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Rajasthan High Court · body

2014 DIGILAW 1467 (RAJ)

Commissioner of Income v. Samtel Glass Ltd.

2014-08-13

AJAY RASTOGI, J.K.RANKA

body2014
JUDGMENT 1. - Both these Income-tax appeals are directed against the common order dated July 27, 2012, passed by the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur (for short, "the ITAT"), by which the Income-tax Appellate Tribunal, while affirming the common order passed by the Commissioner of Income-tax (Appeals) (for short, "CIT(A)"), has dismissed the appeals filed by the appellant-Revenue. It relates to the assessment years 2008-09 and 2009-10. Since the issues involved are similar and identical, both these appeals are being decided by this common order. 2. In both these appeals, the Revenue has raised question and we are called upon to decide the applicability of the provisions of section 194C and section 194J of the Income-tax Act, 1961 (for short, "the Act") in respect of the payments made by the respondent-assessee towards the transmission charges and whether it is in the nature of sale or contract in between the respondent-assessee and the Gas Authority of India Ltd (for short "GAIL"). 3. Brief facts, as emerging on the face of record, are that the respondent-assessee is a private limited company and a survey was carried out at the business premises of the respondent-assessee on December 16, 2008, which was basically with reference to the provisions relating to tax deduction at source (for short, "the TDS"). The authorised officer noticed that the respondent-assessee had made huge payments towards transmission transaction charges to GAIL for supply of gas pursuant to an agreement/contract entered into by both the parties. It was further noticed that though the respondent-assessee was deducting TDS on other payments made but did not deduct TDS on the payments made towards the transmission charges to GAIL. The Assessing Officer (for short, "the AO") issued a show-cause notice to the respondent-assessee requiring, inter alia, the respondent-assessee to prove as to why huge payments have been made towards the transmission charges in addition to gas price for certain services provided to the respondent-assessee (purchaser) and the terms and conditions contained in the agreement also revealed that the services provided by the GAIL to the respondent-assessee to facilitate the uninterrupted supply of gas is of technical services in nature. Accordingly, the Assessing Officer was of the view that the provisions of section 194C and section 194J of the Act are applicable. Accordingly, the Assessing Officer was of the view that the provisions of section 194C and section 194J of the Act are applicable. The respondent-assessee, inter alia, submitted a detailed explanation and contended that it is a sale agreement of gas having been sold between GAIL as seller and with the assessee-company as buyer for sale of natural gas (regasified LNG) on January 23, 2004. A side letter dated January 23, 2004, was also issued for revising article 9.2 of the said GSA. There was another side letter of the same date stating that the prices of the gas are on CIF basis. It was further contended that the price is comprised the following elements : "9.2.1.1-Price based on unit rate S.No. Elements of price Rs./MMBTU 1. Foreign currency component (USD) 141 2. Indian rupees component 52 3. Total 193 4. Both the parties further agreed that there would be fixed transmission charges of Rs. 12,44,363 per month for the year 2004-05 and it will be increased at 3 per cent. on yearly rest basis with effect from April 1, 2005. They further agreed that the total price includes basic customs duty, service tax and is exclusive of all taxes, duties and statutory levies, by whatever name called and levied by either Central, State Governments or local bodies, sales tax, entry tax and other tax and duties and statutory levies shall be payable extra as applicable from time to time. It was further agreed that the buyer shall be liable for any of the above tax/duties/levies with respect to the sale, transfer, transport or importation of the GAS as also any taxes/duties/statutory levies for which the buyer is liable under this article but which may have been paid by the seller shall be reimbursed by the buyer together with applicable interest, if any, within 15 days after written request by the seller. It was further submitted that if all the clauses of the gas sale agreement (GSA) are taken into consideration, it was abundantly clear that the price paid by the assessee-company is towards purchase of the GAS only. The assessee also quoted article 2 which specifically stated about purchase and sale between the parties. It was further submitted that if all the clauses of the gas sale agreement (GSA) are taken into consideration, it was abundantly clear that the price paid by the assessee-company is towards purchase of the GAS only. The assessee also quoted article 2 which specifically stated about purchase and sale between the parties. It was further mentioned that after revising the clauses in the agreements that the facilities (pipelines, metering equipment and other gas accessories are facilities of the seller only, the seller is maintaining these equipment for facilitating effective delivery of the gas, the seller is providing technical or whatsoever services to themselves while maintaining their own facilities and not the buyer's facilities as such the provisions of section 194C or section 194J of the Income-tax Act are not applicable. Along with the reply, the assessee also enclosed a copy of purchase invoice issued by the GAIL to the assessee bearing No. RJ00030229, dated November 30, 2008, where it was pointed out that the seller charged VAT on all elements of the price of the gas. It was reiterated that the price paid by the company to GAIL is price for gas and not availing of any type of services from GAIL. It was also contended that even GAIL, the seller, has also treated the entire transaction as transaction of sale and by producing the profit and loss account of the said company (GAIL), it was contended that GAIL has credited the entire sale proceeds in its profit and loss account which was apparent not only on the basis of the profit and loss account but copy of statement of account from GAIL of the assessee as well. The assessee also relied upon the circular issued by the Central Board of Direct Taxes (CBDT) bearing No. 13, dated December 13, 2006 (see (2006) 287 ITR (St.) 174), and contended that in the light of the said circular as well, the assessee is not liable to deduct tax at source under section 194C or section 194J of the Act. The assessee also relied upon the circular issued by the Central Board of Direct Taxes (CBDT) bearing No. 13, dated December 13, 2006 (see (2006) 287 ITR (St.) 174), and contended that in the light of the said circular as well, the assessee is not liable to deduct tax at source under section 194C or section 194J of the Act. It was further submitted on behalf of the assessee relying upon the judgment of the Hon'ble apex court in the case of Hindustan Coca Cola Beverage P. Ltd. v. CIT (2007) 293 ITR 226 (SC) that the Hon'ble apex court has held that where the payee has already paid tax on the income on which there was a short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor and this was proved by the assessee on the basis of the profit and loss account and other material provided to the Assessing Officer. However, the Assessing Officer did not agree with any of the contentions raised by the assessee and after coming to his own conclusion and relying upon article 8, more particularly clause 8.10 of the agreement, he came to the conclusion that the present case is not a case of sale of gas only but it also includes certain terms and conditions for providing services which are technical in nature which attracts TDS provision and, accordingly, found the assessee liable for TDS under the provisions of section 194J at Rs. 16,92,800 for the assessment year 2008-09 and Rs. 12,69,600 for the assessment year 2009-10. It also charged interest under section 201(1A) at Rs. 2,71,481 and Rs. 82,614, respectively, for the two assessment years. The Assessing Officer also tried to distinguish the judgments rendered by the Hon'ble apex court in the case of Hindustan Coca Cola Beverage P. Ltd. (supra).5. Aggrieved by the imposition of TDS and interest under sections 194J and 201(1A), respectively, two appeals came to be filed before the Commissioner of Income-tax (Appeals). 82,614, respectively, for the two assessment years. The Assessing Officer also tried to distinguish the judgments rendered by the Hon'ble apex court in the case of Hindustan Coca Cola Beverage P. Ltd. (supra).5. Aggrieved by the imposition of TDS and interest under sections 194J and 201(1A), respectively, two appeals came to be filed before the Commissioner of Income-tax (Appeals). The assessee reiterated the facts led before the Assessing Officer and the Commissioner of Income-tax (Appeals), after analysing the agreement vis-a-vis other material placed on record as also the judgments cited before it, was of the view that the gas sale agreement (GSA) with GAIL was essentially an agreement for purchase/sale of goods and that the Assessing Officer did not give good justification for isolating transmission charges as fees for technical services or payment for works contract and, thus, came to the conclusion that neither section 194J nor section 194C was applicable to the payments made to GAIL under GSA. The Commissioner of Income-tax (Appeals) alternatively also came to the conclusion that since GAIL had paid tax on all payments under the GSA for both the assessment years and such receipts were included in its relevant return of income, even otherwise, there was no scope for invoking section 201 of the Income-tax Act and accordingly deleted the entire levy of TDS as well as interest.6. Aggrieved with the order of the Commissioner of Income-tax (Appeals), the Revenue preferred two appeals before the Income-tax Appellate Tribunal and the Income-tax Appellate Tribunal also concurred with the findings of the Commissioner of Income-tax (Appeals) and after referring to clauses of the agreement as also other factors upheld the order passed by the Commissioner of Income-tax (Appeals) and dismissed the appeals preferred by the Revenue. Thus, the aforesaid order of the Income-tax Appellate Tribunal is being assailed before us by the Revenue.7. Mr. Sanjiv Gupta, Income-tax Officer, appearing on behalf of the Revenue, contended that the agreement between the two companies namely, the assessee as well as GAIL was not merely a purchase/sale transaction and that it was a continuous on going process and after purchase/sale having been concluded, both the parties were involved in on going activities and, thus, it cannot be said that it was merely a purchase/sale transaction. He further contended that it is essentially a service transaction and the services provided by GAIL to the assessee are technical in nature and, therefore, either it falls under the provisions of section 194C or section 194J of the Act. He further contended that the first liability was of the assessee and merely because the Hon'ble apex court observed that if the recipient (payee) has paid tax, then there is no liability, is secondary in nature. He further contended that the liability was there and the Assessing Officer rightly came to the conclusion of levying of TDS as also interest on account of non-payment of the TDS. He ultimately contended that the orders passed by both, i.e., the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal, are bad in law, perverse and substantial question of law arises out of the order of the Income-tax Appellate Tribunal.8. We have considered the submissions of the officer, appearing on behalf of the Revenue, and have also perused the impugned order as well as the orders of the lower authorities and, in our view, no substantial question of law arises out of the order of the Income-tax Appellate Tribunal so as to call for interference by this court for the reasons henceforth :9. The Assessing Officer has reproduced some of the clauses of the agreement entered into between the assessee as well as GAIL and the Assessing Officer has highlighted paragraph 8.1.1 which speaks of installation, operation and maintenance of facilities. It would be appropriate to quote article 5 and paragraph 8.1.1 and 8.10 which provides as under : "Article 5 of the Agreement deals with the delivery and pressure. The relevant portion of this article is also reproduced here under for convenience. 5.1. Delivery. - Subject to the provision of article 8.1.1 gas sold to the buyer pursuant to this agreement shall be delivered by the seller at the delivery point. 5.2. Title and risk. - The facilities as defined in article 8 up to the delivery point shall be constructed, operated and maintained by the seller at its own risk and cost. 5.3. Delivery pressure. - The seller shall maintain the ability to supply gas to the buyer at the delivery point at the pressure of 12 kg./cm2 (g)+ 1 kg/cm2." "8.1.1. - The facilities as defined in article 8 up to the delivery point shall be constructed, operated and maintained by the seller at its own risk and cost. 5.3. Delivery pressure. - The seller shall maintain the ability to supply gas to the buyer at the delivery point at the pressure of 12 kg./cm2 (g)+ 1 kg/cm2." "8.1.1. The seller and the buyer shall provide the seller's facilities and the buyer's facilities respectively, as may from time to time be necessary to enable party to perform its obligations under this agreement and the seller and the buyer shall operate, repair and maintain, the seller's facilities and the buyer's facilities, respectively, and all replacements in good working order and condition throughout the duration of the agreement and operate the same in accordance with reasonable and prudent operator." "8.10. For effecting deliveries of the seller shall install and maintain at its own risk and cost the piping control and regulation and metering equipment in the gas metering station and all other accessories. The said equipment so installed by the seller shall remain the property of the seller and the seller shall have the right to remove such equipment at any time within twelve (12) months after the expiry of the contract. The seller shall have the right to use the buyer's land and utilities essentially required for installation, operation and maintenance of the gas metering station and allied equipment required for supply of gas. These facilities as required and used by the seller at the terminal shall be free of cost." 10. Though the Assessing Officer has quoted other clauses as well but, in our view, the said two clauses, referred to herein above, will be sufficient and will clinch the issue for disposal of the present appeals. A perusal of clause 8.1.1., quoted herein above, clearly describes two parties as buyer and seller and in furtherance thereof, if the seller provides certain facilities on account of the business exigencies to maintain good relations and for on going contract/agreement, then, in our view, such an agreement of purchase and sale cannot be said to be an agreement in between the parties which could change the nature of the contract as technical services falling within the ambit of section 194C or section 194J of the Act. It is also a finding of fact that not only the seller charged other amounts but equally charged VAT in the bills exchanged between the parties. When the seller charged VAT, then essentially the seller as well as the buyer both were of the view that it is sale and purchase per se and nothing more. It has also come on record that the assessee, by providing copy of the sale bills, had categorically observed about this aspect. It would also be appropriate to quote the definition of sale/sale price as available in the Rajasthan Value Added tax Act, 2003, which provides as under : "(35) 'sale' with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes- (i) a transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration ; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract ; (iii) any delivery of goods on hire-purchase or other system of payment by instalments ; (iv) a transfer of the right to use goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration ; (v) a supply of goods by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration ; and (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply shall be deemed to be a sale and the word 'purchase' or 'buy' shall be construed accordingly ; Explanation. - Notwithstanding anything contained in this Act, where any goods are sold in packing, the packing material in such case shall be deemed to have been sold with the goods ; (36)'sale price' means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practise normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act ;" 11. In our view, on perusal of the said definition of sale and sale price as provided under the RVAT Act and on perusal of the clauses, quoted herein above that the property in goods has been transferred from one hand to another. Thus, it was a transaction of sale and purchase and nothing more. It is already on record that even GAIL, the seller of the gas, had provided material to the assessee in the shape of the profit and loss account as also other material wherein GAIL has shown receipts in the profit and loss account and GAIL has not only carried the said item into the profit and loss account but also paid tax on the income ultimately earned by it on account of the transaction in between the assessee and GAIL and such receipts were included in the relevant return of income submitted by GAIL in both the assessment years under appeal.12. This, as observed herein above, not merely the recipient had shown the said transaction as sale in their relevant records but also have paid due tax.13. In our view, the predominant purpose of the contract for supply of gas was for sale of goods and, therefore, the contract was outside the purview of section 194C as well as section 194J of the Act. Considering the invoice raised by GAIL vis-a-vis reading of the clauses, referred to supra, in our view, by no stretch of imagination, it can be said that the transaction was for technical services or a contract. The price paid by the company is the sale price for gas and not for availing of any type of services from the GAIL. Considering the invoice raised by GAIL vis-a-vis reading of the clauses, referred to supra, in our view, by no stretch of imagination, it can be said that the transaction was for technical services or a contract. The price paid by the company is the sale price for gas and not for availing of any type of services from the GAIL. The transaction charges are one of the elements of price as per clause entered into by and between the two parties and not charges for any distinct services and it was the agreement in between the said two parties that the seller agrees to deliver and sale to the buyer the gas at the delivery point and the buyer agrees to purchase and take delivery of such gas and pay in accordance with the terms and conditions in this agreement. Thus, the very nature of the agreement clearly shows that it was not in the nature of works contract or technical services. Delivery at the place of buyer does not mean that it would convert transaction as in the nature of contract or technical services.14. On a perusal of above and on a plain reading, it provides that under section 194C there should be a contract in between two parties and work includes (a) advertising, (b) broadcasting, (c) carriage of goods or passengers by any mode of transport other than railways, (d) catering, (e) manufacturing or supplying a product. . . Thus, on reading the clauses as entered into by and between the parties, in our view, the agreement is not in the nature of a contract as the assessee and GAIL have not entered into any of the work, referred to herein above. . . Thus, on reading the clauses as entered into by and between the parties, in our view, the agreement is not in the nature of a contract as the assessee and GAIL have not entered into any of the work, referred to herein above. On a perusal of a reading of section 194J read with Explanation 2 of section 9(1)(vii) (supra), it provides that the predominant purpose to fall in "technical services" should be consideration for the rendering of any managerial technical or consultancy services whereas on reading of the clauses entered into by the parties, we can safely come to the conclusion that it is an agreement to sale/purchase of gas in between the two companies and intention of both has been as that of sale and purchase and we cannot import any reasoning to hold that it can fall in the category of technical services, it would be too much to stretch the plain and simple reading of technical services in the matter under consideration.15. In the case of CIT v. Dabur India Ltd. (2006) 283 ITR 197 (Delhi) , the Delhi High Court had an occasion to consider as to whether supply of corrugated boxes was to be made with labels printed on them and the question raised was as to whether the supply of boxes was a contract for supply of chattel and, as such, outside the purview of section 194C of the Income-tax Act and, after considering the evidence on record, it held that printing of the labels on the corrugated boxes did not require any special skill or involve any confidence or secrecy and held that the predominant object underlying the contract was one for sale of the goods which took the contract out of the purview of section 194C of the Act.16. In view of the above discussion, we are of the opinion that the Tribunal committed no error in coming to the conclusion that the case was not covered under section 194C/194J of the Act. It may be that the transportation component of gas was paid separately by the assessee to GAIL. Here also the transportation charges did not depend on the consumption of quantity of gas but was of fixed monthly charges to be borne by the assessee as part of the agreement between the parties. It may be that the transportation component of gas was paid separately by the assessee to GAIL. Here also the transportation charges did not depend on the consumption of quantity of gas but was of fixed monthly charges to be borne by the assessee as part of the agreement between the parties. The ownership of the gas vested in GAIL till it was transported and delivered to the assessee's premises at the outlet of the gas metering station. The pipeline was laid down by GAIL and was permitted to be utilised for further onward transportation of gas to other consumers.17. It would also be appropriate to consider the above issue in the context of what is sale under the VAT Act. We have already quoted herein above the definition of VAT, definition of sale and sale price under the VAT Act.18. The Hon'ble apex court, in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan 43 STC 13 (SC) , while examining as to whether freight was part of the sale price or excluded out of the purview of sale price, after considering the issue at length, was of the view that "any sum charged for anything contained by the dealer in respect of the goods at the time of/or before the delivery thereof, is to be regarded as part of the 'sale price', even if it does not fall within the first part of the definition".19. We are also of the view that the judgment rendered by the Hon'ble apex court in the case of Hindustan Coca Cola Beverage P. Ltd. (supra) is squarely applicable in the instant case as the recipient (GAIL) had duly disclosed the turnover as sale in their books of account and as per the profit and loss account already placed before the Assessing Officer. It is already admitted by the Assessing Officer that such profit and loss account and other necessary information was placed by the assessee of GAIL in the present case so as to prove that the recipient has not only disclosed the turnover but also paid due taxes, if any, and, therefore, the judgment of the Hon'ble apex court is applicable. We fail to understand on the face it as to how the Assessing Officer could distinguish the said judgment which we feel was not proper on the part of the Assessing Officer. We fail to understand on the face it as to how the Assessing Officer could distinguish the said judgment which we feel was not proper on the part of the Assessing Officer. The judgment of the Hon'ble apex court, being law of the land, is required to be followed in letter and spirit by all.20. The circular of the Central Board of Direct Taxes, which has been referred by the Income-tax Appellate Tribunal, bearing No. 13 of 2006, dated December 13, 2006 (supra), in our view, also clarifies the situation envisaged in the present case and considering the circular as well as the facts available on record, we have no hesitation in holding that the agreement of supply of gas by GAIL to the assessee, in the instant case, is a simpliciter transaction of sale and purchase and cannot be termed to be an agreement for work/providing of technical services. The Income-tax Appellate Tribunal has rightly come to the conclusion and, in our view, it is based on appreciation of evidence and facts and no question much less substantial question of law can be said to emerge out of the said order of the Income-tax Appellate Tribunal and we do not find any infirmity or perversity in the order of the Income-tax Appellate Tribunal so as to call for any interference of this court. In our view, no substantial question of law arise out of the order passed by the Income-tax Appellate Tribunal.21. Consequently, both the appeals, being devoid of merit, are hereby dismissed in limine. *******