Brief of the case
In the case of Commissioner of Income Tax Vs The Executive Engineer Court of Karnataka( Kalaburagi Bench) has held that if a person executing the work, purchases the materials from a person other than the customer, the same would not fall within the definition of ‘work’ under Section 194C of the Act and service rendered by person other than professional is covered u/s 194C.
1. The first issue involved in these appeals is if on the payment made against the supply of materials included in composite contracts for executing Turn Key Projects, provisions under Section 194C of the Income Tax Act, 1961
2. The other issue is if payments made by the assessee to Bellary Computers and IT Solutions, Bellary, towards Bill Management Services are fees for professional and technical services and, therefore, comes within the purview of Section 194J of the Act or payments made towards carrying out work come within the ambit of Section 194C of the Act
High Court decision / observations
- The Tribunal, in its detailed discussion, held that the issue regarding non-deduction/short deduction of tax deducted at source on payments made on supply part of contracts awarded for execution of Turn Key Projects, has, already, been settled by the Jurisdictional High Court in the case of Commissioner of Income-tax and others vs. Karnataka Power Transmission Corporation Limited, the respondent in ITA 337 of 2011. The issue was decided by a Division Bench of this court on March 15, 2012. It is recorded that the decision of the coordinate Bench is also binding on this Bench.
- clause 3.5 of the contract agreement, make it clear that three separate contracts have been entered into, but all the separate contracts were integral parts of a composite contract on single sale responsible basis. The invoices raised on the basis of the said composite contract separately mentioning the value of the material supplied, no deduction is permissible under Section 194C of the Act. The whole object of introduction of that Section is to deduct tax in respect of payments made for works contract. No division is, therefore, permissible in respect of a contract for supply of materials for carrying out the work. It is in a case of distinct contracts. The contract for supply of material being a separate and distinct contract, no division is permissible under Section 194C of the Act.
- Section 194C has suffered an amendment also with effect from October 1, 2009 and the provision has been made very clear without any ambiguity. Thus, we can conclude safely that if a person executing the work, purchases the materials from a person other than the customer, the same would not fall within the definition of ‘work’ under Section 194C of the Act
- Assessee has made payment for Bill Management Services. The services rendered by the agencies engaged by the assessees at Hospet, Bellary and Raichur are not professional services, and, therefore, Section 194J is not attracted. The contract was rightly held to be a service contract by the Tribunal and we, also, feel that it was a contract, which should be covered under Section 194C of the Act.