Case Law Details
Brief of the Case: In the case of DCIT vs. Shalimar Chemical Works Ltd. the Hon’ble Kolkata ITAT held that manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer is not included in the definition of the “Work” as described in the Sub-clause (iv) of the Explanation to Section 194C of the Income Tax Act, 1961.
Facts of the Case: Assessee is a Limited Company and is into the business of manufacturer of coconut oil, spices, mustered oil and grocery items. The assessee-company does its business through a network of distributorship throughout India. During the course of assessment proceedings, the AO found that the assessee has incurred expenses of Rs.4,04,12,991/- on the purchase of packaging material. These packaging materials were made and designed at the instruction of the assessee by the party. The assessee placed the order for the supply of printed materials as per specification like size, labels, colour, design, particular type of paper, specific content etc. with the exclusive right of ownership on such materials. From the available records and information the AO held that this transaction of printing the packaging material is a work within the meaning of the explanation III to section 194C of the Act and there exist a work contract between the parties for the supply of the requisite materials and it is not a case of simple purchase of material because a particular type of work is involved. In support of his claim, the AO has referred the Circular issued by CBDT No. 715 dated 08.08.1995 wherein the question No-15 clearly states that Sec. 194C of the Act would apply in respect of supply of printed material as per prescribed specification. The AO also contended the several case laws in support of his claim.
Accordingly, AO has disallowed the expenses for the violation of Sec. 194C of the Act and added to the income of assessee.
Contention of the Assessee: Before Ld. CIT(A) assessee has submitted that the expenses on the packaging material was for the contract of sale and not for contract of job work. In most of the cases these packaging material were sold by the parties after realizing the excise duty, vat wherever applicable and there is no element of job work. The materials were also not supplied by the company and hence no TDS was deducted. The assessee also submitted the CIT(A) order where such transactions were regarded as contract for sale against the order of DCIT TDS in its own case of the assessee for the F.Y. 1996-97, 1997-98 and 1998-99.
Before the Hon’ble ITAT ld. AR submitted circular No. 681 dated 08.03.1994 in the contest of Sec. 194C of the Act, wherein in terms of clause(b) of sub-clause (6) of clause (7) it is mentioned that where, however, the contractor undertakes to supply any article or thing fabricated according to specification given by the Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of Section 194C of the Act.
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