ACIT (OSD) TDS 2(2) Vs Shoppers Stop Limited (ITAT Mumbai)
ITAT Mumbai held that payment made under the Sales or Return agreement are not in nature of ‘works contract’ but ‘purchase of goods’ and hence not liable to deduct tax at source under section 194C of the Income Tax Act.
Facts- The main grievance of the Revenue is directed against the action of the Ld. CIT(A) in holding that, the payments made by the assessee to several vendors in relation to its procurements from them, consisting of apparels/ clothes/ footwear/ goods manufactured by these vendors, were not in the nature of ‘works contract’ but ‘purchase of goods’ and that, therefore, the provisions of Section 194C of the Income-tax Act, 1961 [in short ‘the Act’] invoked by the Assessing Officer [in short ‘AO’] in relation thereto, were not applicable.
Conclusion- We agree with the Ld. CIT(A) that, the mere deputation of sales staff, subsequent to sale of goods, cannot be viewed adversely so as to allege that these SOR arrangements are in the nature of ‘works contract’.
Held that the payments made under the Sales or Return (SOR) agreements did not fall within the ambit of Section 194C of the Act and therefore the assessee did not have any liability to deduct tax at source on such payments u/s 194C of the Act. Accordingly, all the grounds raised by the Revenue stands dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal is preferred by the Revenue against the order of the Ld. (Appeals) tax-Commissioner of Income-52, Mumbai [in short ‘Ld. CIT(A)’] dated 30.07.2021 for A.Y. 2017-18.
2. The main grievance of the Revenue is directed against the action of the Ld. CIT(A) in holding that, the payments made by the assessee to several vendors in relation to its procurements from them, consisting of apparels/ clothes/ footwear/ goods manufactured by these vendors, were not in the nature of ‘works contract’ but ‘purchase of goods’ and that, therefore, the provisions of Section 194C of the Income-tax Act, 1961 [in short ‘the Act’] invoked by the Assessing Officer [in short ‘AO’] in relation thereto, were not applicable.
3. Brief facts as noted by the AO were that, the assessee is a company which
runs retail stores, having 83 stores in 38 cities across India, and that it deals in clothing, accessories, footwear, jewelry, fragrances, cosmetics, health and beauty products, home furnishing and décor products. A survey action u/s 133Aof the Actwas carried out upon the assessee on 01-08-2018 and during the post survey analysis it was revealed that the assessee was not deducting taxes on payments at appropriate rates. In the course of the proceedings conducted u/s 201(1) of the Act, the AO noted that the assessee had agreements with various vendors in terms of which the assessee would sell apparels/goods/cloths/footwear/various items through its retail outlets as well as its online marketplace, and that such items were being manufactured by these vendors as per the designs approved by the assessee. The AO, accordingly, issued the following show cause to the assessee:
“On perusal of the agreement with regard to the purchases with the parties enlisted below it is seen you have entered into agreement to manufacture the specific designer dresses which is specifically covered under the contract manufacturing hence the provisions of section 194C is squarely applicable on the said expenditure to them. Please explain.
i. Such Lifestyles Pvt Ltd ii. Beebay kids apparels pvt ltd iii. Dream beams iv. Shakti sales corporation vi. Prime marketing vii. P & G enterprise pvt ltd vii, Keshvi Fashion. Etc.” (emphasis supplied)
4. In response to the above, it is noted that the assessee submitted that, it did not have any agreement or contract for manufacture with any of these parties and that this averment was incorrect. It was explained that the assessee had purchased goods from these parties under their ‘Sales or Return’ model in terms of which the goods were sold by the vendor under their respective brand names and upon issuance of tax invoices. It was also submitted that the risk & title in the goods stood transferred to the assessee upon delivery of goods. In support of their contention, the assessee furnished sample copy of Sale or Return arrangement with a vendor along with details of purchases whose value was in excess of Rs. 5 lacs. The relevant portion of the submission of the assessee is set out below, for the sake of convenience.
