Itta/50/2002 Of The Commissioner Of Income Tax Ap-2 Hyd v. Totally Different And The Same Can Be Treated As Binding Precedent

* THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.30 and 50 of 2002 %Date: 24.07.2014 The Commissioner of Income Tax, Hyderabad. and …appellant. $M/s. A.P.State Road Transport Corporation, Hyderabad. …Respondent ! Counsel for appellant: Sri J.V.Prasad ^ Counsel for Respondent : Sri S.Ravi < GIST: > HEAD NOTE: ? Cases referred1. AIR 1974 SC 23092. AIR 1965 SC 1655 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.30 and 50 of 2002 COMMON JUDGMENT:(Per the Hon’ble Sri Justice L.NarasimhaReddy) These appeals under Section 260-A of the Income Tax Act,1961 are filed by the Income Tax Department, feeling aggrieved bythe common order, dated 20.11.2000, passed by the HyderabadBench ‘B’ of the Income Tax Appellate Tribunal in I.T.A.Nos.893 to896/Hyd/1998. The respondent is Andhra Pradesh State Road TransportCorporation. As part of its activities, it acquires vehicles andoperates them on the routes, in various parts of the State. In theprocess of acquiring buses, as a first step, it purchases chassises ofthe description, which are suitable for its use, from variousmanufacturers. Thereafter, steps are taken to get the bodies ofbuses built, on the chassises. The process is not uniform. Buses ofdifferent varieties, such as Deluxe, Express and Ordinary, are thusprocured. Tenders are invited from the eligible agencies dulyindicating the specifications of buses. On finalising of the contract, the successful fabricator is handed overthe chassises, with an understanding that after the body is builtthereon, the bus, in its finished form is delivered to the respondent. This activity was being undertaken by the respondent, ever since itsinception. The jurisdictional assessing authority visited the premises ofthe respondent somewhere in the year 1998. After examining theactivity, in the process of getting the bus bodies built by thefabricators, he took the view that it resembles a works contract, and the respondent was under obligation to effect deduction of tax, atsource. Alleging that such a step was not taken, he passed an order,dated 06.02.1998, in exercise of power under Section 201 of the Act,and levied tax of Rs.3,86,45,803/- and interest of Rs.74,74,557/-, forthe assessment years 1995-96 to 1997-98. Aggrieved by that order,the respondent filed an appeal before the Commissioner of IncomeTax (Appeals). The Commissioner passed an order, dated23.10.1998, upholding the order passed by the ITO, but directingfurther verification on facts. The respondent filed further appealbefore the Tribunal. Through order under appeal, the Tribunalreversed the order of assessment passed by the ITO, as confirmedby the Commissioner. It was held that Section 194-C of the Act hasno application to the facts of the case. Sri J.V.Prasad, learned counsel for the appellant, submits thatthe activity undertaken by the agency that built the bus body isnothing but a works contract, and this is fortified from the fact that thechassises for the bus was supplied by the respondent itself. Hesubmits that once the work was undertaken by the agency toconstruct a bus body, that too according to the specificationsfurnished by the respondent, the only conclusion that can be arrivedat is that, what was undertaken by the agency was a work and not atall, an activity of manufacture. He contends that it is only when atrade or manufacture was undertaken, that the concept of sale wouldcome into existence and not when a work is done according to thespecifications. He placed reliance upon the judgments of theSupreme Court in T.V.Sundram Iyengar v. The State ofMadras[[1]].According to him,the judgment of the Supreme Court inPatnaik & Company v. State of Orissa[[2]], was under the SalesTax Act, and the parameters for imposition of tax under the SalesTax Act, on the one hand, and the Income Tax Act, on the other, are totally different and the same can be treated as binding precedent. Sri S.Ravi, learned counsel for the respondent, on the otherhand, submits that whether one goes by the nature of activityundertaken by the agency that built the bus body or the absence ofany supply of material by the respondent, the inescapableconclusion is that it was not a works contract and it is a sale, pureand simple. He contends that except giving specifications andpaying money for the work, the respondent did not undertake anyactivity in the process, much less did it supply the material and theTribunal has taken the same into account. He has placed relianceupon the judgment of the Supreme Court in Patnaik’s case (2supra). The respondent has been carrying the activity of purchasingthe chassises and getting the bodies of buses, built thereon, for thepast several decades. It was only in the year 1998 that the ITOexamined the matter from the point of view of Section 194-C of theAct. He took the view that the activity of building the bus bodyinvolves the assignment of a works contract or a work entrusted bythe respondent, and thereby, the tax at source ought to have beendeducted, while making payment to the fabricating agency. The entire dispute revolves around the answer to the questionas to whether the activity entrusted by the respondent to fabricatorsof a bus, amounts to a work or works contract on the one hand or asale. If it is the former, Section 194-C of the Act gets attracted and ifit is the latter, it is not. It is not difficult to draw the distinction between a work on theone hand, and a sale, on the other hand. Though the activitiescannot be described with mathematical precession, the broadfeatures thereof can certainly be discerned. Work involves the discharge of some functions by a person oragency to whom it its entrusted. Basically, the nature of work isdetermined by the person, who entrusted it, and the material that isneeded for the work is also supplied by him. There may beinstances where a part of the material is procured by the person, whoundertakes the work. Another distinguishing feature is that if theactivity does not involve any expertise on the part of the worker orthe agency undertaking the work, it tends to be treated as a workscontract. In contrast, if the activity entrusted to an agency is on account of itsexpertise, and what is supplied at the end of the contract capable ofbeing put to immediate use, is a definite item of goods, it becomes asale. It is a finished product that comes to be sold, to the person whoplaced the order. It is not uncommon that even where an activity of sale, pureand simple takes place, the purchaser has his own liberty to stipulatethe specifications. The goods of a particular description aremanufactured as a regular activity, but the purchaser has a slightlydifferent specification, depending upon the nature of use. In suchcases, necessary alterations are made even while keeping the mainsubstratum, intact. By itself, it does not change the nature oftransaction or activity. It continues to be sale of the goods, may bewith slight alterations. Therefore, (a) once a finished product of a definite description and shape was brought into existence with the material andexpertise of the agency or person, who undertook theactivity, andshape was brought into existence with the material andexpertise of the agency or person, who undertook theactivity, and (b) a fixed price is paid thereon, the activity tends to be close to ‘sale’. Once it is a sale, it ceases to be a work or works contract, from the point of view of Section 194-Cof the Act. (a) once a finished product of a definite description and shape was brought into existence with the material andexpertise of the agency or person, who undertook theactivity, andshape was brought into existence with the material andexpertise of the agency or person, who undertook theactivity, and (b) a fixed price is paid thereon, the activity tends to be close to ‘sale’. Once it is a sale, it ceases to be a work or works contract, from the point of view of Section 194-Cof the Act. The judgment of the Supreme Court in T.V.SundramIyengar’scase (1 supra), was totally on different set of facts. In thatcase, the contract related to a different kind of product. By no stretchof imagination, contract of that description can be compared to theone of building bus bodies, which needs lot of expertise, experienceand technical know how. The discussion undertaken by theirLordships about the expressions “works contract” and “any work” hasto be understood on the facts of that case. It is no doubt true that in Patnaik’s case (2 supra), theSupreme Court has dealt with the matter under the Sales Tax Act. Though the parameters of imposition of tax under the Income TaxAct, on the one hand, and the Sales Tax Act, on the other hand, aredifferent, once an activity is found to be ‘sale’, under one enactment,it is difficult to treat it to be otherwise, under the other, unless adifferent definition is provided for in that enactment. What is a ‘sale’,under the Sales Tax Act can certainly be treated as such, under theIncome Tax Act also, particularly when the Income Tax Act did notcoin any different definition for it. We are in agreement with the orderpassed by the Tribunal. Accordingly, we dismiss the appeals. There shall be no orderas to costs. The miscellaneous petitions filed in these appeals shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. Date:24.07.2014 Note:- L.R. copy to be marked. (B/o)GJ [1]AIR 1974 SC 2309[2]AIR 1965 SC 1655 _____________________ CHALLA KODANDA RAM, J.