Supply Contracts are not subject to TDS: ITAT [Read Order]

TCS - Implement - Taxscan

The Income Tax Appellate Tribunal, Vishakhapatnam bench comprising of Judicial Member V Durga Rao and Accountant Member D.S Sunder Singh in its recent order ruled that the provisions of tax deduction at source are not applicable to supply contracts made along with a works contract.

The assesse company entered into two agreements with M/s Bharat Heavy Electricals Limited (BHEL) for indigenous supply and services. According to the assessee, the first contract is for the supply of the machinery and second contract is for commissioning of equipment and both are independent contracts but not interdependent.

They claimed that the first contract constitutes purchases and the provisions of TDS is not applicable whereas the contrat-II is works contract and the TDS was made.

However, AO rejected the claim and said that the works contract covered by the two agreements are nothing but composite contracts for supply and erection of the machinery, interdependent and falls within the purview of chapter XVVIIB for deduction of tax at source. Accordingly, he charged interest u/s 201 & 201(1A) of the Act for non-deduction of tax at source.

Aggrieved assessee went for an appeal before CIT (A) wherein the CIT (A) held that both the contracts are independent; contract no 1 as supply contract and the other one as work contract. So the appellate authority ruled that the assessee required to deduct tax at source on the works contract i.e. contract no. (ii) And assessee need not require to deduct tax at source on the supply contract.

Aggrieved by the order of the CIT (A), the approached the Income Tax Appellate Tribunal.

Dismissing the appeal, the bench held that it is not possible to come to conclusion that due to services required to be rendered under contract no. (ii), the terms of the contract no. (i) Would be in the nature of works contract. The Ld. DR did not bring any other evidence to show that the finding given by the Ld. CIT (A) is incorrect and also did not place any other decision to support the view of the department.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader