Income Tax Appellate Tribunal – Patna
North Bihar Power Distribution … vs Acit, Tds Circle, Patna on 6 December, 2019 आयकर अपीऱीय अधिकरण,पटना न्यायपीठ,पटना IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA
श्री चन्द्र मोहन गगग, न्द्याययक सदस्य एवं श्री एऱ.ऩी.साहु, ऱेखा सदस्य के समऺ। BEFORE SHRI CHANDRA MOHAN GARG, JM & SHRI L.P. SAHU, AM आयकर अऩीऱ सं./ITA No.301 to 304/PAT/2018 (ननिाारण वषा / Assessment Year :2014-2015 to 2017-2018)
North Bihar Power Distribution Vs. ACIT, TDS Circle, Patna
Company Limited,
Vidyut Bhawan Bailey Road,
Patna-800001
स्थायी ऱेखा सं ./ PAN No. : AAECN 1588 M
(अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
AND आयकर अऩीऱ सं./ITA No.297 to 300/PAT/2018 (ननिाारण वषा / Assessment Year :2014-2015 to 2017-2018)
South Bihar Power Distribution Vs. ACIT, TDS Circle, Patna
Company Limited,
Vidyut Bhawan
Bailey Road, Patna-800001
स्थायी ऱेखा सं ./ PAN No. : AAECN 1588 M
(अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) यनधागररती की ओर से /Assessee by : Shri D.V. Pathy, Advocate राजस्व की ओर से /Revenue by : Shri Inderjit Singh, CIT-DR सुनवाई की तारीख / Date of Hearing : 19/09/2019
घोषणा की तारीख/ : 06/12/2019
Date of Pronouncement आदे श / O R D E R
Per Bench:

These eight appeals have been filed by two different assessees against the separate orders passed by the CIT(A)-2, Patna, all dated 06.10.2018.
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ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 2. First of all, we may note that the ld. Representatives of both the sides have agreed that the facts and circumstances of all the issues involved in all the above appeals are identical and similar, therefore, all the appeals are heard altogether and disposed off by this consolidated order. For the sake of convenience, we shall take up ITA No.301/PAT/2018 for A.Y.2014-2015 in the case of North Bihar Power Distribution Company Limited, as a lead case for adjudication of all the appeals, wherein the grounds raised by the assessee are as under :-

1. For that the grounds of appeal hereto are without prejudice to each other.
2. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is bad both in law and on facts.
3. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is based on presumption, surmises and conjectures.
4. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is further violative of the settled principles of natural justice in as much as no opportunity much less adequate opportunity was ever afforded to the appellant to furnish its defence in course of assessment proceedings.
5. For that the order of the learned assessing officer and also the learned Commissioner of Income Tax (Appeals) is wholly perverse in as much as the same are contrary to and at variance with the materials available on record.
6. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the two separate and distinct contracts, one in relation to supply of goods and the other in relation to labour and services were composite contract and that the appellant was liable to deduct tax on supply of materials and that the failure rendered him an assessee in default notwithstanding the fact that the two contracts were separate and independent and the contract of supply of goods was out of the purview of section 194C of the Act.
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ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 7. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the appellant was liable to deduct tax at source even in case of the deductee who had incurred loss and that the failure rendered him and assessee in default notwithstanding the fact that there was no liability deduct tax at source in case where the deductee had incurred loss and was not liable to pay tax.
8. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the appellant was liable to pay interest even in case of the deductee who had incurred loss and was not liable to pay tax notwithstanding the fact that there is no liability to pay interest where no tax itself is payable.
9. For that the learned Commissioner of Income Tax (Appeals) has erred in holding that the appellant was liable to pay interest notwithstanding the fact that the liability to pay interest commenced from the date the tax was deductible and culminated on the date on which the return was filed by the deductee.
10. For that in any view of the matter the order of the learned Commissioner of Income Tax (Appeals) to the extent as aforesaid is bad and is therefore, fit to be set aside.
11. For that other various grounds which may be urged at the time of hearing.

3. Though the assessee has raised 11 grounds of appeal, however, the effective ground as argued by the ld. AR before us is with regard to challenging order of CIT(A) in respect of confirming the addition made by the AO for non-deduction of TDS on supply of materials treating the assessee as ‘assessee-in-default’ as per Section 201(1)/201(1A) of the I.T. Act, 1961 4. Brief facts of the case are that the assessee company is a State owned corporation and is responsible for distribution of electricity to residential as well as commercial consumers. A survey u/s.133A of the Act was conducted in the office premises of North Bihar Power Distribution Company Limited, 3rd Floor, Vidyut Bhawan, Bailey Road,
4 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 Patna on 09.11.2017 to verify as to whether the deductor assessee is following TDS provisions as per chapter VIII B of the I.T.Act. During the course of survey operation, the statement of Sri Anurag, Deputy General Manager(Accounts) was recorded on 09.11.2017. Thereafter a show cause notice was issued on 06.11.2017 to furnish the explanation on 22.11.2017. On behalf of the assessee company, Shri Anurag, Dy.

G.M.(Accounts) and Sri Alok Kumar, Sr. Manager (Finance) of the deductor assessee appeared and it was brought to the notice of AO that from the perusal of tender documents floated by the assessee company it is observed by the AO that the assessee company had made composite contract. The scope of the work is that the work is to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture’s quality assurance, transportation, storage, erection including all civil/structural works, site testing commissioning of all items and supply of materials including all associated activities though not exclusively specified herein and are required for completion of the entire works. In this regard, Sri Alok Kumar, Sr. Manager (Finance) submitted the written explanation as under :-

“Regarding explanation of non-deduction of TDS on supply portion. With reference to the subject noted above it is to mention that despite composite work i.e. supply & erection work in tender document our department has issued separate LOA for supply work and separate LOA for erection work to TKC. Separate LOA of supply has been issued
5 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 exclusive for supply work & separate LOA of erection exclusive for erection work. As for as TDS is concerned, we have deducted TDS @2% on all erection work as per provision of section 194(C) of Income Tax & at the same time we have not deducted TDS on supply work as TKC submitted their invoices exclusive of supply of materials as per our LOA.

As per clause 194C (3) of Income Tax (copy attached) where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the explanation tax shall be deducted at source-

(i) On the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) On the whole of the invoice value, if the value of the material is not mentioned ^separately in the invoice.
As above our supply bills of TKC comes under (i) & accordingly we have not deducted TDS as per provision of section 194C of Income Tax Act. Hence, you are requested to kindly exempt for explanation. ”

However, the AO did not accept the explanation offered by the Sr.
Manager (Accounts) on the following grounds :-
From the letter of agreement it is observed that the final payment will be made on completion of all works and on fulfillment by the contractor of all his liabilities under the contract. The bidder is required to submit all bills in triplicate as per the actual work done. Proper item wise accounting for material supply, erection and assets created has to be maintained. There after payment against next supply shall only be released upon completion of 40% erection work as per the contract and certification by Engineer-in-charge regarding completion of 40% erection work in the shape of admitted bills. Commissioning, for the purpose of payments shall mean satisfactory completion of all supplies, erection, commissioning checks and successful completion of all site tests and continuous energisation of the equipment/material at rated voltage as per the contract and to the satisfaction/ approval of the employer.
It implies that supply of materials and equipments are closely associated with the portion of erection works. Hence, the supply works cannot be segregated from the erection portion works. Thus, in view of the above the contract is composite in nature and is basically a work contract.

Accordingly, the AO noted that the assessee has not deducted tax at source on supply of materials as per the provisions of Section 194C of the Act, therefore, he treated the assessee as ‘assessee-in-default’ u/s.201(1)/201(1A) of the Act for not deducting of tax under section
6 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 194C of the Act and passed order u/s.201(1)/1A of the Act, dated 23.11.2017.

5. Feeling aggrieved from the above order of AO, the assessee appealed before the CIT(A), wherein the assessee submitted its written submissions, however, the CIT(A) after considering all the submissions of the assessee and facts available before him and relying on the case laws submitted by the assessee, held that it was a composite contract and the assessee should have deducted TDS. The relevant observations of the CIT(A) are as under :-

I have carefully considered the assessment order, the submissions of the appellant and the remand report and other material on record and the facts and merits of the case. I have also carefully considered the submissions of the appellant with regard to the contracts being distinct and separate and not in the nature of a composite contract.

Admittedly, the contracts were awarded by the appellant assessee to the vendor requiring the vendor to execute the contracts as per terms specified therein. There is no dispute to the said fact. It is also not disputed that the appellant assessee was liable to deduct tax at source as per the provisions of Section 194C of the Income Tax Act, 1961 so far as the payments in respect of execution of work contract is concerned. Further, it is seen that separate contracts were entered into by the appellant assessee. While one of them was in respect of supply of material, the other related to execution of work awarded to the vendor.

In my opinion the two contracts are of the nature of a composite package and that they are inseparable. Both contracts serve the purpose of rendering one single service The scope of the contract includes design, engineering, manufacture, type testing, and training of power grid personnel and supply of, goods. Further, as per the conditions of the supply of contract, the contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, sub-assemblies and, raw materials or any other items used and if is clearly mentioned that no separate claim on these duties will be entertained by the contractors. These are essential elements of a composite contract and therefore I hold that the two contracts , of supply and execution, shall be taken as composite.
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ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 Therefore even in respect of supply of material and applicability of TDS
provisions on the same, it is held that TDS provisions are attracted since
the nature of contracts is such that the first is completely dependent and
interlinked to the second. The two overlap and that the supply of
material was specific and customized for the assessee and had no use
elsewhere. The assessee afforded its facilities and inventory to the
vendor to customize as per its requirements.

There is no controversy either that the appellant assessee has deducted
tax at source in some cases while in other cases; it failed to deduct tax at
source. In its defense , the appellant assessee has placed heavy reliance
on the decision of the Hon’ble Apex Court in the case of Hindustan Coca
Cola Beverages [2007] 293 ITR 226 [SC] and CBDT’s Instruction dated
29.01.1997 to make a case for non-deduction of tax at source. It has also
stated that as per CBDT’s instruction dated 29.01.1997 and the decision
of the Hon’ble Apex Court, it would suffice if the deductee considered the
receipts in its books and files ITR with the Department. This, according
to the appellant would also be in keeping with the provisions of Section
201 [1] of the Income Tax Act, 1961.

The appellant, while advancing this alternative argument, has also cited
the following decisions in his favour to aver that in the light of these
judgments, it cannot be held as an ‘assessee in default’:-

[i] Power Grid Corporation of India ltd. Vs. CIT[TDS], Patna CWJC
No.8472/2013 [Patna] [ii] DCIT[TDS] Vs Sahara India Commercial Corporation Ltd. [2017] 395
ITR 734 [Allahabad] [iii] ITO Vs. Secretary, KUMS, Chhabra, ITA No. 342, 343 & 344 of 2013
[Jaipur] [iv] Haldia Petrochemicals Ltd. Vs. DCIT, ITA No.66/2014 [Kolkata] [v] Reliance Communications Ltd. Vs. ACIT, ITA No.2957/2014
[Mumbai] Before proceeding any further, it would be useful to advert to the facts
of the case once again, if only limited..-to the issue at hand. The
appellant assessee has contended that; it had either deducted tax at
source iri respect of payments made by it to vendors in respect of
service/works contract or where no TDS has been made, the deductee
has itself offered the same for tax in its ITR arid paid taxes thereon or
the vendor is not liable to be taxed, hence no taxes have been paid by it
even though no TDS has been made by the appellant assessee. This
practice, according to the assessee, was in consonance with the
provisions of law and its interpretation enunciated by the Hon’ble
Courts.
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ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 With this factual matrix in the background and after considering the
case laws cited by the appellant assessee, the attention of the Ld.
Counsel of the appellant was invited to the decision of the Hon’ble
Kerala High Court in the case of The Academy of Medical Sciences Vs.
CIT, Kannaur, as reported in [2018] 403 ITR 74 [Kerala] and he was
required to how the ratio in the said case was not applicable in the
present instance. In reply, the appellant assessee asserted that the
decision of the Hon’ble Kerala High court ran ‘counter’ to the decision of
the Hon’ble Apex Court in the Hindustan Coca Cola Beverages case and
further that the Hon’ble High Court had “failed to consider” the
judgment of the Apex Court as well as the amendment of Section 201 in “its true perspective”. For the sake of clarity, the assertion of the
appellant assessee is cited hereunder-

That the appellant with humility submits that the judgment of the
Hon’ble Kerala High Court in the case of Academy of Medical Sciences
(supra) in fact run counter to the judgment of the Hon’ble Supreme
Court of India in the case of Hindustan Coca-Cola (supra) and also the
amended provisions of section 201A of the Act. The appellant submits
that the Hon’ble High Court failed to consider firstly, the judgment of
the Hon’ble Supreme Court in the Hindustan Coca Cola case (supra) and
also the legislative amendment pursuant thereto in section 201A of the
Act in its true perspective. The appellant submits with humility that an
assessee could be in default only in cases where tax was payable and
that in a case where the Act itself did not provide for levy of tax the
deductor not be said to be an assessee in default.

The averments of the appellant assessee have been carefully considered.
It is an admitted fact that the appellant assessee has failed to make TDS
in all the cases. It is also a fact that in some of the cases the deductees
have filed their ITRs and have offered the receipts from the appellant
assessee as their income and have paid taxes thereon. At the same time,
it is also true that in a significant number of cases, neither TDS has been
made nor taxes have been paid by the deductees on their own. The
contention of the appellant that in its case the ratio of Hindustan Coca
Cola Beverages, as expounded by the Hon’ble Apex Court, is applicable
which comes to its aid in the given set of facts and circumstances is only
partially true. While there is no denying the fact that the decision in the
Coca Cola case [supra] is the law of the land but the said needs to be
seen in proper perspective and in its entirety. The Hon’ble Apex Court
while considering the recovery of taxes imposed u/s 201 in the light of
the fact that the deductees had already paid tax on the receipts from the
appellant, held that recovery of tax u/s 201 would tantamount to
double jeopardy and thus, was not proper. It, however, held the deductor
liable to pay interest u/s 201 [1A] for the default in deducting tax in
time. CBDT, too, had expressed a similar view in its Instruction dated
29.02.1997, which was also considered by the Hon’ble Apex Court. In the
present case, no recovery action has taken place and the appellant has
failed to make out a case that taxes have been paid by the deductees and
any recovery of demand would be hit by the decision of the hon’ble Apex
9 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 Court. Instead, it has argued that it is covered by the amended
provisions of Section 201 [1], which again is not entirely correct as we
shall see in the following para.

Section 201 [1] of the Income Tax Act, 1961 and more specifically its
proviso, as amended by Finance Act, 2012, reads as under:-

Consequences of failure to deduct or pay.
201. [(1) Where any person, including the principal officer of a
company,–
(a) who is required to deduct any sum in accordance with the provisions
of this Act; or
(b) referred to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the
whole or any part of the tax, as required by or under this Act, then, such
person, shall, without prejudice to any other consequences which he
may incur, be deemed to be an assessee in default in respect of such tax:
[Provided that any person, including the principal officer of a company,
who fails to deduct the whole or any part of the tax in accordance with
the provisions of this Chapter on the sum paid to a resident or on the sum
credited to the account of a resident shall not be deemed to be an
assessee in default in respect of such tax if such resident–

(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such
return of income;
and
(iii) has paid the tax due on the income declared by him for such return
of income,
and the person furnishes a certificate to this effect from an accountant
in such form as may be prescribed:]
Provided [further] that no penalty shall be charged under section 221
from such person, unless the Assessing Officer is satisfied that such
person, without good and sufficient reasons, has failed to deduct and
pay such tax.]
[(1A) Without prejudice to the provisions of sub-section (1), if any such
person, principal officer or company as is referred to in that sub-section
does not deduct the whole or any part of the tax or after deducting fails
to pay the tax as required by or under this Act, he or it shall be liable to
pay simple interest,–
(i) at one percent for every month or part of a month on the amount of
such tax from the date on which such tax was deductible to the date on
which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on
the amount of such tax from the date on which such tax was deducted to
the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in
accordance with the provisions of sub-section (3) of section 200:]
10 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 [Provided that in case any person, including the principal officer of a
company fails to deduct the whole or any part of the tax in accordance
with the provisions of this Chapter on the sum paid to a resident or on
the sum credited to the account of a resident but is not deemed to be an
assessee in default under the first proviso of subsection (1), the interest
under clause (i) shall be payable from the date on which such tax was
deductible to the date of furnishing of return of income by such resident] (2) Where the tax has not been paid as aforesaid after it is deducted, the
amount of the tax together with the amount of simple interest thereon
referred to in sub-section (1A)] shall be a charge upon all the assets of
the person, or the company, as the case may be, referred to in sub-
section (1).

[(3) No order shall be made under sub-section (1) deeming a person to
be an assessee in default for failure to deduct the whole or any part of
the tax from a person resident in
India, at any time after the expiry of–

(i) two years from the end of the financial year in which the statement is
filed in a case where the statement referred to in section 200-‘has been
filed?

(if) six] years from the end of the financial year in which payment is
made or credit is given, in any other case :

Provided that such order for a financial year commencing on or before
the 1st day of April, 2007 may be passed at any time on or before the
31st day of March, 2011.

(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and
of Explanation 1 to section 153 shall, so far as may, apply to the time
limit prescribed in sub-section (3).] [Explanation.–For the purposes of this section, the expression “accountant” shall have the meaning assigned to it in the Explanation to
sub-section (2) of section 288.] A reading of the same shows that three conditions, as spelled in the
proviso to Section 201[1] of the Income Tax Act, 1961 need to be
satisfied before a deductor can wade out from the rigours of being
treated as an ‘assessee in default’. It is not that if any of the three
conditions are met, an assessee would be exempted from the provisions
of TDS. All the three conditions need to be satisfied simultaneously i.e.
the deductee must have furnished its ITR u/s 139, the receipts must also
have been taken into account for computation of its income for the year
and lastly, taxes on the same must have been paid in its ITR and duly
certified by the Chartered Accountant in the prescribed form. In absence
of the same and even if the conditions have been partially met, the
11 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 deductor is liable to be charged interest u/s 201 [1A] of the Income Tax
Act, 1961 for the intervening period of default. The intention behind the
introduction of the proviso was to clarify the TDS provisions and
attendant eventualities arising out of its compliance. To be precise, the
Explanatory Memorandum, appended to the Finance Bill, 2012 is quoted
hereunder. –
I. Deemed date of payment of tax by the resident payee
Under the existing provisions of Chapter XVII-B of the Income-tax Act, a
person is required to deduct tax on certain specified payments at the
specified rates if the payment exceeds specified threshold. In case of non-
deduction of tax in accordance with the provisions of this Chapter, he is
deemed to be an assessee in default under section 201(1) in respect of
the amount of such non-deduction.

However, section 191. of the Act provides that a person shall be deemed
to be assessee in default in respect of non/short deduction of tax only in
cases where the payee has also failed to pay the tax directly. Therefore
the deductor cannot be treated as assessee in default in respect of
non/short deduction of tax if the payee has discharged his tax liability.

The payer is liable to pay interest under section 201(1 A) on the amount
of non/short deduction of tax from the date on which such tax was
deductible to the date on which the payee has discharged his tax
liability directly. As there is no one-to-one correlation between the tax
to be deducted by the payer and the tax paid by the payee, there is lack
of clarity as to when it can be said that payer has paid the taxes directly.
Also, there is no clarity on the issue of the cut-off date, i.e. the date on
which it can be said that the payee has discharged his tax liability.

In order to provide clarity regarding discharge of tax liability by the
resident payee on payment of any sum received by him without
deduction of tax, it proposed to amend section 201 to provide that the
payer who fails to deduct the whole or any part of the tax on the
payment made to a resident payee shall not be deemed to be an assessee
in default in respect of such tax if such resident payee –

(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such
return of income; and
(iii) has paid the tax due on the income declared by him in such return
of income,
and the payer furnishes a certificate to this effect from an accountant in
such form as may be prescribed.
The date of payment of taxes by the resident payee shall be deemed to
be the date on which return has been furnished by the payer.
It is also proposed to provide that where the payer fails to deduct the
whole or any part of the tax on the payment made to a resident and is
not deemed to be an assessee in default under section 201(1) on account
12 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 of payment of taxes by the such resident, the interest under section
201(1A) shall be payable from the date on which such tax was
deductible to the date of furnishing of return of income by such resident
payee.
In the instant case, admittedly, the deductees have neither filed their
ITRs nor taxes have been paid. Even if it is taken that the deductees
were incurring losses, the primary condition of filing of ITR has to be
met so that the Department can assess the loss and allow it. This has not
been done. This being the case, the main contention of the appellant
does not survive and is liable to be rejected purely on the facts and
circumstances of its case.
Let us now consider the decisions cited by the appellant assessee in
support of its contention.
[i] In the case of Power Grid Corporation of India ltd. Vs. CIT[TDS],
Patna CWJC No.8472/2013 [Patna], the facts were that in spite of due
taxes being paid by the appellant which was also filing its ITRs regularly
and being assessed by the Department, the deductor had made TDS. The
Hon’ble Court held it to be ‘double jeopardy’ and a refund was ordered.
On facts alone, the case of the appellant assessee is distinguishable. The
deductees have not filed their ITRs or paid taxes on income received
from the appellant. Hence, this citation does not aid the case of the
appellant assessee.

[ii] The decision in DCIT[TDS] Vs Sahara India Commercial Corporation
Ltd. [2017] 395 ITR 734 [Allahabad] too, stands on a different footing
altogether. In this case, the Hon’ble ITAT had remanded the case back to
determine as to whether the deductees were liable to pay any tax which
was being contested by the Department before the Hon’ble Allahabad
High Court. There is no such instance in the present case and further the
lack of ITR by the deductee or the finding by the AO of the deductee
about the taxability of the deductee precludes such a possibility. Hence,
this case is of little help to the appellant. On the contrary, it aids the case
of the Department to the extent that the deductees must first file their
ITRs, which is then considered by the A.O. before a finding on TDS or its
exemption, can be given.
[iii] The decision in ITO Vs. Secretary, KUMS, Chhabra, ITA No. 342, 343
& 344 of 2013 [Jaipur] relates to an entity covered by Section 12A,
which had been granted by the Department only, where it was held that
proviso to Section 201 would come into play. In the case of the
appellant, it is not the case. Hence, no application in the present case.
[iv] In the case of Haldia Petrochemicals Ltd. Vs. DCIT, ITA No.66/2014
[Kolkata], rental payments were made to a subsidiary company which
was being assessed to tax regularly and incurring losses year after year.
Besides this; certificate u/s 197 had been granted by the TDS Wing to
the appellant in the subsequent leaving no confusion as regards the
application of section 201 and its proviso, which is not the case here.
Hence, this case is distinguishable on facts.
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ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 [v] The case of Reliance Communications Ltd. Vs. ACIT, ITA No.2957/2014 [Mumbai] involved treatment of ‘roaming charges’ for the purpose of Section 194J and non-cognizance of the order passed by A.O. by the appellate authority. None of the two issues are germane to the matter in hand. Hence, this decision, too, does not help the case of the appellant.
As against this, in the case of The Academy of Medical Sciences’ Vs. CIT, Kannaur, as reported in [2018] 403 ITR 74 [Kerala], the Hon’ble Kerala High Court considered the decision of the Hon’ble Apex Court in the case of Hindustan Coca Cola Beverages [2007] 293 ITR 226 [SC] to hold that the provisions of Section 201 [1] holding the deductor as an ‘assessee in default’ will hold good even in cases where the deductee had a loss. The relevant portion of the decision of the Hon’ble Court is cited as under:- However, to avail of the beneficial provisos under sections 40(a)(ia) & 201(1), there should be (i) return of income under section 139(H), with computation of income including such amounts received, as also (ii) payment of tax on such income. Only if all the three conditions are satisfied, would the beneficial provision be applicable to an assessee who failed to deduct tax at source. In the present case, admittedly, resident-receiver to whom the assessee paid or credited the lease rent has filed a return belatedly and not paid any tax due on the income declared. When there is no tax paid on the income declared; even if for reason of a loss return, there cannot be any claim raised by the assessee in default to absolve him from the consequences flowing from sections 201(1) and 40(a)(ia). He will then be treated as an ‘assessee in default’ and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed.
In the light of the above discussion it is held that the assessee is liable to deduct TDS on both the contracts, supply and execution, as the nature of the two is composite. Further in the light of the clarity emerging from the decision of the Hon’ble High Court of Kerala in the case of ‘The Academy of Medical Sciences’ Vs. CIT, Kannaur, as reported in [2018] 403 ITR 74 (Kerala), the assessee is to be treated as an ‘assessee in default and would be liable to pay the amount of TDS with interest in such cases where the deductee has not filed a return as per provisions of Sec 139 of the I T Act 1961 or has not paid any taxes and filed a return of loss or nil income for the relevant year.
In the result the appeal is partly allowed.

6. Ld. AR before us reiterated the submission made before the lower authorities and in addition to this, he submitted that there was a no liability for deduction of tax at source on supply of goods and there was a separate contract for the supply of goods and for erection and
14 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 commissioning of the goods. Both were awarded separately which has been specified in Schedule 1, 2 & 3. He also referred to the CBDT Circular No.681, dated 08.03.1994 and also referred to Section 194C of the Act. It was also contended by ld. AR that there was no any work executed by the assessee and materials were supplied only as per the specifications given in the contract guidelines and the bills were also separately submitted. The ld. AR further submitted that the two contracts one for supply of goods and the other of erection is separate and distinct contracts and it has in respect of the other contract namely, execution of the works contract deducted tax at source in accordance with section 194C of the Act. The same have also been deposited in the Government Account. The assessee however has not deducted tax at source on the cost of materials supplies made by the contractor under a separate agreement. It was also contended the assessee has not deducted tax at source on a bonafide understanding of section 194C of the Act and the section 194C of the Act clearly contemplates that any person responsible for paying any sum to a resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the specified person shall other time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode whichever
15 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 is earlier, deducted income tax at source. Further, it was stated that it is implicit in section 194C of the Act that there has to be a contract for work in order that tax is to be deducted at source. It was also submitted that unless there is a presence of the contract between the contractor and a contractee for carrying out any work the question of deduction of tax at source would not arise. The ld. AR also submitted that the Central Board of Direct Taxes in its circular has clarified that no deduction of tax at source is to be made in respect of supply of goods. It was also the contention of ld. AR that in the present case the contractor has supplied goods pursuant to the award of a contract according to the specification given. Further it was stated that it has imported such goods into the State of Bihar on the strength of esuvidha permits and also paid Entry Tax thereon. The ld. AR also submitted that factum of payment of Entry Tax show that the assessee at the point of delivery itself is the owner of goods. The assessee stated that the same represents purchases and is accounted as such and after the receipt of goods and its certification by its qualified engineer that the goods imported are as per the specifications and do not suffer from any defect it hands it over to the contractor for using them in erection. Therefore, ld. AR submitted that the supply of equipment are a separate and distinct the same falls outside the purview of section 194C of the Act.

Ld. AR also placed reliance on the decision of Hon’ble Karnataka High
16 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 Court in the case of Commissioner of Income Tax versus Karnataka Power Transmission Corporation Ltd reported in 208 Taxman 73 (Kar) considered an identical case. The ld. AR stated that in that case also there were two separate and distinct contracts for supply of goods and execution of the works contract. The Lordships after hearing the parties held that in a composite contract, if the invoices are raised, separately mentioning the value of the materials supplied, no deduction is permissible under section 194C of the Act. 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 that it should deduct tax in respect of payments made for a works contract. No deduction is permissible in respect of a contract for supply of material for carrying out work. The ld. AR also submitted that that in view of the judgment of the Hon’ble High Court in an identical case read with the circular issued by the Central Board of Direct Taxes, New Delhi the supply of materials by the contractor do not attract deduction of tax at source under section 194C of the Act. Ld. AR also produced a copy of judgment and order of the Hon’ble Karnataka High Court in the case of Commissioner of Income Tax versus Karnataka Power Transmission Corporation Ltd reported in 208 Taxman 73
17 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 (Kar). Ld. AR further relied on the decision of Hon’ble Supreme Court of India in the case of Hindustan Coca-Cola Beverage Private Limited versus Commissioner of Income Tax reported in 293 ITR 226 (SC) wherein it has been held that when there is no dispute that the tax due has already been paid by the deductee assessee, a proceeding under section 201(1) of the Act read with section 201(1A) thereof is untenable and therefore, cannot be continued against the deductor.

After the judgment of the Hon’ble Supreme Court of India in the case of Hindustan Coca-Cola (supra), a proviso to section 201 was inserted. It was further submitted that the issue as to whether tax is to be deducted at source on the contract for supply of goods primarily need to be viewed in view of the judgment of the Hon’ble Karnataka High Court in the case of Karnataka Power Transmission Corporation (supra). The ld. AR also stated that it had in its previous submission also stated that it had paid Entry Tax on Entry of such goods into the State of Bihar and had also generated e-suvidha declaration as prescribed under the Bihar Value Added Tax Act, 2005 in respect of Entry of such goods into the State of Bihar. Further, the it was submitted that in this view of the matter it is in fact the owner of the goods which it parted with after receipt thereof in favour of its contractors for undertaking the installation and commissioning of the project. It was also submitted that in case the issue as to whether fax is
18 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 deductible is answered in the affirmative the liability to pay interest under section 201(1A) of the Act would be consequential. Finally, ld.

AR of the assessee submitted that the issue as to whether an assessee in default on account of his failure to deduct tax at source on the contract for supply of goods has been answered in the affirmative, particularly, in view of the judgment of the Hon’ble Supreme Court of India in the case of Hindustan Coca-Cola (supra); the legislative amendment in section 201 of the Act and the law explained by the Hon’ble Patna High Court in the case of Nai Rajdhani Path Pramandal (supra).

7. It was also the alternative plea of the ld. AR of the assessee that if the contractee has offered to the receipt as income in the relevant assessment year in which he has duly paid tax as per the Income Tax Act, 1961, therefore, in such case, as per the amended provisions, the assessee will not be treated as ‘assessee-in-default’. In this regard, ld.

AR relied on the decision of the Hon’ble Allahabad High Court in the case of CIT(TDS) Vs. M/s Sahara India Commercial Corpn, ITA No.58/2015, order dated 18.01.2017 and submitted that if there is no tax liability on the contractee due to loss or some other reasons, there is no requirement for deduction of TDS by the contractee.

8. On the other hand, ld. DR relied on the orders of lower authorities and submitted that the assessee had grossly failed to deduct
19 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 TDS while making payment for the supply of goods which was unearthed during the course of survey conducted in its premises and he submitted that there was a composite contract, therefore, the assessee should have deducted TDS on the entire payment made to the contractor. Ld. DR also referred to some clauses of the contract which is placed on record. Ld. DR also submitted that the assessee could not produce Form No.26A as issued by the Chartered Accountant in respect of transactions have been considered for the income tax purposes and he further submitted that the case laws relied on by the ld. AR are not applicable in the present facts of the case. He also submitted that ownership on the goods will be transferred in favour of the assessee when the Engineer-in-charge will accept the same, when he will satisfy that the contractor has complied all the directions/provisions. Ld. DR before us filed written submissions vide letter No.F.No.ACIT/TDS Circle/Pat/ITAT/2019-20/ dated 20.06.2019 and the contents of which are as under :-

“It is relevant to mention that the above deductor assessee company is a State owned corporation and is responsible for distribution of electricity to residential as well as commercial consumers. It has also entered into agreement with a number of agencies through contracts for works related to distribution, maintenance, etc. It was brought to the notice of deductor in the course of survey that from the perusal of tender documents floated by the above assessee it was observed that it had entered into composite contract with the contractors. The scope of the work included the work to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture’s quality assurance, transportation, storage,
20 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 erection including all civil/structural work, site testing, commissioning
of all items and materials including all associated activities though not
exclusively specified herein and were required for completion of the
entire work.

It was further observed that it had awarded contracts to specific
persons for supply of materials and erection thereof for a particular job.
Apart from this it is reiterated in the tender document as well as the
letter of award that both these contracts contained Interlinking cross
fall breach specifying that breach of one contract would constitute
breach of other contract. Thus, it was assumed that even though it had
awarded composite contract, but had deducted TDS on the erection part
of the contract works only. It failed to deduct tax at source on the supply
portion of the contract value which was integral part of the composite
contract.

From the letter of agreement it was observed that the final payment
would be made on completion of all work and on fulfillment by the
contractor of all his liabilities under the contract. The bidder was
required to submit all bills in triplicate as per the actual work done.
Proper item-wise accounting for material supply, erection and assets
created had to be maintained. Thereafter payment against next supply
would be released upon completion of 40% erection work as per the
contract and certification by Engineer-in-charge regarding completion
of 40% erection work in the shape of admitted bills. Commissioning, for
the purpose of payments shall mean satisfactory completion of
all supplies, erection, commissioning checks and successful completion
of all site tests and continuous energisation of the equipment/material
at rated voltage as per the contract and to the satisfaction/approval of
the employer.

It implies that supply of materials and equipment were closely
associated with the portion of erection works. Hence, the supply works
cannot be segregated from the erection portion works. Thus, in view of
the above the contract is composite in nature and is basically a work
contract.

Regarding the closure of projects, the contract mentioned the following
clause.

Closure proposal will be prepared by the contractor after completion of
the project or as per decision of NBPDCL for closure of the project The
details of supplied materials and works executed as per the contract will
be prepared by the contractors and reconciled with the engineer to his
satisfaction.

In respect of the balance material the contract applied the following
clause:
21
ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 During closure the unused/ left over materials would be taken back by
the contractor at their cost on permission by NBPDCL.

The clauses in the letter of award clearly indicate that even in a
contract for supply of equipment, it may be noticed that the equipment
which are engineering goods are required to be manufactured strictly
as per the specifications of the assessee and utilized for a specific
requirement of the assessee. The equipments supplied were not
standard goods and were not capable of any use to anyone else and thus
had no commercial value. If the contract is for supply of goods or bought
out goods/the finished product along with its operational manual is
only given. That is not the case here as the scope of the contract includes
design, engineering, manufacture, type testing, and training of power
grid personnel and supply of, goods. Further, as per the conditions of the
supply of contract, the contract price is inclusive of all customs duties,
levies, excise duty, sales-tax and other duties payable on equipments,
components, subassemblies and raw materials or any other items used
and it is clearly mentioned that no separate claim on these duties will be
entertained by the contractors. Clearly it is a composite package, which
does consist of material also. But the entire package is inseparable and
is accordingly to be considered as ‘Rendering of one single service.’ It is
an executory contract and the agreements entered into between the
assessee and the contractors were basically for carrying out work as per
the specifications of the assessee. From various covenants of the
contract and by reading the contracts as a whole, it is clear that the
contract entered into by the NBPDCL with its contractors is not merely a
supply contract but that of a works contract of composite in nature and
any payments made under the contract are covered by provisions of
section 194C of the Act.
From the evidences, it appears that nowhere at any time the so called
purchased items came in the possession of the NBPDCL till the project
was completed. So all along, the materials/ equipment remained under
the custody of the contractor. The possession and real ownership of so
called purchased items remained with contractors till the handing over
of the project on completion by the contractor. Had the items been
purchased by the department then (i) there must have been delivery of the items to NBPDCL, and
(ii) it would have been received and kept under the custody of the department of NBPDCL, and
(i) the NBPDCL would have sent items at the construction sites from its godown as per requirement after obtaining ownership right over such items.

However, no evidences could be produced either during the course of
survey or during the hearing by the assessee deductor which could
establish that materials were ever delivered to NBPDCL As a matter of
fact, the items were received by the contractor himself at the site of the
construction. At no point of time the items came under the possession of
the department of NBPDCL till the project was completed and handed
22 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 over by the contractor to NBPDCL on turnkey basis. In the context. Para
7 (vi) (b) of CBDT Circular No. 681 dated 08-03-1994 may kindly be
referred. It says that “contract for sale” exists where the property/ title
of the article is transferred. Thus, in view of the above it was not the
purchase of materials by the NBPDCL but the delivery of items at
construction site was nothing but the part of composite contract.

But at the time of awarding contract to the vendor the assessee dictated
the following terms and conditions:

All the equipment and materials to be supplied by the contractor shall
be kept completely insured by the contractor at his cost from the time of
dispatch from the manufacturer’s works up to the completion of
erection Resting, commissioning at site and taking over of the project y
NBPDCL in accordance with the contract. (Kindly refer to Annexure- 2)
All the materials, equipment, installations etc. covered under the scope
of these tender specifications shall be kept insured by the contractor
against any loss, damage, pilferage, theft fire etc. from the point of
unloading upto the time of taking over by the NBPDCL including
handing, transportation, storage, erection, testing & commissioning etc.
The premium shall be paid to the insurance company by the Contractor.

It will be the responsibility of the contractor to lodge, peruse and settle
all claims with the insurance company in case of any damage, loss theft,
pilferage, fire etc. and NBPDCL will be kept informed about it. The
contractor shall be responsible for the replacement of losses, damages
etc. in the execution of the contract to any equipment/materials either
supplied by them or received by them from NBPDCL irrespective of the
time of receipt of amount on insurance claim. Any loss on this shall be to
the contractor’s account. The contractor shall be totally responsible
with regard to maintenance of all insurance cover. (Kindly refer to
Annexure- 2) Order for supply of equipment and erection, testing and commissioning
are being placed on two separate contracts i.e. first contract for supply
and second contract for erection and civil works. However, both these
orders/contract shall contain interlinking breach clause specifying that
breach of any one contract will constitute breach of the other contract.
The supplier shall be fully responsible for the work to be executed under
the ‘second contracts’ (i.e. contract of erection and civil works) and it is
mentioned in express language that any breach under the “second
contract” (i.e. contract of erection and civil works) shall automatically
deemed as breach of this contract and any such breach of occurrence,
giving the NBPDCL a right to terminate the “second contract” (i.e.
contract of erection and civil works) and / or recover the damages that
contract, shall give us right to terminate this contract as well. However,
such breach or occurrence in the “second contract” shall not,
automatically relieve the contractor from any of their obligations under
this contract. It is agreed by the contractor that the equipment/
materials supplied by them under this contract, when erected tested and
23 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 commissioned under the “second contract” shall give satisfactory
performance in accordance with the tender documents.

Another characteristic of this arrangement is that the amount of supply
shown in the agreement is not backed by the computation of cost of
purchased items depicting items, number, price etc by NBPDCL. Had it
not been a composite contract then the amount shown against supply
would have been fully backed by the quantitative details of items, price,
cost of transportation etc but the deductor has absolutely no evidences
to prove that amount shown as payment against supply was arrived at
during the tender process. Only the contractor gives invoice as per their
supply and the same contractor is engaged in the erection works in
respect of all the equipments supplied by him. Both these contracts
(supply and erection) contains interlinking cross fall breach clause
specifying that breach of one contract will constitute breach of the other
contract. Title in goods was never transferred prior to erection. The
erection work was not done subsequent to passing of title by execution
of the supply portion. It is a case where the erection portion controls the
supply portion. Thus as the title in the goods were not passed on to the
NBPDCL before the commencement of the works or erection contract,
and as no evidences were shown that the goods/items were shown as its
property and entered the same as such in its stock register before
issuing the same for erection, if is not a contract of sale and Section
194C is applicable. On the contrary the contractor was required to
submit all bills as per actual work done with proper item wise
accounting for material supply erection and asset created has to be
maintained.

In view of the above the contract was treated as composite in nature.
Accordingly, the assessee deductor was treated as an assessee in default
u/s 201(1)/1A of Income-tax Act 1961 for not deducting of tax under
section 194C of Income-tax, Act 1961.

On the basis of the above, orders u/s 201(1)/(1A) were passed on
23/11/2017 by the A.O for the F.Y. 2013-14 to 2016-17 and demand
notice was served upon the assessee.

Further, the above assessee deductor filed appeal against the order of
A.O before Ld. Commissioner of Income-tax (A) who vides his order
dated 06-10-2018 in No. ITBA/APL/S/250/2018-19/1012849501(l) has
confirmed that the AO was correct in holding the said contract as
composite one. Accordingly the effect of above appellate order of Ld CIT
(A) in No ITBA/APL/S/250/2018-19/1012849501(l) dt. 06-10-2018
was passed & served on the deductor assessee along-with the fresh
modified demand notice.

Now to brief:-
(1) Though the first part and the second part is mentioned as the “supply contract” & “Erection contract” both these contract would
24 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 contain interlinking cross fall breach specifying that breach of one
contract will constitute breach of the other contract.

(2) The said contract is in a condition of turnkey project. (Kindly refer
to Annexure-1) (3) Property title was not delivered to NBPDCL unless the project is
complete in all respect i.e the property commissioned and handed over
in “ready to use” condition to the deductor company. The goods were
never transferred prior to erection.

(4) Final payment of supply will be done after successful erection and
commissioning of the project.

(5) Supplied material was as per the specification of NBPDCL so the
said supply is found to be customized one.

Rebuttal to the citation of Circular 681 by the deduction.

The instant case in not simply a case of either “contract for sale” or “contract for work” as argued by the deductor but this case involves the
question of composite or indivisible contract. As per Para-7 (vi)(b) of the
CBDT Circular 681, cited by the deductor a contract will be a “contract
for sale” only when the property in such article or thing passes to the
deductor. But in the instant case, property of the article/goods/things
did not pass to the deductor unless the whole contract including the job
of erection and commission is completed and handed over the NBPDCL
in “ready to use” condition. Therefore citing this CBDT Circular does not
help the deductor, moreover it corroborates the conclusion of composite
contract in this case.

Rebuttal to the citation of the judgment of Bombay High Court in case of
CIT DS Vs. M/s Glemark Pharmaceutical ltd. (ITA No. 2256 of 2009) The deductor cited the above case in its favour. However the main issue
in this case revolves around the meaning of “contract for sale” and “Works contract” and it did not deliberate on the issue of “indivisible/
Composite Contract” and the “Divisible/Separate contract”. Therefore it
is a clearly a distinguishable case and hence not relevant to the facts &
circumstances of the instant case.

However, as per the observation of the Hon’ble Apex court in case of
Hindustan Shipyard Ltd. Vs. State of A.P., single evidence would not be
sufficient to treat an assessee as assessee in default for non- deduction of
TDS u/s 194C and the entirety of the facts has to be taken into
consideration in order to reach at a proper conclusion. In view of the
aforementioned analysis of the contract details analyzing the totality of
the facts and circumstances it is logically concluded by the A.O as “Composite Contract” which is further confirmed by the LD. CIT (A) after
discussing thread bare on merit.
25
ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 In addition to the above submissions, ld.DR also submitted that both the authorities below have rightly held that the assessee to be treated as assessee-in-default and liable to pay the amount of TDS with interest on the amount of supply of materials which was part and parcel of the composite contract. The supply of material cannot be segregated with other contracts.

9. After hearing both the sides and perusing the entire material available on record, we find that the CIT(A) while dealing with the issue has observed that the deductees have neither filed their ITRs nor taxes have been paid. Even if it is taken that the deductees were incurring losses, the primary condition of filing of ITR has to be made so that the department can assess the loss and allow it. Accordingly, the CIT(A) has rejected the contention of the assessee. On perusal of the assessment order, we find that during the course of survey it was brought to the notice of deductor that the assessee had entered into composite contract with the contractors. The scope of the work included the work to be executed on turnkey basis, the scope of which included survey, network, design, supply, manufacture’s quality assurance, transportation, storage, erection including all civil/structural work, site testing, commissioning of all items and supply of materials including all associated activities though not exclusively specified herein and were required for completion of the
26 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 entire work. It was further observed that it had awarded contracts to specific persons for supply of materials and erection thereof for a particular job. Apart from this, it is reiterated in the tender document as well as the letter of award that both these contracts contained Interlinking cross fall breach specifying that breach of one contract would constitute breach of other contract. Thus, it was assumed that even though it had awarded composite contract, but had deducted TDS on the erection part of the contract works only. It failed to deduct tax at source on the supply of materials portion of the contract value which was integral part of the composite contract. From the letter of agreement, it was observed that the final payment would be made on completion of all work and on fulfillment by the contractor of all his liabilities under the contract. The bidder was required to submit all bills in triplicate as per the actual work done. Proper item-wise accounting for material supply, erection and assets created had to be maintained. Thereafter payment against next supply would be released upon completion of 40% erection work as per the contract and certification by Engineer-in-charge regarding completion of 40% erection work in the shape of admitted bills. Commissioning, for the purpose of payments shall mean satisfactory completion of all supplies, erection, commissioning checks and successful completion of all site tests and continuous energisation of the equipment/material at
27 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 rated voltage as per the contract and to the satisfaction/approval of the employer. It implies that supply of materials and equipment were closely associated with the portion of erection works. Hence, the supply works cannot be segregated from the erection portion works. Thus, in view of the above the contract is composite in nature and is basically a work contract. We observed from the work award agreement that the supplier shall note that the total price of the contracts is the accepted price for carrying out the contract as per terms and conditions and thus the billing break up that will be issued from time to time against any of the contracts in future, will only meant for regulating the payments based on completed supplies/works. Therefore, the award of separate contracts shall not in any way dilute the responsibility for successful competition of the facilities, achieving the guaranteed performance of the erection/installation, proper O&M of the erection/installation after final acceptance by the corporation, etc as per the tender specification and a breach in one contract shall automatically be construed as a breach of the other contracts which will confer a right on the corporation to terminate other contracts also at the risk and the cost of the supplier.

10. Regarding the closure of projects, the contract mentioned the following clause. Closure proposal will be prepared by the contractor after completion of the project or as per decision of NBPDCL for closure
28 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 of the project. The details of supplied materials and works executed as per the contract will be prepared by the contractors and reconciled with the engineer to his satisfaction. Therefore, the CIT(A) observed that the two contracts are of the nature of a composite package and that they are inseparable. Both contracts serve the purpose of rendering one single service. The scope of the contract includes design, engineering, manufacture, type testing, and training of power grid personnel and supply of, goods. Further, as per the conditions of the supply of contract, the contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, sub-assemblies and, raw materials or any other items used and it is clearly mentioned that no separate claim on these duties will be entertained by the contractee. These are essential elements of a composite contract and therefore the CIT(A) held that the two contracts of supply and erection, shall be taken as composite contract.
10. Before us, ld. AR placed reliance on the decision of Hon’ble High Court in the case of M/s Sahara India Commercial Corporation Ltd.(supra), wherein the Hon’ble High Court has affirmed the view taken by the Tribunal in restoring the issue to the file of AO holding that if there is no liability of payment of tax by recipient-assessee, the question of deduction of tax by assessee in default would not arise and
29 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 the question of payment of tax by such recipient-assessee also would not arise, therefore, in such case interest also could not have been charged. The relevant observations of the Hon’ble High Court are as under :-

“3. The substantial question of law raised in these appeals is as under: “Whether the Tribunal was justified in holding that deductor is not liable for interest under Section 201(1A) of Income Tax Act, 1961 if the deductee has returned losses for relevant years and it will not make any difference if the assessment of the deductee was completed at positive income. The final demand position is to be seen on finality of the appellate proceedings which ultimately becomes the taxes due from deductee and if the deductee has not challenged the addition made by AO then demand on assessed income becomes finally the taxes due from deductee. Therefore, if finally assessed income of deductee is positive and tax demand is created on it thhen deductor has to pay interest under Section 201(1A) till the demand is not paid by the deductee.”

4. In all these appeals, question relates to liability of interest of Assessee under Section 201(1A) of Income Tax Act, 1961 (hereinafter referred to as the “Act, 1961”). On this aspect, Tribunal has recorded its finding as under:-

“Before the lower authorities, except contentions of the assessee, no evidence was placed to substantiate that the recipient, M/s Sahara Airlines Ltd. has suffered loss in all the impugned assessment years. Though it was specifically claimed before us that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, but no evidence was placed. Therefore, it cannot be conclusively held that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years and there was no tax liability on the receipts at any point of time. Thus, this fact requires verification by the Assessing Officer. If it is established that the recipient had filed all its returns for these years declaring loss in all the impugned assessment years, interest under Section 201 (1A) of the Act cannot be charged against the assessee. It may be that against loss declared by the recipient in its return, ultimately the assessment was completed at a positive income but in that situation also, that demand is on account of different between the returned income and assessed income and not because of non deduction of TDS by the assessee and hence it will not alter the situation particularly if that assessee has challenged the addition in his hands in appeal. Accordingly the order of the ld. CIT(A) on this issue is set aside
30 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 and the matter is restored to the file of the Assessing Officer for verification and adjudication of the issue in terms indicated above after affording an opportunity of being heard to the assessee. If it is found that in the return of income filed for these years by the deductee, it has included the impugned amount in its receipts and there is loss as per return, no demand can be raised u/s 201(1A) on the present assessee.”

5. Question about liability of interest under Section 201(1A) has also been considered by this Court in Writ Tax No. 870 of 2006 (Ghaziabad Development Authority Vs. Union of India and others), decided on 03.08.2016 wherein it has been held that it is compensatory and if recipient-Assessee has already paid tax or not liable to pay any tax whatsoever, obviously no interest under Section 201(1A) of Act, 1961 could have been recovered from alleged Assessee in default for the reason that interest could have been charged for the period when TDS fell due and actual amount of tax is paid by recipient-Assessee. If there is no liability of payment of tax by recipient-Assessee, the question of deduction of tax by Assessee in default would not arise and the question of payment of tax by such recipient-Assessee also would not arise. In such case interest also could not have been charged. Hence, on the question of liability of interest, Tribunal has rightly observed that this aspect shall be examined by Assessing Officer and thereafter he shall pass a fresh order.

6. We confirm the view taken by Tribunal and answer the question formulated above accordingly. Let this matter be examined by Assessing Officer afresh in the light of directions given by Tribunal as quoted above.”

Respectfully following the above decision of the Hon’ble High Court, we remit the issue to the file of AO for verification and adjudication of the issue after affording an opportunity of being heard to the assessee as per the observations made by the Hon’ble High Court supra. If it is found that in the return of income filed for these years by the deductee, it has included the impugned amount in its receipts and there is loss as per return, no demand can be raised u/s 201(1A) of the Act on the present assessees. In case of found otherwise, the charge of interest u/s.201(1A) is liable to be paid by the appellant/assessees. The ld. AR
31 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 has also Accordingly, the grounds raised by the assessee in ITA No.300/PAT/2018 in the case of assessee-North Bihar Power Distribution Company Limited are allowed for statistical purposes.
11. Since similar and identical grounds/issues raised in other connected appeals of both the assessees i.e in ITA Nos.302 to 304/PAT/2018(North Bihar Power Distribution Company Limited) and in ITA Nos.297 to 300/PAT/2018(South Bihar Power Distribution Company Limited), therefore, our observations made in ITA No.301/PAT/2018 in case of North Bihar Power Distribution Company Limited for the Assessment Year 2014-2015, shall apply mutatis mutandis to all the appeals under consideration.
12. In the result, all appeals of both the assessees are allowed for statistical purposes.

Order pronounced in pursuance with Rule 34(4) of ITAT Rules, 1963 by putting the copy of the same on Notice Board on 06/12/2019 at Patna.

Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER
पटना /Patna; ददनांक Dated 06/12/2019
Prakash Kumar Mishra, Sr.P.S
32 ITA No.301 to 304/PAT/2018 & ITA Nos.297 to 300/PAT/2018 आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :
1. अऩीऱाथी / The Appellant- .
2. प्रत्यथी / The Respondent-
3. आयकर आयक् ु त(अऩीऱ) / The CIT(A),
4. आयकर आयक् ु त / CIT
5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, पटना / DR, ITAT, Patna
6. गार्ग पाईऱ / Guard file.
सत्यावऩत प्रयत //True Copy// आदे शानुसार/ BY ORDER, (Senior Private Secretary) आयकर अपीऱीय अधिकरण, पटना / ITAT, Patna

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