By TIOL News Service

BANGALORE, SEPT 03, 2015: THE issue before the Bench is - Whether if three separate contracts are entered into but all were integral parts of a composite contract, invoices raised separately mentioning value of materials supplied can be subjected to TDS u/s 194C. NO is the answer.

Facts of the case

The assessee had challenged demands of the jurisdictional DCIT. Appeals were filed before the CIT(A) and by order the appeals were partly allowed. The revenue took the matter before the Tribunal, but the attempt of the revenue was abortive. The first issue involved in these appeals was if on the payment made against the supply of materials included in composite contracts for executing Turn Key Projects, provisions u/s 194C would attract or not. The other issue was if payments made by the assessee to Bellary Computers and IT Solutions, Bellary, towards Bill Management Services were fees for professional and technical services and, therefore, comes within the purview of Section 194J or payments made towards carrying out work come within the ambit of Section 194C. The Tribunal held that the issue regarding non-deduction/short deduction of TDS on payments made on supply part of contracts awarded for execution of Turn Key Projects, had, already, been settled by the Jurisdictional HC in the case of CIT and others vs. Karnataka Power Transmission Corporation Limited, the respondent in ITA 337 of 2011. The issue was decided by a Division Bench of HC on March 15, 2012. It was recorded that the decision of the coordinate Bench was also binding on this Bench.

Held that,

++ we are of the opinion that the clauses of the contract particularly, make it clear that three separate contracts have been entered into, but all the separate contracts were integral parts of a composite contract on single sale responsible basis. The invoices raised on the basis of the said composite contract separately mentioning the value of the material supplied, no deduction is permissible u/s 194C. Section 194C cannot be pressed into service to deduct tax at source. The whole object of introduction of that Section is to deduct tax in respect of payments made for works contract. No division is, therefore, permissible in respect of a contract for supply of materials for carrying out the work. It is in a case of distinct contracts. The contract for supply of material being a separate and distinct contract, no division is permissible u/s 194C. Section 194C has suffered an amendment also with effect from October 1, 2009 and the provision has been made very clear without any ambiguity. Thus, we can conclude safely that if a person executing the work, purchases the materials from a person other than the customer, the same would not fall within the definition of 'work' u/s 194C;

++ if the provisions of Section 194J or Section 194C would apply in respect of payments made by an assessee towards Bill Management Services. The services rendered by the agencies engaged by the assessees at Hospet, Bellary and Raichur are not professional services, and, therefore, Section 194J is not attracted. The demand towards the alleged short deduction of tax deducted at source and interest, therefore, was improper. The contract was rightly held to be a service contract by the Tribunal and we, also, feel that it was a contract, which should be covered under Section 194C. We do not find that these appeals involve any substantial question of law, which requires consideration by this court. Therefore, all these appeals are dismissed. The parties are however directed to bear their respective costs.

(See 2015-TIOL-2019-HC-KAR-IT)