The Commissioner Of Income Tax-Ii, Chandigarh v. M/S Mount Shivalik Breweries Ltd., Punjab

I.T.A. No.69 of 2013 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A. No.69 of 2013 (O&M) Date of decision : 29.05.2013 The Commissioner of Income Tax-II, Chandigarh .....Appellant VERSUS M/s Mount Shivalik Breweries Ltd., Punjab ....Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTAHON'BLE MS. JUSTICE RITU BAHRI 1. Whether Reporters of local papers may be allowed to see the judgement?2. To be referred to the Reporters or not?2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present:Ms. Urvashi Dhugga, Advocate for the appellant. HEMANT GUPTA, J. (ORAL) The present appeal under Section 260A of the Income Tax Act,1961 (for short 'the Act') arises out of an order passed by the Income TaxAppellate Tribunal, Chandigarh, Bench 'A' Chandigarh (for short 'theTribunal') on 24.09.2012 holding that the material supplied forms part of thecontract of sale and is not a works contract attracting the provisions ofdeduction of tax at source in terms of Section 194C of the Act. The revenue has raised the following substantial question oflaw:- “Whether in the facts and circumstances of the case and in law,the ITAT has erred in deleting the addition of Rs.3,31,16,818/-which was made by the A.O. being disallowance on account of I.T.A. No.69 of 2013 (O&M) 2 non deduction of TDS by invoking the provisions of Section194C read with Section 40 (a)(ia) of the Income Tax Act, 1961,keeping in view the fact that the said transaction does notconstitute a contract of sale as the parties from which the workwas got done are not actually engaged in the selling ofcorrugated boxes, bottle caps etc., meaning thereby that theseparties were under a contractual obligation to do the jobs forthe assessee?” The assessee during the assessment year 2009-10 purchasedcorrugated boxes, cap inserts for packing of bottles etc. from three firms,two out of them are the sister concerns of the assessee. The assertion of theassessee is that it has not supplied any material to the said firm for supply ofcorrugated boxes or the other packing material and, therefore, it is a contractfor sale and not a works contract, which may make the assessee liable fordeduction of tax at source in terms of Section 194C of the Act. The Assessing Officer made the asseesee liable for payment ofdeduction of tax holding that transactions are in the execution of the workscontract. In appeal, the Commissioner Income Tax (Appeals) held that thefirms are doing work for the assessee and not for any third person and thatthe assessee is not supplying any material to these firms. After such finding,the order of the Assessing Officer holding it to be a works contract wasmaintained. Such finding has been set aside by the Tribunal holding that thematerial supplied to the assessee is part of contract of sale. The Tribunalobserved to the following effect:- “We have heard the rival submissions carefully and are unable toagree with the submissions of the ld. DR for the revenue. We find thatthere is always distinction between the contract for supply of labourand materials and contract for sale of goods as such. When the person I.T.A. No.69 of 2013 (O&M) 3 “We have heard the rival submissions carefully and are unable toagree with the submissions of the ld. DR for the revenue. We find thatthere is always distinction between the contract for supply of labourand materials and contract for sale of goods as such. When the person I.T.A. No.69 of 2013 (O&M) 3 places an order for printing and supply even if specifications aregiven by such person then such contract has to be treated as contractfor sale simplicitor particularly when such person has not given hisown paper or ink to the printer. No doubt the specifications given forprinting will not alter the situation and the contract would remain acontract for sale. Further so because let us say material is printedincorrectly and there is any defect in such printed material thenobviously buyer would not accept the loss. In any case this issuecame up for consideration of Hon'ble Punjab & Haryana High Courtin case of Dy CAO, Markfed (supra). In that case the Hon'ble HighCourt after considering the decisions of Hon'ble Delhi High Court incase of CIT V. Dabur India Ltd. (supra).” It is the finding of fact recorded by the Tribunal that theassessee has not supplied any material to the firms, who have suppliedcorrugated boxes and other packaging material to the assessee. Therefore, interms of explanation to Section 194C of the Act, the assessee is not liablefor deduction of tax at source. The Commissioner Income Tax (Appeals)returned a finding that the assessee has not supplied any material to thefirms from whom the assessee has purchased the packing material. Since thematerial has been purchased from the three firms, two out of them are beingsister concerns will not make the as works contractor. It is case of purchaseof goods. This Court in a judgment reported as Commissioner of Income Tax versus Deputy Chief Accounts Officer, Markfed, Khanna (2008) 304 ITR 17 has held to the following effect:- “We have considered the submissions made by learned counsel forthe Revenue. There is no dispute that the main purpose of theassessee to buy packing material is to obtain goods for the purpose ofpacking of its finished products. The factum of such packingmaterial carrying some printed work can only be regarded as thework executed by the supplier incidental to the sale to the assessee. This fact of some printing being done as a part of supply is of noconsequence to the contract being essentially of a sale of chattel. Thepredominant object underlying the contracts were sale/purchase ofgoods and only the intention of the respondent was to buy thepacking materials. Admittedly, the raw material for themanufacturing of such packing material was not supplied by therespondent. Thus, it was a case of sale and not a contract for carryingout any work.” In view of above, we hold that the assessee has purchasedgoods from the sister concerns and not got executed the works contract.Consequently, We do not find that any substantial question of law arises forconsideration by this Court. Dismissed. (HEMANT GUPTA) JUDGE May 29, 2013rts/Vimal (RITU BAHRI) JUDGE