JUDGMENT 1. This appeal is preferred by the Revenue challenging the order passed by the Income Tax Tribunal allowing the appeals Bled by the assessee and holding that the assessee was not under the obligation to deduct tax under Section 194C of the Income Tax Act, 1961 (hereinafter referred to as "the Act" for short) towards the payment made on supply portion and consequently, the assessee cannot be treated as the assessee in default and further holding that the levy of interest is also illegal. The assessee - The Karnataka Power Transmission Corporation Limited (for short "KPTCL") is a State Government Public Sector Company carrying on business of transmission of electricity from the electricity generating point to various electrical sub-stations in the State of Karnataka through its network of transmission lines and sub-stations. A survey under Section 133A of the Income Tax Act, 1961 (hereinafter referred to as "the Act" for short) was conducted in the premises of the assessee on 30.9.2009 to verify its compliance with the TDS provisions. During the course of survey, it was noticed that the assessee company has entered into contract agreements on Total Turnkey Basis or Partial Turnkey Basis with various contractors for setting up of its electrical sub-stations. The sub-stations are established in order to segregate the load of one station or to improve the reliability of the power supply and to meet the increasing demand for power supply. In Total Turnkey Contracts, the contractor was required to establish electric sub-stations and Lines using his own material including the electrical transformer. The assessee pays for the same by treating the payment as for material purchased from the contractor under the agreement of supply portion of the overall single contract. Whereas in Partial Turnkey Contracts, the assessee supplies electrical transformer while contractor uses his own other material to execute the contract. Thus, the difference between two types of contract is of value of the supply portion of the contract In Total Turnkey Contract, as the contractor uses his own transformer, vale of supply portion is higher and in Partial Turnkey Contract, value of supply portion is relatively lower as transformer is supplied by the assessee. In either event, 80 to 85% of the consideration was towards the supply of materials and barely 20 to 15% was towards erection and civil works. The assessee company has entered into three independent contracts with the contractor. In either event, 80 to 85% of the consideration was towards the supply of materials and barely 20 to 15% was towards erection and civil works. The assessee company has entered into three independent contracts with the contractor. They are:- (1) Agreement for supply portion, which is called as supply contract; (2) Agreement for civil work portion, and (3) Agreement for erection work. While tax is being deducted at source for civil work and erection work, the tax is not deducted at source towards payments made on supply portion, According to the revenue as the assessee has awarded work on turnkey basis, which is a composite contract, tax should have been deducted on supply portion also. As the assessee has failed to deduct tax on supply portion, a show-cause notice under Sections 201(1) and 201(1A) of the Act was issued on (11.3.2009) asking the assessee to show-cause as to why an order under the aforesaid provision should not be passed in its case treating it as assessee in default. 2. In response to the said show-cause notice, the assessee submitted its reply. The assessee contended that Section 194C of the Act deals with deduction of tax at source on composite contracts for erection and installation of plant and machinery. Circular No. ?? dated 8.3.1994 issued by the Central Board of Direct Taxes clearly excludes contract for sale of goods. As in their case there are separate contracts for supply of goods and erection/installation charges and the goods supplied by the contractor consists of goods manufactured by the contractor and brought through third parties and therefore, Section 194C of the Act is not attracted. Therefore, they denied their liability to pay tax and requested the authorities to drop all further proceedings. The Assessing Authority was not satisfied with the said reply. The Assessing authority relies on clause 3.5 of the proforma of contract agreement wherein it is provided that it is expressly agreed to by the contractor that notwithstanding the fact that the contract is termed as supply, for convenience of operation of the other contracts namely erection contracts and civil contracts are also the integral parts of the composite contract on single source responsibility basis and the contractor is bound to perform the total contract in its entirety and nonperformance of any contract or portion of contract shall be deemed to be breach of the entire contract. Therefore held that the contract in question is a composite contract and not a divisible contract as contended by the assessee. He further held that admittedly tender notification floated for composite work. Bid price, Bid price format for the single work and no trifurcation of contract at this stage was permissible. Evaluation of Bid, award of contract as a single composite contract, three agreements for different work was entered into only for the convenience at a later stage. Guarantee and liabilities, liquidated damages are for a single contract The performance and execution of contract is as a composite contract. Therefore, the tax was deductible by the assessee on the entire consideration paid under the three contracts treating as a composite contract. Therefore, he proceeded to assess tax payable on the supply portion also and also levied interest on the said amount. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals)-LTU, Bangalore. The Appellate Commissioner was of the view that the assessee floated a tender and there is no separation of supply, erection and installation as well as civil works. Only after awarding the tender, the assessee entered into agreement with the contractor for supply, civil works and erection, The contract is one single and indivisible contract and erection and installation of the equipment is as much fundamental part of the contract as the fabrication and supply. Therefore, the contract was a contract for work and the labour and not a contract for supply. Therefore, he affirmed the order passed by the Assessing Authority. Aggrieved by the said order, the assessee preferred an appeal to the Income Tax Appellate Tribunal. 3. The Tribunal on careful consideration of all the relevant materials and the case law on the point held that the entire arrangement between the assessee and its contractors was at best be called as divisible contract and that it should be characterised as a supply contract. The material on record clearly established that as soon as the work was awarded by the assessee to the contractor, the contractor supplies the equipment to the assessee and the property in goods gets transferred at that point of time only. It was only later on that the assessee hands over the equipment to the contractor for using them, in the erection and civil work portions. It was only later on that the assessee hands over the equipment to the contractor for using them, in the erection and civil work portions. Therefore, the contract relating to supply of equipment was a separate and distinct contract for sale and it falls within paragraph (7)(vi)(b) of the Board's Circular. The term "work" has been defined in Explanation IV to Section 194C. The sub-clause (e) deals with contract manufacturing as work. However, the latter part of the aforesaid clause clearly excludes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. On a close scrutiny, the aforesaid exclusion applies not only to manufacturing but also to supplying. When such supply is according to the requirement or specification of the customer and for such supply, the supplier had used material purchased from a person other than the customer, the assessee's case is squarely covered by the aforesaid exception for the simple reason that the contractor had undertaken to supply to the assessee the equipment as per the specifications of the assessee and for the purpose of such supply, the contractor had not used fee material bought from the assessee. Therefore, the activity carried out by the contractor for the assessee cannot be categorized as work. Further, they have held that the amendment introduced by the Finance Act, 2009 is clarificatory in nature and thus retrospective in operation and therefore, if we keep in mind those amended provisions, the nature of activity carried on by the assessee would not fall within the definition of "work". Ultimately, the Tribunal held that the assessee cannot be characterised as the assessee in default, when there was no obligation on the part of the assessee to deduct tax under section 194C of the Act for supply portion, Therefore, it allowed the appeal, set aside the order passed by the assessing authority as well as the appellate authority and granted the relief to the assessee. Aggrieved by this order the revenue is in appeal. 4. The learned counsel for the revenue assailing the impugned order contended firstly that if the entire material on record is taken into consideration it is amply clear that the contract entered into between the assessee and the contractor is a composite contract. Therefore, Section 194C is attracted. Aggrieved by this order the revenue is in appeal. 4. The learned counsel for the revenue assailing the impugned order contended firstly that if the entire material on record is taken into consideration it is amply clear that the contract entered into between the assessee and the contractor is a composite contract. Therefore, Section 194C is attracted. Secondly, he contended that the amended provision where the word "work" is explained is prospective in operation. It has no application to the present case as it is governed by the provision prior to the amendment Further, he contended that clause 3.5 of the contract agreement expressly states that notwithstanding the fact that the contract is termed as supply, for convenience of operation of the other contracts namely erection contracts and civil contracts are also the integral parts of the composite contract on single source responsibility basis and the contractor is bound to perform the total contract in its entirety and nonperformance of any contract or portion of contract shall be deemed to be breach of the entire contract and therefore, the finding recorded by the Tribunal is contrary to the express term of "work". Therefore, he submits that the impugned order is liable to be set aside and the order of assessment has to be restored. 5. Per contra the learned counsel appearing for the assessee submitted that in the agreement which came into existence between the assessee and the contractor, both the words composite contract and divisible contract are used. Because of this the clause (7) of General Terms and conditions of contract makes it clear how the parties understood the contract and how it has to be interpreted, It is categorically stated that notwithstanding anything stated elsewhere in the bid document, the contract to be entered into will be treated as a divisible contract resulting in three separate contract, one for supply of goods (2) for erection and (3) for civil engineering works governing the entire scope of partial/total turnkey contract. In the light of the aforesaid express terms, it is not open to the assessing authority to hold that the contract in question is a composite contract and not a divisible contract. In the light of the aforesaid express terms, it is not open to the assessing authority to hold that the contract in question is a composite contract and not a divisible contract. Clause 3.5, on which reliance placed has to be understood in the context that though they are divisible contracts as all the three contracts are given to a single contractor to carry out a particular project unless he completely performs all the three contracts, it cannot be said that he has performed his obligation under the contract. If so understood, it becomes clear that the three contracts entered into between the parties are divisible contract and not a composite contract. The amendment brought about in 2009 explaining the meaning of the word "Work", as per the Circular of the Board itself, it is clarificatory in nature. If that amendment is clarificatory in nature, it applies retrospectively and cannot be prospective in its operation. When admittedly, the contractor has not procured the materials from the assessee and has procured the materials from third persons and supplied it to the assessee and on such supply, the title in the goods passed on to the assessee, it is a contract for supply and Section 194C has no application, That is precisely what the Tribunal has held and therefore, no case for interference is made out. 6. In the light of the aforesaid facts and contentions, the substantial questions of law that arise for consideration are as under:- (1) Whether the Tribunal was right in splitting up this contract, which, according to the revenue, was one ALB of the composite contract into parts such as part of the contract attributable to the value of the materials involved in the execution of the work and other part of the contract such as civil works and taking the view that tax was required to he deducted at source only in respect of the work part of the contract and not material part of the contract? (2) Whether the Tribunal was justified in concluding that interest under Section 201(1A) of the Income Tax Act, 1961 is not leviable, as the assessee was not liable to make any deductions in respect of the value of the material part of the contract, though the contract was one of whole contract? 7. (2) Whether the Tribunal was justified in concluding that interest under Section 201(1A) of the Income Tax Act, 1961 is not leviable, as the assessee was not liable to make any deductions in respect of the value of the material part of the contract, though the contract was one of whole contract? 7. The answer to these questions has to be found from the terms of tender notification, bidding documents and the agreements entered into between the assessee and the contractor, which clearly shows how the parties have understood the contract which they have entered into. It is thereafter we have to find out whether Section 194C is attracted to the facts of this case. 8. The tender notification clearly sets out the scope of the bid enquiry. It states, it is for combined package of Establishment of 1X6.3 MVA, 66/11 KV sub-station at V.G. Doddi and construction of 66KV SC line for a distance of 7,929 Kms. tapped from the existing 66KV SC Magadi-T.G. Halli Line to the proposed 66/11KV sub-station at V.G. Doddi in Magadi Taluk, Bangalore Rural District on partial Turnkey Basis including supply of all matching Materials/Equipments (excluding Power Transformer) and erection (including Civil Works) of all Materials/Equipments, Testing and Commissioning. 9. In the case of Total Turnkey Basis even the power transformer has to be supplied by the contractor. Therefore, it is clear the scope of work involves supply of material, erection, including the civil works, testing and commissioning. Twelve months is the period prescribed for commissioning from the date of indent including the monsoon period. Four Clauses in these bid documents requires to be noticed. The first one is Clause 35.2 of instructions to bidders, which reads as under: 35.2 In case of Award of Contract, a Divisible Contract covering the entire scope of the Partial/Total Tunkey Package will be entered into with the successful bidder, there shall be three separate contracts as under; (i) For Supply of Goods (ii) For Erection Works (iii) For Civil Engineering Works, Then Clauses 14.0 and 14.1, which reads as under: 14.0 Taxes and Duties: 14.1 As indicated in Clause 35.2 of Section ITB of the Bid Document, in case of Award of Contract, a Divisible Contract covering the entire scope of the Partial/Total Turnkey Package will be entered into with the successful Bidder. There shall be three separate Contracts as under (i) For Supply of Goods (ii) For Erection Works (iii) For Civil Engineering Works. Then 3.5 of the Proforma of the Contract/Agreement, reads as under. It is expressly agreed to by the Contractor that not withstanding the fact that the Contract is termed as Erection Contract, for convenience of operation of the other Contracts namely Supply Contracts and Civil Contracts are also the integral parts of the contract on single source responsibility basis and the Contractor is bound to perform the total Contract in its entirety and non-performance of any part or portion of the Contract shall he deemed to be a breach of the entire Contract. 7.0 of the General Terms and Conditions of Contract to bidders, reads as under 7.1 Construction of the Contract: 7.1 Notwithstanding anything stated elsewhere in the Bid Documents, the Contract to be entered into will be treated as a Divisible Contract resulting into three separate contracts, one for supply of goods, the second for erection and the third for civil engineering works covering the entire scope of the Partial/Total Turnkey Package. 10. A harmonious reading of the aforesaid provisions makes it clear that after the bid offered by the contractor is accepted and the assessee decides to award the contract to the successful bidder, a divisible contract covering the entire scope of the Partial/Total Turnkey has to be entered into with the successful bidder. The assessee has to enter into three separate contracts. One for supply of goods; secondly, for erection works and thirdly, for civil engineering works and Clause 14.0 deals with taxes and dues and it reserves to the divisible contract, i.e. the three separate contracts and any taxes and duties which are payable is in respect of these three separate contracts. However, Clause 3.5 of the proforma of contract agreement makes it clear notwithstanding the fact that three separate contracts have entered into, all the three are integral parts of the composite contract on single sole responsible basis. The contractor is bound to perform the total contracts in its entirety. No performance of any part or portion of the contract would be treated as breach of entire contract. The contractor is bound to perform the total contracts in its entirety. No performance of any part or portion of the contract would be treated as breach of entire contract. It is because of its inconsistent clause where at one place it is mentioned as three separate agreements and where all the three are referred to as the composite agreement in order to clarify what exactly the parties meant it become necessary to introduce Clause 7.0 provide how the contract is to be construed. Clause 7.1 expressly state that notwithstanding anything stated elsewhere in the bid documents, the contract to be entered into will be treated as divisible contract resulting in three separate contracts, one for supply of goods, the second for erection and the third for the civil engineering works covering the entire scope of the Partial/Total Turnkey Package, Therefore, the intention is clear. There is no ambiguity in the language. The contract i.e., entered into is not a composite contract. It is a divisible contract. Three contracts entered into are separate contracts. Though the work, i.e., entrusted to the contractor is to be completed by him by performing all the three separate contracts, the contracts as such is a divisible contract. Therefore, the parties have entered into three separate contracts on the very same day. The General Terms and Conditions deal with risk distribution explicitly provide for transfer of title at 37.0. Clauses 37.1 and 37.2 reads as under: 37.1 The Title of Owner Supplied Equipments/Materials will be with KPTCL These Equipments/Materials will be handed over the Contractor for Erection. Testing and Commissioning duly obtaining an indemnity Bond in accordance with Clause 11.2 of Section-V, Special Conditions of Contract - SCC, Volume - I. This Indemnity Bond shall be furnished by the Contractor before Commencement of the Supplies of Owner Supplied Equipments/Materials and shall be valid till the Scheduled Date of Testing, Commissioning and handing over of the Work back to the Engineer in accordance with Clause 9.0 of Section-V, Special Conditions of Contract- SCC Volume - I. 37.2 In order to enable the Contractor to carry out his obligation under the Contract such as receipt at Site, Storage, Erection, Testing, etc., the Owner shall hand over (wherever applicable) the Goods to the Contractor against an Indemnity Bond. Clause 37.3.1 provides how transfer of the title in respect of equipment and materials supplied by the Contractor to the KPTCL pursuant to the terms of the Contract shall pass on to the KPTCL with negotiation of dispatch documents, Clause 37.3.3: The transfer of title shall not relieve the contractor from the responsibility for all risks of loss or damage to the equipment and materials as specified under the clause entitled 'insurance' of this section. Clause 37.3.4: In order to enable the contractor to carry out its obligation under the contract such as receipt at site, storage, erection, testing etc., the owner shall hand over (wherever applicable) the goods to the contractor against an Indemnity Bond. Clause 37.4. The Contractor shall be fully responsible for the safety of all the Equipments/Materials while the same are under his custody as above. 11. Therefore, it is clear the moment there is negotiation of despatch documents, the Equipments/Materials supplied under the Agreement of Supply from the Contractor to KPTCL the title in the goods passes. It is therefore KPTCL/Owner in order to enable the Contractor to carry out its obligation under the other contracts hand over the goods so supplied to them. The moment the materials are supplied under the Agreement of Supply and title passes to the KPTCL, the Agreement for Supply comes to an end. In order to see that the ultimate object of entering into contract is achieved, it is made clear in the Agreement for Supply, the obligation under the contract would not come to an end. The moment the machinery and the material as supplied under the agreement of supply, the obligation of the contract continues till the work entrusted to them is complete. That by itself would not make it a composite contract. It is clearly expressed in the contract, how these contracts have to be construed, the three agreements are separate and therefore the transaction in question cannot be construed as a case of composite contract and the Assessing Authority as well as the Appellate Court Commissioner were not justified in holding that it is a composite contract and TDS ought to have been deducted from the entire consideration under Section 194C of the Act. 12. 12. It is not in dispute that in respect of agreement for supply, which is a distinct contract, no TDS is deductible under Section 194C as it is not a contract for carrying out any work. Carrying out any work is a sine qua non to attract Section 194C. A contract under which a contractor agrees to supply material which may be used by him later in carrying out the work will not render the agreement to supply a contract for carrying out any work. In fact, the amendments in 2009 explains this position. When they amended the definition of "Work" as contained in Explanation to Clause (4) of sub-clause (e). In fact, the object and reasons for substituting Section 194C of the Act makes it clear that the amendment was introduced to bring clarity on the issue which reads as under: Clarification regarding "work" under Section 194C. There is ongoing litigation as to whether TDS is deductible under Section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is proposed to prove that "work" shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for "sale". This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g., a construction contract). It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of "work". It is further proposed to provide that in such a case TDS shall be deducted on the invoice, value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. 13. When the statute was amended to clarify the word "work" under Section 194C by introducing the aforesaid clause, it is obvious that the amendment is only clarificatory in nature and therefore it is retrospective. The Parliament did not intend to change the law because of conclusion which resulted in litigation. 13. When the statute was amended to clarify the word "work" under Section 194C by introducing the aforesaid clause, it is obvious that the amendment is only clarificatory in nature and therefore it is retrospective. The Parliament did not intend to change the law because of conclusion which resulted in litigation. The Parliament though it fit to clarify by way of amendment so that the litigation could be avoided. In view of the aforesaid clarification and the statutory provision, it is clear that "work" did not include manufacturing or supplying a product according to the requirement upon specification of a customer by using raw-materials purchased from a person other than such customer, as such a contract is a contract for sale. Further, it is also clarified TDS shall be deducted on the invoice value excluding the value of material purchase from such customer, if such value is mentioned separately in the invoice. It is only in cases where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. Therefore, whatever ambiguity which prevailed earlier is clarified. When in a composite contract, if an invoice is raised, separately mentioning the value of the material supplied, no deduction is permissible under Section 194C. In a case where three separate agreements entered into and one such agreement is agreement for supply of material and because the said agreement is a part of a composite transaction. Section 194C cannot be pressed into service to deduct tax at source. The whole object of introducing the Section is that it should deduct tax in respect of payments made for a works contract. No deduction is permissible in respect of contract for supply of material for carrying out work. In fact, the Tribunal by a detailed consideration of the statutory provisions, the various terms of the contract, the legal position as explained in the various judgments has rightly come to the conclusion that, the transaction in question is not a case of composite contract. It is a case of the distinct contracts and the contract for supply of materials is a separate distinct contract in respect of which no deduction is permissible under section 194C of the Act. 14. In that view of the matter, we do not see any merit in this appeal. It is a case of the distinct contracts and the contract for supply of materials is a separate distinct contract in respect of which no deduction is permissible under section 194C of the Act. 14. In that view of the matter, we do not see any merit in this appeal. The substantial question of law framed is answered in favour of the assessee and against the revenue. When once it is held that the Authorities were not justified in levying tax by treating the assessee in default and when that finding is set aside, the levy of interest is consequential, and accordingly the levy of interest is also set aside. The second substantial question of law consequently is to be answered in favour of the assessee and against the revenue. In that view of the matter, we do not see any merit in these appeals and accordingly, it is dismissed. No costs.