2005-VIL-368-ITAT-DEL

Equivalent Citation: [2006] 5 SOT 272 (DELHI)

Income Tax Appellate Tribunal DELHI

IT APPEAL NO. 244 (DELHI) OF 2002 AND TDS NO. 2 (DELHI) OF 2003

Date: 16.09.2005

JINDAL PHOTO FILMS LTD.

Vs

INCOME-TAX OFFICER

BENCH

S.C. TIWARI AND A.D. JAIN, JJ.

JUDGMENT

A.D. Jain, Judicial Member. - In this appeal for assessment year 1999-2000, the assessee has raised the following effective grounds :

"1. That the learned CIT(A) erred in rejecting the claim of the assessee that the transaction of purchase of the printed cartons even with the assessee’s specification, was not by way of works contract, but was covered by the contract for sale of goods.

Thus, the assessee’s case has wrongly been held covered by section 194C, being contrary to the decision of the Pune Bench of the Tribunal in the case of Wadilal Dairy International Ltd. v. CIT [2001] 118 Taxman 141;

2. That the learned CIT(A) erred in sustaining the demand of Rs. 1,31,270 created by the order under section 201 of the Act, on account of alleged default in deducting tax at source under section 194C of the Act on the cost of purchase of printed cartons with the assessee’s specifications."

2. TDS No. 2 (Delhi) 03 raises the ground of the assessee that the CIT(A) erred in confirming the penalty of Rs. 1,31,270 levied under section 271C of the Act on the ground that the purchase of printed cartons by the assessee with its own specifications for packaging its own products was not covered by Sales Contract but by Works Contract attracting section 194C.

3. The assessee is a public limited company engaged in the business of manufacturing of photo sensitized goods. It was purchasing printed cartons with its own specifications from different suppliers for packing of plastic containers in which roll films were packed. Payment for purchase of corrugated boxes with printed matter was held to be contractual payment requiring deduction of tax under section 194C. Thus, vide order dated 8-2-2000, passed under section 201(1) read with section 194C of the Act, a demand of Rs. 1,31,270 was created on the assessee for non-deduction of tax at source.

4. The learned Commissioner (Appeals) having dismissed the assessee’s appeal by virtue of the impugned order dated 23-11-2001, the assessee is in further appeal before us.

5. The learned Commissioner (Appeals) has held, inter alia, that the corrugated boxes purchased by the assessee were made on the specific orders by the assessee, including specific sizes, strength and printing of name of the products, name of the company and other related material on the sides of the boxes; that if these boxes were rejected by the assessee, they could not be used by any other manufacturer, even on the same line; that it was, therefore, not a case of simple purchase of corrugated boxes from the open market; that the CBDT instruction/circular No. 681 dated 8-3-1994 relied on by the assessee as clarifying the provisions of section 194C of the Act, was in respect of shoe boxes which might be used by any other manufacturer of shoes; that the other circular relied on by the assessee was in respect of specific items manufactured, but which did not carry the specific name of brands or the name of the company and which could be sold in the open market on being rejected by the company; and that in the present case, if the boxes were rejected, they would be of no use and could be sold in scrap only.

6. Before us, the learned counsel for the assessee has argued that since the taxes in question already stand paid, section 201(1) of the Act goes away. Moreover, the assessee is not liable under section 194C of the Act. Reliance has been placed on the decision of the Hon’ble Bombay High Court in the case of Bada Ltd. v. ITO [Tax Appeal Nos. 44 of 2003 and 01 of 2004 (Bom.) dated 8-3-2004]. Copies of the said decisions have been placed on record. The learned counsel states that like in that case, here also, there was nothing on record to show that all other ancillary costs, like labels, ink, papers, printing screen, screens etc., were being supplied by the assessee. In like facts, it was held by the Hon’ble Bombay High Court that the supply of printed labels was a contract of sale and that it could not be termed as a works contract.

7. Further, in ITO v. Dr. Willmar Schwabe (P.) Ltd. [2005] 3 SOT 71 (Delhi), the Delhi Bench of the Tribunal has held, inter alia, under similar circumstances, that even though the packing material was manufactured by the suppliers as per the specifications given by the assessee-company and even some printing was also done as per the assessee’s requirement, the required raw material for the purpose of manufacturing the said packing material was purchased by the concerned suppliers on their own; that these manufacturers had even paid sales tax and excise duty on the material supplied to the assessee-company, wherever applicable; that thus, the ownership in the said material was entirely with the concerned manufacturers till its supply to the assessee-company and the contract between the assessee-company and these manufacturers was for supply of material and not for carrying out any particular work as envisaged in section 194C; that it was a clear case of sale of goods by the suppliers to the assessee-company, which was evident from the fact that sales tax as well as excise duty was paid by the concerned suppliers on the packing material supplied to the assessee-company, wherever applicable; that the CBDT itself in clause 7(b) of its circular No. 681 dated 8-3-1994 (which circular has been invoked by the present assessee also), has clarified that where the contractor undertakes to supply any article or thing fabricated, according to the specifications, the property in such article or thing passes to the purchaser only after such article or thing is delivered and the contract itself being for sale of such article or thing, would be outside the purview of section 194C.

8. Still further, in Balsara Home Products Ltd. v. ITO [2005] 94 TTJ (Ahd.) 970, Ahmedabad Bench of the Tribunal has similarly decided the issue in favour of the assessee, following the decision of the Hon’ble Bombay High Court in Bada Ltd.’s case (supra).

9. Reliance has also been placed on Pune Bench of the Tribunal’s decision in Wadilal Dairy International Ltd. v. Asstt. CIT [2003] 81 ITD 238 wherein also, this issue has been decided in favour of the assessee.

10. On the other hand, the Department has not been able to bring to our notice any decision to the contrary. Thus, following the aforesaid case laws, we hold that section 194C is not applicable to the transaction entered into by the assessee. That being so, the assessee was not liable to deduct TDS. Moreover, it has not been denied that the taxes have since been paid, amounting to Rs. 1,31,270. This amount, as per the learned counsel, is refundable. In these facts, section 201(1) of the Act is not attracted.

11. Evidently, no tax can be collected twice over. All the parties have paid up, according to the learned counsel for the assessee. If it is so, to that extent, the amount is to be refunded. Credit of TDS was not allowed to these parties. The full amount was collected. All in all, this matter of refund is not before us. It has to be sorted out in appropriate proceedings.

12. On merits too, the very fact that the above discussed decisions have been given on the issue, evinces that the matter has been of a debatable nature. In that event, obviously, no penalty was leviable. We hold accordingly. The grievance of the assessee is, hence, justified and is accepted.

13. An application for additional evidence has been filed by the assessee, which, in the presence of the above discussion, need not be adjudicated upon. It is rejected as such.

14. In the result, both the appeals of the assessee are allowed.

 

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