installation and Commissioning of BOP”,awarded to CIPL. 10.Thus, under the assessment order dated 15[th] January, 2015 passedby the Assistant Commissioner of Income Tax (TDS), Noida for theAssessment Years 2012-2013, 2013-2014 and 2014-2015, demand ofshort deduction of TDS and the corresponding demand of interest wereraised. The Assessment Orders were confirmed in appeal by commonorder dated 16[th] March, 2016, passed by the Commissioner of Income Tax(Appeals)-I, Noida. 11.Upon further appeal, the Income Tax Appellate Tribunal (for short“Tribunal”), vide its common order dated 20[th] February, 2018, has allowedthe appeals preferred by the assessee. It has followed (in toto), the orderof a division bench of the Punjab and Haryana High Court in the case ofPr. Commissioner of Income Tax, TDS-II, Chandigarh Vs. The SeniorManager (Finance), Bharat Heavy Electricals Ltd., Jhajjar, (2017) 390 ITR(P&H). 12.Submission of the learned counsel for the revenue is, the assessingauthority had made a detailed consideration of facts. He found that theassessee had not maintained any account to establish the actual paymentmade to BHEL for the work of Testing and Commissioning of BTG.Similarly, the assessee had not maintained separate account to establishthe payment made to CIPL for Installation and Commissioning of BOP.Since payments for those works performed by the BHEL and CIPL fellunder the head “fees for technical services” as defined under clause (b) ofsub-section (1) of Section 194J of the Act, read with Explanation [2] toclause (vii) to sub-section (1) of Section 9 of the Act, the assessee wasliable to deduct the Tax at Source/TDS, at the rate of 10% in terms ofExplanation (b) to section 194J of the Act. 13.Relying on the reasoning given by the assessing authority, it hasbeen vehementally urged, it cannot be denied that BHEL had performedTesting and Commissioning of BTG and similarly, CIPL had performed thework of Installation of Commissioning of BOP. 13.Relying on the reasoning given by the assessing authority, it hasbeen vehementally urged, it cannot be denied that BHEL had performedTesting and Commissioning of BTG and similarly, CIPL had performed thework of Installation of Commissioning of BOP. 14.Since the payments made to BHEL and CIPL were “fees for thetechnical services”, rendered to the assessee by BHEL and CIPL, theAssessing Officer had not erred in determining the default in deduction ofTDS by the assessee. Insofar as the Tribunal has not recorded itsindependent reasoning to reverse the findings recorded by the assessingauthority, the end conclusion drawn by the Tribunal is stated to beunsustainable in the eyes of law. 15.On the otherhand, learned counsel for the assessee would submit,the contracts awarded to the assessee to BHEL and CIPL were exactlyidentical to that awarded to BHEL, as was considered by the Punjab and Haryana High Court in Pr. Commissioner of Income Tax, TDS-II,Chandigarh Vs. The Senior Manager (Finance), Bharat Heavy ElectricalsLtd., Jhajjar (supra). Referring in extenso to discussion contained in theabove report, heavy reliance has been placed on the fact similarity, in thatcase and the present. 16.Insofar as it is undisputed to the revenue-appellant (in the presentcase) that the contract awarded to BHEL was for BTG and that awarded toCIPL was for BOP, the reliance placed by learned counsel for the revenueto non-specification or quantification of value of sub-components or partsof the contracts awarded to the BHEL and CIPL is inconsequential. In thefirst place, those contracts remained indivisible or composite. The revenueauthorities being obligated to assess income tax payable by the assessee,they could not have broken down that indivisible contract for whollyartificial reasons-to discover on assumptive basis, the alleged componentof “fees for technical services”. In any case, it being undisputed to theassessing authority that the work awarded to the BHEL was forcommissioning of BTG and that awarded to CIPL was for BOP, the contractclauses should have been read in light of that main object. In absence ofany internal tool arising therefrom and in absence of any legal provisionallowing the assessing authority to break down the indivisibility orcomposite nature and character of the contract, the exercise carried out bythe assessing authority is described as erroneous and impermissible inlaw. 17.To that extent reliance has been placed on the decision of thedivision bench of the Karnataka High Court in the case of Commissioner ofIncome Tax Vs. Bangalore Metro Rail Corporation Ltd., (2022) 449 ITR 431(Karnataka). 18.Last, it has been submitted, the assessee was only a payer. Thepayees i.e. BHEL and CIPL were subjected to tax. Upon completion oftheir assessment, those payers were also issued certificates of fullpayment of tax due. Therefore, if at all the assessee may only be liable fordelay in payment of TDS. Yet, liability of short deduction of TDS could notbe imposed. 19.Having considered the submissions advanced by learned counsel forthe parties and having gone through the records of the present appeal, infirst place, it has not been disputed by learned counsel for the revenue thatthe essence the contract involved in the present case and that involved inthe case of Pr. Commissioner of Income Tax, TDS-II, Chandigarh Vs. TheSenior Manager (Finance), Bharat Heavy Electricals Ltd., Jhajjar (supra)were similar-to set up a thermal power plant. In both cases, the disputearose upon a survey. That inconsequential similarity apart, it is undisputedthat in both cases, the element of testing and commissioning of technicalworks etc. were part of the main contract-to set up a thermal power plantincluding therein the work of Transportation, Insurance, Erection,Installation, Testing and Commissioning of BTG and also Commissioningof BOP. 20.In view of the undisputed similarity between two cases, we find thatthe reasoning given by the division bench of Punjab and Haryana HighCourt in the case of Pr. Commissioner of Income Tax, TDS-II, ChandigarhVs. The Senior Manager (Finance), Bharat Heavy Electricals Ltd., Jhajjar(supra) is relevant to the present facts as well. 21.Here we may take note of the reasoning of division bench of thePunjab and Haryana High Court in the case of Pr. Commissioner ofIncome Tax, TDS-II, Chandigarh Vs. The Senior Manager (Finance),Bharat Heavy Electricals Ltd., Jhajjar (supra), which is extracted hereinbelow: “21. These are usual clauses in such contracts. The testing,pre-commissioning, commissioning and post-commissioningare required to be carried out by a contractor to satisfy thecustomer that the work has been executed in a propermanner; that the equipment has been installed as requiredand that its performance meets the parameters specified inthe contract. The personnel that are required to test andcommission the plant and equipment perform their functionsnot under a contract for the supply of technical services to thecustomer, but to satisfy the customer on behalf of thecontractor that the plant and equipment has been dulysupplied as per the contractual specifications. Indeed, thisentire exercise would require the deployment of technicalpersonnel, but what is important to note is that the technicalpersonnel are deployed not for and on behalf of the customer, but for and on behalf of the contractor itself with aview to ensuring that the contractor has supplied theequipment as per the contractual specifications. Everythingdone in this regard-id to this end and not to supply technicalservices to the customer. 22. The contract entered into between the respondent andeach of the contractors, therefore, did not involve the supplyof professional or technical services at least within themeaning of section 194J. The consideration paid under thecontracts, therefore, was hot for the professional or technicalservices rendered by the contractors to the respondent.Section 194J is, therefore, not applicable to the present case. 23. It is not necessary to consider Mr. Putney's submissionthat the con tracts do not fall under section 194C. Thesubmission if accepted would be self destructive of theRevenue for then the assessee would not have been liableto deduct tax at source at all and would, therefore, beentitled to a refund. As we mentioned earlier, section 194J isnot a residuary clause. In other words, it is not that if acontract does not fall within the ambit of section 194C, itmust be deemed to fall within the ambit of section 194J.Sections 194C and 194J are independent provisions. In viewof our finding that the contract does not fall within section194J, the dismissal of the appeal would follow in any event.The respondent has not denied that the present case fallsunder section 194C. Had the respondent contended thatsection 194C is also not applicable, it would have beennecessary to consider whether the contract falls within theambit of section 194C. As the respondent has accepted thatit falls within section 194C and has complied with itsobligations thereunder, we refrain from deciding the issue asto whether it falls within section 194C.” 22.For the facts noted above, we are unable to persuade ourself toexpress any other opinion. We are in respectful agreement with the opinionof the Punjab and Haryana High Court in the case of Pr. Commissioner ofIncome Tax, TDS-II, Chandigarh Vs. The Senior Manager (Finance),Bharat Heavy Electricals Ltd., Jhajjar (supra) that the work of testing etc.had to be performed by the contractor not by way of independent workawarded to it but by way of execution of the whole contract that was to setup a thermal power plant. 23.Thus, Punjab and Haryana High Court has principally reasoned thatthe primary/dominant object of the contract would govern or subsume the 22.For the facts noted above, we are unable to persuade ourself toexpress any other opinion. We are in respectful agreement with the opinionof the Punjab and Haryana High Court in the case of Pr. Commissioner ofIncome Tax, TDS-II, Chandigarh Vs. The Senior Manager (Finance),Bharat Heavy Electricals Ltd., Jhajjar (supra) that the work of testing etc.had to be performed by the contractor not by way of independent workawarded to it but by way of execution of the whole contract that was to setup a thermal power plant. 23.Thus, Punjab and Haryana High Court has principally reasoned thatthe primary/dominant object of the contract would govern or subsume the other object/clause therein. In absence of any internal tool shown to exist(in the contract), we are unable to reach an inference that the contractingparties i.e. assessee on one hand and BHEL and CIPL on the other, hadintended to treat the work of Testing and Commissioning,separate/independent of the contract to set up BTG and BOP by thosecontracting parties. Further, in absence of any enabling law, it neverbecame open to the taxing authorities to overlook the dominant object ofthe contract and reach to a conclusion, because part of the contractinvolved Testing, Commissioning etc., necessarily, there would existcomponent of “fees for technical services”, by necessary implication. 24.Then, the Karnataka High Court in Commissioner of Income Tax Vs.Bangalore Metro Rail Corporation Ltd. (supra) has further reasoned that anindivisible/composite contract may not be bifurcated to cull out anyindivisible component of such contract, to make a higher deduction of taxat source. 25.Thus, that Court applied the principle of indivisibility of a compositecontract. It may not be bifurcated to subject a part of the contract to higherTDS. Thus, that Court applied the principle of indivisibility of a contract,that may not be artificially dissected at the hands of a taxing authority, tothe prejudice of the assessee. 26.On both principles noted above, we find ourself in agreement withthe views expressed by the Punjab and Haryana High Court andKarnataka High Court in the cases of Pr. Commissioner of Income Tax,TDS-II, Chandigarh Vs. The Senior Manager (Finance), Bharat HeavyElectricals Ltd., Jhajjar (supra) and Commissioner of Income Tax Vs.Bangalore Metro Rail Corporation Ltd. (supra). Unlessan external (legaltool) was available to the assessing authority under any of the provisionsof the Act as may have allowed it the luxury to dissect an otherwiseindivisible contract and/or unless an internal tool was seen to exist to allowthat exercise to be made, a composite contract could not dissected by theassessing authority . 27.On plain reading, the contracts executed by the assessee with BHELand CIPL were indivisible contracts for BTG and BOP, respectively. The taxing authorities exist to apply the taxing statute to the proven facts of acase. Such facts are not for the taxing authority to imagine or presume orassume. Therefore, the burden existed on the revenue authorities toestablish that they were enabled in law and also that the proven facts ofthe case permitted them divide an otherwise indivisible/compositecontracts executed by the assessee with the BHEL and CIPL. Unless thatexercise had been carried out by the assessing authority, no presumptionwas available in law. 28.Accordingly, the first question of law framed above is answered innegative i.e. in favour of the assessee and against the revenue. 29.In view of the above, question no.2 is left unanswered, at this stage. 30.The present appeal is dismissed. 31 There shall be no order as to costs. (Shiv Shanker Prasad, J.) (Saumitra Dayal Singh, J.) Order Date :- 16.11.2023Sushil/-