The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that no Tax Deducted at Source (TDS) shall be deducted as payment to vendors for procuring goods including cloths and footwears were not treated as work contracts.
Shoppers Stop Ltd the assessee is a company which runs retail stores, dealing in clothing, accessories, footwear, jewellery, fragrances etc. A survey was carried out upon the assessee and it was revealed that the assessee was not deducting taxes on payments at appropriate rates and AO also 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.
AO held that as the assessee had entered into agreement to manufacture the specific designer dresses which was specifically covered under the contract manufacturing, the provisions of section 194C of the Income Tax Act 1961 would be applicable.
Manan Mathuria who appeared for the assessee submitted that the SOR arrangements were in the nature of contract for supply of goods and not works contract.
Byomakesh Pradipta Kumar Panda, who appeared for the revenue, submitted that, there were specific agreements with the vendors for the manufacture of products as specified and In terms of the agreements and when approved by the assessee, vendors would send sample products, which if approved by the assessee, would be manufactured by the vendor and then put up for sale in the assessee’. He further contended that contracts between the assessee and vendors were ‘contracts of work & labour’ not ‘contracts of supply’.
The Mumbai Bench of Aby T. Varkey (Judicial Member) and OM Prakash Kant (Accountant Member) dismissed the appeal filed by the revenue and observed that the term ‘work’ has been defined in an inclusive manner and only if the ‘work contract’ undertaken by the payee falls within the above definition of ‘work’, as specifically defined in the section itself, that the provisions of Section 194C would become applicable. We thus agree with the findings of the Ld. CIT(A) that these SOR arrangements were on principal-to-principal basis and therefore in the nature of contract for sale of goods and thus, such an arrangement cannot be categorised as ‘works contract’ as defined in Section 194C of the Act.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
