Ita/1425/2006 Of The Commissioner Of Income Tax v. The Bangalore District Cooperative Milk

(R IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 5 DAY OF SEPTEMBER, 2012 PRESENT THR HON'BLE MR. JUSTICE K.SREBDHAR RAO ANT) THR HON'BLE MR. JUSTICK B.MANOHAR 1.T.A. No. 1425 OF 2006C/W.I.T.A. Nos.1426, 1427, 1428 & 1429/2006 1.T.A. No. 1425 OF 2006:m BETWEEN: 1.)The Commissioner of Income Tax,C.R. Building,C.R. Building, Queens Road, Bangalore. 2.The Income Tax Officer (TDS), Ward — 16(3), Bangalore. Appellants (By Sri Indrakumar, Sr. Counsel for G. Kamaladhar, Adv.) ANT) The Bangalore District Cooperative Milk Producers Societies Union Ltd., Dr. M.H. Marigowda Road, Bangalore. Respondent (By Sri S.Parthasarathi and Vijay Kumar Punna, Advocates) This I.T.A. is filed U/s.260-A of I.T. Act, 1961 arising|Outotorder.dated19.05.2006|passedinL.T.A.No.350/Bang/2006 for the Assessment Year 2004-05,praying that this Hon’ble Court may be pleased to |(i) formulate the substantial questions of law stated thereinand (11) allow the appeal and set-aside the Order of the ITAT,Bangalore in ITA No.350/Bang/2006 dated 19.05.2006 &confirm the order of the Appellate Commissioner confirmingthe order of Income Tax Officer (TDS), Ward —-16(3),Bangalore, in the interest of justice and equity. 1.T.A. No. 1428 OF 2006: BBRITIWE Ll.The Commissioner of Income Tax,C.R. Building,Queens Road,C.R. Building,Queens Road, Bangalore. iaThe Income Tax Officer (TDS),Ward — 16(3), Bangalore.Ward — 16(3), Bangalore. Appellants (By Sri Indrakumar, Sr. Counsel for G. Kamaladhar, Adv.) AND: The Bangalore District Cooperative MilkProducers Societies Union Ltd.,Dr. M.H. Marigowda Road, Bangalore. Respondent. (By Sri 8.Parthasarathi and Vijay Kumar Punna, Advocates) This I.T.A. is filed U/s.260-A of I.T. Act, 1961 arising|OUTotorderdated19.05.2006|passedinL.T.A.No.353/Bang/2006 for the Assessment Year 2002-03,praying that this Hon’ble Court may be pleased to |(i) formulate the substantial questions of law stated therein praying that this Hon’ble Court may be pleased to | and (11) allow the appeal and set-aside the Order of the ITAT,Bangalore in ITA No.393/Bang/2006 dated 19.05.2006 &confirm the order of the Appellate Commissioner confirmingthe order of Income Tax Officer (TDS), Ward -16(3),Bangalore, in the interest of justice and equity. 1.T.A. No. 1427 OF 2006:m BBRTWEHR 1.)The Commissioner of Income Tax,C.R. Building,Queens Road,Bangalore.C.R. Building,Queens Road,Bangalore. iaThe Income Tax Officer (TDS),Ward — 16(3),Bangalore.Ward — 16(3),Bangalore. Appellants (By Sri Indrakumar, Sr. Counsel for G. Kamaladhar, Adv.) AND: The Bangalore District Cooperative MilkProducers Societies Union Ltd., Dr. M.H. Marigowda Road, Bangalore. Respondent (By Sri S.Parthasarathi and Vijay Kumar Punna, Advocates) This I.T.A. is filed U/s.260-A of I.T. Act, 1961 arising|Oultoforder.dated19.05.2006|passedinL.T.A.No.352/Bang/2006 for the Assessment Year 2001-02,praying that this Hon’ble Court may be pleased to |(i) formulate the substantial questions of law stated thereinand (11) allow the appeal and set-aside the Order of the ITAT,Bangalore in ITA No.392/Bang/2006 dated 19.05.2006 &confirm the order of the Appellate Commissioner confirmingthe order of Income Tax Officer (TDS), Ward -16(3),Bangalore, in the interest of justice and equity. 1.T.A. No. 1429 OF 2006:m BETWEEN: 1.)The Commissioner of Income Tax,C.R. Building,Queens Road,Bangalore.C.R. Building,Queens Road,Bangalore. iaThe Income Tax Officer (TDS),Ward — 16(3),Ward — 16(3), Bangalore. Appellants (By Sri Indrakumar, Sr. Counsel for G. Kamaladhar, Adv.) AND: The Bangalore District Cooperative MilkProducers Societies Union Ltd., Dr. M.H. Marigowda Road, Bangalore. Respondent (By Sri 8.Parthasarathi and Vijay Kumar Punna, Advocates) 1.T.A. No. 1429 OF 2006:m BETWEEN: 1.)The Commissioner of Income Tax,C.R. Building,Queens Road,Bangalore.C.R. Building,Queens Road,Bangalore. iaThe Income Tax Officer (TDS),Ward — 16(3),Ward — 16(3), Bangalore. Appellants (By Sri Indrakumar, Sr. Counsel for G. Kamaladhar, Adv.) AND: The Bangalore District Cooperative MilkProducers Societies Union Ltd., Dr. M.H. Marigowda Road, Bangalore. Respondent (By Sri 8.Parthasarathi and Vijay Kumar Punna, Advocates) This I.T.A. is filed U/s.260-A of I.T. Act, 1961 arising|Outotorder.dated19.05.2006|passedinL.T.A.No.354/Bang/2006 for the Assessment Year 2003-04,praying that this Hon’ble Court may be pleased to |(i) formulate the substantial questions of law stated thereinand (11) allow the appeal and set-aside the Order of the ITAT,Bangalore in ITA No.394/Bang/2006 dated 19.05.2006 &confirm the order of the Appellate Commissioner confirmingthe order of Income Tax Officer (TDS), Ward -16(3),Bangalore, in the interest of justice and equity. 1.T.A. No. 1426 OF 2006:mBBRITIWE Ll.The Commissioner of Income Tax,C.R. Building, Queens Road,Bangalore. iaThe Income Tax Officer (TDS),Ward — 16(3),Bangalore. Appellants (By Sri Indrakumar, Sr. Counsel for G. Kamaladhar, Adv.) AND: The Bangalore District Cooperative MilkProducers Societies Union Ltd., Dr. M.H. Marigowda Road, Bangalore. Respondent (By Sri 8.Parthasarathi and Vijay Kumar Punna, Advocates) This I.T.A. is filed U/s.260-A of I.T. Act, 1961 arising|OUTotorderdated19.05.2006|passedinL.T.A.No.351/Bang/2006 for the Assessment Year 2000-01,praying that this Hon’ble Court may be pleased to |(i) formulate the substantial questions of law stated thereinand (11) allow the appeal and set-aside the Order of the ITAT,Bangalore in ITA No.391/Bang/2006 dated 19.05.2006 &confirm the order of the Appellate Commissioner confirmingthe order of Income Tax Officer (TDS), Ward -16(3),Bangalore, in the interest of justice and equity. These appeals are coming on for hearing this day,|SREEDHAR RAO, J..,delivered the following: JU DBGMENT The respondent — assessee is a milk producers society. The respondent invited tenders for supply of sachets ofspecification to the effect that sachets should have emblem, logo, name, quantity and price etc., printed on the sachets.The successful tenderers supplied sachets according to thespecifications. The assessee has filed the return for theassessment years 1999-2000 to 2004-05 in respect of whichthe present appeals have arised. 2. The A.O has found that the supply of sachets by thesuccessful tenderers was in the nature oft “works contract”and TDS should have been deducted. Thus, called upon theassessee to pay the TDS amount. The Commissioner ofIncome Tax, (Appeals) confirmed the order of the A.O. TheAppellate Tribunal held that the transaction is not “workscontract” and purchase of materials and hence deduction ofTDS does not arise. The Revenue aggrieved by the saidorders, has filed these appeals. 3. Sri Indira Kumar, learned counsel for the appellantsrelied upon the decision of the Supreme Court in the case ofSTATH OF TAMILNADU Vs. ANANDAM VISWANATGHAN 73olrC 1 In pages 13 and 14, the following observations are made to bring home the point as to whether the transactionAmounts to ‘works contract’ or ‘sale’. 4. The counsel for the appellants also referred to)Circular No.715 dated 8[8!]August, 1995 issued by the|Central Board of Direct Taxes (CBDT) wherein the question|No.15 is answered which reads as follows:- “Question 15: Whether section 194C would|apply in respect of supply of printed material as per|prescribed specifications? Answer: Yes.$ 3. Sri Indira Kumar, learned counsel for the appellantsrelied upon the decision of the Supreme Court in the case ofSTATH OF TAMILNADU Vs. ANANDAM VISWANATGHAN 73olrC 1 In pages 13 and 14, the following observations are made to bring home the point as to whether the transactionAmounts to ‘works contract’ or ‘sale’. 4. The counsel for the appellants also referred to)Circular No.715 dated 8[8!]August, 1995 issued by the|Central Board of Direct Taxes (CBDT) wherein the question|No.15 is answered which reads as follows:- “Question 15: Whether section 194C would|apply in respect of supply of printed material as per|prescribed specifications? Answer: Yes.$ oS. On the basis of the said material, it is contendedthat the contract is a ‘works contract’ because the materialssupplied by the tenderer could not have been sold to anyothers in the open market, the product being customisedaccording to the specifications of the assessee, the contractamounts to ‘works contract’. Therefore, the TDS is to bededucted. Per contra, the learned counsel for the respondentreferred to Circular No.13/2006 dated 13.12.2006 of CBDT.In para 2 of the Circular, the following clarifications is given: 2.|The matter has been examined bythe Board and it is considered that exclusive|reliance on Question/Answer No.195 of CircularNo.715, withouttakingintoACCOUNTtheprinciples laid down in Circular No.681 is not|justified. Before taking a decision on theapplicability of TDS under section 194C on a|contract, it would have to be examined whether|the contract in question is a ‘contract for work’|or a ‘contract for sale’ and TDS shall be!applicable only where it is a ‘contract for work’.$ 6. The counsel for the appellants further submitted| that under Section 194C (7) (iv) of the I.T. Act defines the|‘work’ in the following manner:- *194C(7)(1Vv)“work” shall include- 2+3advertising;2D3broadcastingand|telecastingincluding production of programmesfor such broadcasting or telecasting;2D3broadcastingand|telecastingincluding production of programmesfor such broadcasting or telecasting;2*3carriage of goods or passengers byany mode of transport other than byrailways;any mode of transport other than byrailways;2/3catering;2"3manufacturingOT|supplyingaproductaccordingCOthe.2"3manufacturingOT|supplyingaproductaccordingCOthe. requirement of specification of afcustomerby|usingmaterial|purchased from such customer,customerby|usingmaterial|purchased from such customer, but does not include manufacturing or supplyingaproductaccordingCOthe|requirement or specification of a customer by using material purchased from a person, other|than such customer.a? 7.section 194 (c) makes it mandatory on the person|who make the payment to any resident for carrying out anyworks to deduct TDS. The definition of work U/s.194Cexcludes the lability of TDS when work involves themanufacture and supply of goods where the material is notsupplied by the customers. The contractor secured thematerial from some other source. The TDS becomes|enforceable when such material is supplied by the customer(assessee). 8 In the instant case, for purchase of sachets of!particular specification, the tenders were called, thesuccessful tenderers has supplied the sachets according tothe specification which amounts to sale and does not comewithin the purview of the work as defined 194C (7) (iv)explanation L4 of the I.T. Act. The counsel also referred to the decision of this Court in the case otCommisstoner ofIncomeTax|Vs|KarnatakaPowerTransmission Corporation Ltd. 21 TAXMANN.COM 473 (KAR).In para 14, the following observations are made:- 8 In the instant case, for purchase of sachets of!particular specification, the tenders were called, thesuccessful tenderers has supplied the sachets according tothe specification which amounts to sale and does not comewithin the purview of the work as defined 194C (7) (iv)explanation L4 of the I.T. Act. The counsel also referred to the decision of this Court in the case otCommisstoner ofIncomeTax|Vs|KarnatakaPowerTransmission Corporation Ltd. 21 TAXMANN.COM 473 (KAR).In para 14, the following observations are made:- %When the statute was amended to clarifythe word “work” under Section 194C byintroducing the aforesaid clause, it is obvious|that the amendment is only clarifactory in|nature and therefore it is retrospective. The|Parliament did not intend to change the law|becauseOT conclusion|whichresultedinlitigation. The Parliament though it fit to clarifyby way of amendment so that the litigation couldbe avoided. In view of the aforesaid clarification|and the statutory provision, it is clear that|“work”didnotincludemanufacturingOT|supplying a product according to requirementupon specification a customer by using raw-materials purchased from a person other thansuch customer, as such a contract is a contractfor sale.$ 9. It is strenuously contended by Sri Indira Kumar|that explanation 4(e) was not in statute earlier to 1.6.08 andnot applicable to the assessment years. Explanation 4(a) to(d) was alone part of the statute. The criteria to decidewhether it amounts to works contract or sale would dependupon the nature of contract and legal incidences thereupon.In that view, argued that the decision of the Supreme Court|in the case ot STATKR OF TAMILNADU Vs. ANANDAM VISWANATGHAN 73 STC 1, would become relevant for|consideration and it amounts to ‘works contract’. | 10.Upon thoughtful consideration of the submissions|made at the Bar, we find this Court in KPTCL’s case has heldthat amendment to definition of ‘work’ U/s 194C, (7)(iv) ofthe IT Act, is clarificatory in nature and retrospective. In thelight of the said ratio, if the facts of this case are read, theassesssee has not supplied any material. However, thetenderer has secured the material from other source and hassupplied the same to the assessee. May be in the instantcase, some of the features of works contract may overlap,but however, that should not have been taken as necessarycriteria to determine the nature of work. The explanation‘Works Contract’ has a definite legal connote. What is statedin the Section 194C(1) is for “carrying out any works”between the contractor and specified person. The work isalso defined to exclude the situation where the material is not supplied by the assessee. In view of the specificdefinition of work, it 1s to be held that contract amounts to sale and not works contract. The tact that Clause (a) thedefinition of work was amended subsequently and not in thestatutory book for the relevant years in question would notbe of consequence because of the ratio laid down in KPTCL’scase. The definition is clarificatory in nature. In that view,|the question of law is answered against the revenue. Theappeals are dismissed. NM* od/-.JUDGE od/-|JUDGE