(Per : HONOURABLE MR.JUSTICE N.V. ANJARIA) 1. The present tax appeal is preferred by the Revenue under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for sake of brevity), raising the following two questions proposing them as substantial questions of law :
“(A) Whether the Appellate Tribunal is right in law and on facts in deleting the disallowances of Rs.38,43,900/- made u/s.40(a)(ia) in respect of transportation charges ?
(B) Whether the Appellate Tribunal is right in law and on facts in holding that the transportation charges paid as per contract by assessee to GAIL were in the nature of supply of goods ?”
1.1. The Order dated 30.06.2011 of the Income Tax Appellate Tribunal, Ahmedabad Bench ('C') in I.T.A.No.3323/Ahd./2010 is impugned in this appeal, whereby the tribunal has allowed the appeal of the respondent assessee by ordering deletion of amount of Rs.38,43,900/-, being the transportation charges paid by the assessee to Gas Authority of India Ltd. (GAIL) towards the gas transported under a contract.
2. The assessing officer while passing the order of assessment in respect of assessment year 2005-06, disallowed under section 40(a)(ia) of the Act, Rs.38,43,900/- paid under different invoices on the ground that the assessee had failed to observe the provisions of section 194C of the Act by not deducing the tax at source on the said amount. Section 40(a) (ia) provide that any amount of interest, commission, brokerage, transportation charges, etc. shall not be deductible in computing the income chargeable under the head 'profits and gains of business or profession', section 194C of the Act is not complied with.
2.1. The Commissioner of Income Tax (Appeals) upheld the disallowance, taking a view that the assessee had entered into contract for transportation and that the contract was a Works Contract and not a contract of sale in which case only the provisions of section 194C would not apply.
3. The Income Tax Appellate Tribunal, following its own decision in case of M/s. Krishak Bharati Co- operative Ltd. held that the assessee was not required to deduct tax under section 194C and consequentially the transportation charges could not have been disallowed.
3.1. Learned Senior Standing Counsel Mr. Manish Bhatt assisted by Mrs. Mauna M. Bhatt for the Income Tax Department fairly submitted that the decision in M/s. Krishak Bharati Co-operative Ltd. relied upon by the tribunal was subject matter of challenge before this Court in Tax Appeal no.618 of 2010. In that appeal, a Division Bench of this Court considered the very question and answered the same against the Revenue and the tax appeal was dismissed.
4. In the aforesaid Tax Appeal No.618 of 2010, the Division Bench of this Court upon considering combined efect and import of various terms and conditions in the agreement between M/s. Krishak Bharati Co- operative Ltd. and GAIL, culled out salient features and on the basis of that, the Court concluded that the agreement was one of sale of goods. Those features emanating from the terms and conditions of the agreement are shortlisted herein,
(i) The gas was to be delivered by the seller to the buyer through pipelines and equipments, which were owned and maintained by the seller. The pipelines were laid down at seller's expenses.
(ii) The seller had right to use such pipelines for distribution of gas in favour of others.
(iii) The title of gas was provided to pass from the seller to the buyer at the point of delivery of gas. It was to be the point at the down-stream flange of the pipeline at the out-let of Gas Metering Station.
(iv) It was considered to be a significant aspect that the ownership of the gas passed on GAIL to the assessee only at the point of delivery and not therebefore.
(v) The transportation of gas was only a part of the entire transaction which essentially was a transaction of sale of gas.
(vi) Laying down the pipelines and supplying the gas through them were the steps in furtherance of the Contract for sale.
(vii) There was a clear understanding between the parties that the ownership of gas would pass on to the buyer at the delivery point, which in other words is significant with the transport of gas by the seller was an action in execution of the Contract for sale of gas.
(viii) Even as the transportation component of gas was paid separately by the assessee to GAIL, the transportation charges were dependent upon the consumption of quantity of gas.
(ix) These charges were in the nature of fixed monthly charges to be borne by the assessee as part of the agreement.
4.1. In the present case also, it was noticed that clauses of agreement entered into between the respondent assessee and the GAIL were similar and nearly the same as they were in the aforementioned case. The tribunal interpreted those clauses by applying principles laid down in various judicial pronouncements distinguishing between a Works Contract and a contract of sale.
4.2. The aforementioned features noticed by the Division Bench of this Court in case of M/s. Krishak Bharati Co-operative Ltd. hold true in the present case where the facts are similar.
5. It was on such basis and premise that in the impugned Order, the tribunal observed and held as under :
“A distinction between a sale and works contract is very significant particularly under the sales-tax laws. Before the introduction of tax on work contract, the sale-tax levied on sales and it could not be levied on works contract. What is the exact scope of expression “work contract” has been considered by the Hon'ble Supreme Court in a number of cases and by and large distinction between the two also seems to have been adopted for the purpose of Income-tax Act. In the present case, it is a contract for purchase of gas from various gas suppliers up to the assessee's gas metering station at Hazira, Surat. Transportation charges in the gas supply contract are part of purchase cost of gas...
The object of the contract between suppliers of gas and assessee is essentially transfer qua Chattel i.e. natural gas up to the factory premises at Hazira until then the property in question i.e., the gas is of suppliers. This being the factual position, the payment for the purchase of natural gas and as per the contract of the assessee, it is only asking for supply of natural gas from the producers for the purposes of use of this gas for burning in assessee's factory for manufacturing of urea. Clearly this is a contract for sale of goods and not a work contract as held by the lower authorities.”
6. In view of above, the Tribunal's Order deserves to be upheld. No error is committed. No substantial question arises for consideration.
7. Accordingly, the Tax Appeal is dismissed.
(V. M. SAHAI, J.) Sunil W. Wagh (N. V. ANJARIA, J.)