Income Tax Appellate Tribunal - Chandigarh

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Income Tax Appellate Tribunal - Chandigarh
Punjab Tractors Limited,, Mohali vs Assessee on 31 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH "A" CHANDIGARH
BEFORE SHRI T.R. SOOD, AM AND Ms. SUSHMA CHOWLA, JM
ITAs No. 940, 941, 942 & 943/Chd/2010
A.Ys: 2006-07, 2007-08, 2008-09 & 2009-10
Punjab Tractors Ltd., V ITO (TDS-II) (since merged with Mahindra Chandigarh & Mahindra
Ltd.)
Mohali
AAACP 8578 K
(Appellant) (Respondent)
Appellant by: Shri A.K. Jindal
Respondent by: Shri N.K. Saini
Date of hearing: 27.08.2012
Date of Pronouncement: 31.08.2012
ORDER
PER BENCH
In these appeals a common impugned order has been passed by the ld.
CIT(A), Chandigarh for A.Ys 2006-07 to 2009-10. In fact the order passed is
201(1) r.w.s 201(1A) of the Act is also common order. The assessee has
raised the common grounds which read as under:"1 That ld. CIT(A) has erred in law and on facts of the case in holding that contract for purchase
of printed material is a contract for work and labour and not a contract for sale.

2. That ld. CIT(A) has erred in law and on facts of the case in holding that tax is liable to be
deducted u/s 194C of the Act for purchase of printed material.
3. That ld. CIT(A) has erred in law and on facts of the case in charging interest u/s 201(1A) of
the Act."
2. Brief facts of the case are that a survey was carried out at the premises of the assessee. During
survey it was noticed that tax was not being deducted on printing and stationery for supply of
printed material as per prescribed specification of the assessee. The payments were made to M/s
Fair Deal Printing Press as per following details:
Financial Year Amount (Rs.)
2005-06 64,19,998/2006-07 19,79,176/2007-08 60,88,633/2008-09 76,71,686/Total Rs. 2,21,59,493/2
The assessee was given a show cause notice as to why the payments made to
M/s Fair Deal Printing Press may not be brought u/s 194C of the Act. In
response it was stated that the payments made in respect of the transactions to
M/s Fair Deal Printing Press were on account of contract for sale for printed
material. It was further submitted that wherever applicable the sales tax/VAT
has also been charged by M/s Fair Deal Printing Press. Since it was a contract
for sale, therefore, in view of circular No. 681 dated 8.3.1994 the TDS
provisions were not applicable. Reliance was also placed on the following
decisions:(i) CIT V. Dy. CAO, Markfed, 304 ITR 17 (PH)
(ii) CIT V. Dabur India Ltd. 283 ITR 197 (Delhi)

(iii) BDA Ltd. V. ITO, 281 ITR 99 (Bom)

Further reliance was placed on some decisions of the Tribunal. It was also
submitted that since M/s Fair Deal Printing Press has already taken into
account the payments made by the assessee in various years. Therefore, no
TDS was required to be deducted.
3. After considering the above submissions the Assessing Officer observed
that no evidence was filed to show that M/s Fair Deal Printing Press has
already accounted for the receipt and paid tax accordingly . He further
observed that circular No. 681 cannot be held to be applicable particularly in
view of the latter circular No. 715 of the Board wherein in reply to Special
question No. 15 it was clarified that supply of printed article as per
specifications by the buyer would amount to works contract and provisions of
section 194C would be attracted in such a case. He observed that various
decisions quoted by the assessee had mainly relied on circular No. 681 and
circular No. 715 was not considered. Accordingly the assessee was held to be
liable for deduction of tax u/s 194C. Further the assessee was held to be in
default u/s 201 as well as for interest u/s 201(1A) of the Act.
4. Before the ld. CIT(A) the submissions made before the Assessing Officer
were reiterated. It was further emphasized that the assessee was procuring 3
printed material consisting of annual report and balance sheets and other
material from M/s Fair Deal Printing Press. The assessee was not supplying
any paper, ink and labour etc. Therefore, such procurement should be treated
as sale particularly when M/s Fair Deal Printing Press has charged sales

tax/VAT as applicable.
5. The ld. CIT(A) after examination of the submissions did not find much
force in the same. She observed that there was no fixed principle to define the
sale for contract and contract for work and labour. She referred to decision of
Hon'ble Supreme Court in case of Associated Cement Company Ltd. V CIT,
120 ITR 444 wherein it was observed that "there is nothing in sub-sec 1 of section 194C which could make us hold that the Contract to
carry out a work or the contract to supply labour to carry out a work should be confined to works
contract."
She also observed that Hon'ble Court held that 'any work' means any work and
not a 'works contract'. She also referred to circular No. 681 wherein it is
provided that Section 194C shall apply to all type of contract for carrying out
any work including transport contract, service contract and advertisement
contracts, broadcasting contracts, labour contracts, material contracts and work
contracts. She observed that this circular has relied on the decision of Hon'ble
Supreme Court in case of State of Himachal Pradesh V. Associated Hostels of
India Ltd. (1972) 29 STC 474 wherein it was observed as under:"where the principle objective of the work undertaken by the payee of the price is not the transfer
of a chattel qua chattel, contract is a work and labour. The test is whether or not the work and
labour be stored and in anything that can properly become the subject of sale, neither the
ownership of material, nor the value of skills and labour as compared with the value of the
material is conclusive although such matter may be taken into consideration in determining in the
circumstances of a particular case, whether the contract is in substance, one of work and labour
or one for the sale of a chattel. A building contract or a contract under which a movable is fixed
to another chattel or the other hand where the intention plainly is not to sell the Articles, but to
improve the land or the chattel and the consideration is not for the transfer of a chattel but for the
labour and the work done and the material furnished, the contract will be one for work and
labour."
She further referred to circular No. 13 of 2006 darted 13.12.2006 which clarifies

that where the property in the article or thing so fabricated passes from the
fabricated contractor to the assessee only after such article or thing is delivered 4
to the assessee such contract would be a contract for s ale and so outside the
provisions of section 194C. After this observation she was of the opinion that
on the basis of various decisions and the circulars following principle
emerged:"1. If the thing to be delivered has any individual existence before the delivery as the sole
property of the party who is to deliver it then it is a sale.
2. If major component of the product is the material consumed in producing the chattel to be
delivered and skill and labour are employed for converting the main components into end
products the skill and labour are only incidentally used, the delivery of the end product by the
seller to the buyer would constitute a sale on the other hand if the main object of the contract is
to avail the skill and labour of the seller though some material of components may be
incidentally used during the process of end product being brought into existence by the
investment of the skill and lab our of the supplier, the transaction would be a contract for work
and labour.
3. If a consideration is for the transfer of the chattel then it is a sale but if the consideration is for
the labour and work done and the material furnished the contract will be one of work and labour.
4. Before a person can be called a contractor within the meaning of a Section 194C, his status
must have nexus in its characteristics as carrying out work for another person as a contract in the
ordinary sense had not merely carrying on activities of his own business or profession in the
ordinary course.
5. If the property in goods passes from the contractor to the assessee only after such article or
thing is delivered to the assessee such contractor would be a contract for sale.
6. If the property in goods would pass on the principle of accretion instead of delivery then it
would be a works contract.
7. where the finished product supplied to a particular customer is not a commercial commodity in
the sense that it cannot be sold in the market to any other person, the transaction is only a works
contract.
8. In a contract of sale, the main objectives, the transfer of property and delivery of possession of
the property and whereas the main object in a contract for work is not the transfer of the property
but it is one for work and labour."

On the basis of above principles the ld. CIT(A) held that though the assessee
has not supplied any paper to the Press on which the annual reports were to be
printed but M/s Fair Deal Printing Press rendered services for printing as per
specifications of the assessee. Hence this was a case of works contract and 5
the provisions of section 194C were applicable. However, she allowed the
relief to the assessee in respect of allowability u/s 201(1) in the light of the
decision of Hon'ble Supreme Court in case of Hindustan Coca Cola Beverages
Pvt Ltd. (2007) 163 Taxman 355 (S.C) and held that the assessee is liable for
payment of interest as per para 26 which is as under:"After careful consideration this judgment, I am of the view that the case of the assessee is
covered by this judgment. The Assessing Officer is therefore, directed to ascertain the due dates
of payment of taxes by the deductee M/s M/s Fair Deal Printing Press and charge interest u/s
201(1A) accordingly and in accordance with the judgment in Hindustan Coca Cola Beverages
Pvt Ltd. (supra) the relevant para of which is extracted below:
"Be that as it may, Circular No. 275/201/95-IT(B) dated January 29, 1997, issued by the Central
Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The
circular declares "no demand visualized u/s 201(1) of the Income-tax Act, 1961 should be
enforced after the tax deductor has satisfied the officer-in-charge of TDS that taxes due have
been paid by the deductee-assessee. However, this will not alter the liability to charge interest u/s
201(1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for
penalty u/s 271C of the Income-tax Act."
6. Before us, the ld. counsel of the assessee reiterated the submissions
made before the lower authorities. He also referred to various circulars and
decisions relied before the lower authorities. He also referred to paper book
wherein details regarding payment made to M/s Fair Deal Printing Press along
with some sample copies of the bills have been furnished. He emphasized that
wherever applicable M/s Fair Deal Printing Press has charged sales tax/VAT
which clearly shows that it was a case of sale and not a work of contract.

7. On the other hand, the ld. DR for the revenue strongly supported the
order of the ld. CIT(A).
8. We have heard the rival submissions carefully in the light of material on
record and the decisions cited by the parties. Perusal of the circular No. 681
dated 6.3.1984 issued by the CBDT shows that the Board has issued earlier
circulars and was of the opinion that such circulars need reconsideration in view
of the decision of the Hon'ble Supreme Court in case of Associated Cement
Company Ltd. V. CIT, 201 ITR 435 ultimately following guidelines were issued
vide para 7 of this circular.
"7. The conclusion flowing from the aforesaid judgments of the Hon'ble Supreme Court and the
Patna High Court is that the provisions 6
of section 194C would apply to all types of contracts including transport contracts, labour
contracts, service contracts, etc. In the light of these judgments, the Board have decided to
withdraw their above mentioned circular Nos. 86 and 93 and para 11 of Circular No. 108 and
issue the following guidelines in regard to the applicability of the provisions of section 194C.
(i) The provisions of section 194C shall apply to all types of contracts for carrying out any work
including transport contracts, service contracts, advertisement contracts, broadcasting contracts,
telecasting contracts, materials contracts and works contracts.
(ii) No deduction at source u/s 194C shall be required to be made if the consideration for the
contract does not exceed the prescribed amount which at present is Rs. 10,000 (ten thousand
only).
(iii) The provisions of section 194C would not apply in relation to payments made for hiring or
renting of equipments etc.
(iv) The provisions of section 194C would not apply in relating to payments made to banks for
discounting bills, collecting/receiving payments through cheques/drafts, opening and negotiating
letters of credits and transactions in negotiable instruments.
(v) Service contracts would be covered by the provisions of this section since service means
doing any work as explained above.
(vi) The provisions of this section will not cover contracts for sale of goods.

(a)______________
(b) where however, the contract undertakes to supply any article or thing fabricated according to
the specifications given by Government or any other specified person and the property in such
article or thing passes to the Government or such person only after such article or thing is
delivered, the contract will be a contract f or sale and as such outside the purview of this section.
(c)______________
(vii) The provisions of this section would apply in relation to payments made to persons who
arrange advertisement, broadcasting, telecasting etc.
(viii) The provisions are wide enough to cover not only written contracts but also oral contracts.
(ix)_________________
(x)_________________
(xi)________________
(xii)_________________
(xiii)_________________ "
7
Thus from above it is clear that after considering various provisions it was
opined that provisions of section 194C are not applicable in the case of sale of
goods. It was further clarified through clause 7(b) that where article or thing
was fabricated in accordance with the specification given by the Government or
other specified persons then if property in such article or thing is delivered then
contract will be a contract for sale and as such outside the purview of this
section. In other words, if the party get something fabricated according to its
specification, however, property passes to such party only after such fabricated
article is delivered then it would be the contract for sale. Now in case of
printing contracts what happens is that for example getting a balance sheet or

annual report printed from a printing press the party may supply designs,
contents i.e. various figures and data but if such party does not give its own
paper or ink for supply of such annual report and after printing annual reports
are supplied to such party, the property would obviously pass after the supply
of such annual reports. Thus in such cases it will be contract of sale. This is
so because if let us say annual report is wrongly printed because of errors in
the figures or design then the customer will not accept the delivery and the
whole material would go waste and loss must occur to such printing press.
Therefore, the decision was quite clear in case of property passes only after
delivery of such article would be treated as contract of sale. Further this
position got confused and complicated because of reply to Q No. 15 in Circular
No. 715 dated 8.8.1985. Relevant question and answer is as under:"Question 15: Whether section 194C would apply in respect of supply of printed material as per
prescribed specifications?
Answer: Yes. "
Thus above makes it clear that a case of printing material provisions of section
194C would be attracted. However, this position has again been discussed by
the Board and after deliberation and issue Circular No. 13/06 dated 13.12.2006
was issued which reads as under:
"1. Representations have been received in the Board seeking clarification on the applicability of
section 194C on such transactions, where the assessee has outsourced certain work relating to
fabrication 8
or manufacturing of article or thing in accordance with the specifications given by the assessee.
Circular No. 681 dated 8.3.1994 of the Board clarifies in para 7(vi) that the provisions of section
194C would not apply to contracts for sale of goods and further clarifies that where the property
in the article or thing so fabricated passes from the fabricator-contractor to the assessee only after
such article or thing is delivered to the assessee, such contract would be a contract for sale and so

outside the purview of section 194C. However, in reply to question No. 15 in Circular No. 715,
dated 8.8.1995 on the subject of applicability of section 194C, in respect of contract for supply
printed material as per prescribed specifications, it has been said that such contracts would also
be covered u/s 194C. It has been represented that the views expressed in these two circulars, to
the extent as pointed out above, are in contradiction to each other.
2. The matter has been examined by the Board and it is considered that exclusive reliance on
Question/Answer No. 15 of Circular No. 715, without taking into account the principles laid
down in Circular No. 681 is not justified. Before taking a decision on the applicability of TDS
u/s 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'.
3. It is, therefore, clarified that the provisions of section 194C would apply in respect of a
contract for supply of any article or thing as per prescribed specifications only if it is a contract
for work and not a contract for sale as per the principles in this regard laid down in para 7(vi) of
Circular No. 681 dated 8..3.1994."
From the highlighted portion in the above circular it becomes clear that Question and answer No.
15 of circular No. 715 cannot be blindly applied to printing contracts without taking into the
principles laid down in Circular No.
681. What it means? This would only mean that it would depend on the nature of the contract
entered by a person with a printer in case of such contract shows that the first person has not only
given specifications but has also given its own paper or ink and the printer is only printing such
material on such paper then perhaps this would constitute a works contract and provisions of
section 194C would be attracted. However, if a person has only given a specification after which
the printer produces such printed material on the basis of such specifications and delivered the
same to the first person then that would be a case of contract for sale. This position is further
supported in the cases where the printer has charged sales tax/VAT in the invoices raised against
this person. Therefore, the findings of the ld. CIT(A) are not correct wherein she has observed
that in case of printing contract provisions of section 194C would always be attracted. The
applicability of section would depend on the nature of contract and the predominant purpose of
printing as observed by the ld. CIT(A) and this position has been discussed as discussed above
has been considered by the CBDT itself. We further find that Hon'ble Punjab & Haryana High
Court has approved this position in case of CIT V. Dy. CAO, Markfed (supra). Para 5 of the
judgment reads as under:9
"We have considered the submissions made by ld. counsel of the Revenue. There is no dispute
that the main purpose of the assessee to buy packing material is to obtain goods for the purpose
of packing of its finished products. The facturm of such packing material carrying some printed
work can only be regarded as the work executed by the supplier incidental to the sale to the
assessee. The fact of some printing being done as a part of supply is of no consequence to the
contract being essentially of a sale of chattel. The predominant object underlying the contracts

were sale/purchase of goods and only the intention of the respondent was to buy packing
material. Admittedly, the raw material for the manufacturing of such packing material was not
supplied by the respondent. Thus, it was a case of sale and not a contract for carrying out any
work. In the case of CIT V. Dabur India Ltd. (2006) 283 ITR 197, the Hon'ble Delhi High Court
held that printing labels on corrugated boxes did not require any special skill or involve any
confidence or secrecy and the Tribunal was justified in holding that the predominant object
underlying the contract was one for sale of goods which took the contract out of the purview of
section 194C of the Income-tax Act, 1961. In BDA Ltd. V ITO (TDS) (2006) 281 ITR 99 (Bom)
the court held that if a manufacturer purchases material on his own and manufactures a product
as per the requirement of a specific customer, it is a case of sale and not a contract for carrying
out any work. The fact that the goods manufactured were , according to the requirement of the
customer, does not mean or imply that any work was carried out on behalf of that customer.
We are in respectful agreement of the abovecited judgments and hold that the purchase of
particular printed packing material by the respondent was a contract for sale and outside the
purview of section 194C of the Act. No substantial question of law as proposed arises for
determination of the court. Thus, we find no infirmity in the order of the Tribunal, the appeal is
without any merit and the same is dismissed."
In case before us also we have examined the sample invoices and in many cases M/s Fair Deal
Printing Press has charged even VAT/CST. The Revenue has at no point alleged or proved that
the assessee had supplied paper or ink to the printer. Therefore, it is simple case of contract for
sale/purchase as the assessee has purchased printed material though made according to the
specification of the assessee. Therefore, in our humble opinion the provisions of section 194C
are not attracted in this case and the assessee is not liable to deduction of tax u/s 194C.
Accordingly we set aside the order of the ld. CIT(A) and hold that the assessee is not in default
u/s 201(1) and further not liable to pay interest u/s 201(IA) of the Act.
9 In the result, all the appeals filed by the assessee are allowed.
Order pronounced on 31.8. 2012
Sd/- Sd/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT
MEMBER
Dated: 31 .8.2012
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/ The DR 10