The judgment of the court was delivered by
L. Narasimha Reddy J.-These appeals under section 260A of the Income-tax Act, 1961, are filed by the Income-tax Department, feeling aggrieved by the common order dated November 20, 2000, passed by the Hyderabad Bench B of the Income-tax Appellate Tribunal in I. T. A. Nos. 893 to 896/Hyd/1998.
The respondent is the Andhra Pradesh State Road Transport Corporation. As part of its activities, it acquires vehicles and operates them on the routes, in various parts of the State. In the process of acquiring buses, as a first step, it purchases chassises of the description, which are suitable for its use, from various manufacturers. Thereafter, steps are taken to get the bodies of buses built, on the chassises. The process is not uniform. Buses of different varieties, such as deluxe, express and ordinary, are thus procured. Tenders are invited from the eligible agencies duly indicating the specifications of buses. On finalising of the contract, the successful fabricator is handed over the chassises, with an understanding that after the body is built thereon, the bus, in its finished form is delivered to the respondent. This activity was being undertaken by the respondent, ever since its inception.
The jurisdictional assessing authority visited the premises of the respondent somewhere in the year 1998. After examining the activity, in the process of getting the bus bodies built by the fabricators, he took the view that it resembles a works contract and the respondent was under an obligation to effect deduction of tax at source. Alleging that such a step was not taken, he passed an order, dated February 6, 1998, in exercise of power under section 201 of the Act and levied tax of Rs. 3,86,45,803 and interest of Rs. 74,74,557, for the assessment years 1995-96 to 1997-98. Aggrieved by that order, the respondent filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) passed an order, dated October 23, 1998, upholding the order passed by the Income-tax Officer but directing further verification on facts. The respondent filed a further appeal before the Tribunal. Through order under appeal, the Tribunal reversed the order of assessment passed by the Income-tax Officer, as confirmed by the Commissioner of Income-tax (Appeals). It was held that section 194C of the Act has no application to the facts of the case.
Sri J. V. Prasad, learned counsel for the appellant, submits that the activity undertaken by the agency that built the bus body is nothing but a works contract, and this is fortified from the fact that the chassises for the bus was supplied by the respondent itself. He submits that once the work was undertaken by the agency to construct a bus body, that too according to the specifications furnished by the respondent, the only conclusion that can be arrived at is that, what was undertaken by the agency was a work and not at all, an activity of manufacture. He contends that it is only when a trade or manufacture was undertaken, that the concept of sale would come into existence and not when a work is done according to the specifications. He placed reliance upon the judgments of the Supreme Court in T. V. Sundaram Iyengar and Sons v. State of Madras, AIR 1974 SC 2309 ; 35 STC 24 (SC). According to him, the judgment of the Supreme Court in Patnaik and Co. v. State of Orissa 16 STC 364 (SC) ; AIR 1965 SC 1655, was under the Sales tax Act and the parameters for imposition of tax under the Sales tax Act, on the one hand, and the Income-tax Act, on the other, are totally different and the same can be treated as binding precedent.
Sri S. Ravi, learned counsel for the respondent, on the other hand, submits that whether one goes by the nature of activity undertaken by the agency that built the bus body or the absence of any supply of material by the respondent, the inescapable conclusion is that it was not a works contract and it is a sale, pure and simple. He contends that except giving specifications and paying money for the work, the respondent did not undertake any activity in the process, much less did it supply the material and the Tribunal has taken the same into account. He has placed reliance upon the judgment of the Supreme Court in Patnaik's case (supra)
The respondent has been carrying the activity of purchasing the chassises and getting the bodies of buses, built thereon, for the past several decades. It was only in the year 1998 that the Income-tax Officer examined the matter from the point of view of section 194C of the Act. He took the view that the activity of building the bus body involves the assignment of a works contract or a work entrusted by the respondent, and thereby, the tax at source ought to have been deducted, while making payment to the fabricating agency.
The entire dispute revolves around the answer to the question as to whether the activity entrusted by the respondent to fabricators of a bus, amounts to a work or works contract on the one hand or a sale. If it is the former, section 194C of the Act gets attracted and if it is the latter, it is not.
It is not difficult to draw the distinction between a work on the one hand, and a sale, on the other hand. Though the activities cannot be described with mathematical precession, the broad features thereof can certainly be discerned.
Work involves the discharge of some functions by a person or agency to whom it its entrusted. Basically, the nature of work is determined by the person, who entrusted it, and the material that is needed for the work is also supplied by him. There may be instances where a part of the material is procured by the person, who undertakes the work. Another distinguishing feature is that if the activity does not involve any expertise on the part of the worker or the agency undertaking the work, it tends to be treated as a works contract. In contrast, if the activity entrusted to an agency is on account of its expertise, and what is supplied at the end of the contract capable of being put to immediate use, is a definite item of goods, it becomes a sale. It is a finished product that comes to be sold, to the person who placed the order.
It is not uncommon that even where an activity of sale, pure and simple takes place, the purchaser has his own liberty to stipulate the specifications. The goods of a particular description are manufactured as a regular activity but the purchaser has a slightly different specification, depending upon the nature of use. In such cases, necessary alterations are made even while keeping the main substratum, intact. By itself, it does not change the nature of transaction or activity. It continues to be sale of the goods, may be with slight alterations. Therefore,
(a) once a finished product of a definite description and shape was brought into existence with the material and expertise of the agency or per son, who undertook the activity, and
(b) a fixed price is paid thereon, the activity tends to be close to sale. Once it is a sale, it ceases to be a work or works contract, from the point of view of section 194C of the Act.
The judgment of the Supreme Court in T. V. Sundaram Iyengar's case (supra), was totally on different set of facts. In that case, the contract related to a different kind of product. By no stretch of imagination, contract of that description can be compared to the one of building bus bodies, which needs lot of expertise, experience and technical know-how. The discussion undertaken by their Lordships about the expressions "works contract and any work" has to be understood on the facts of that case.
It is no doubt true that in Patnaik's case (supra), the Supreme Court was dealt with the matter under the Sales tax Act. Though the parameters of imposition of tax under the Income-tax Act, on the one hand, and the Sales tax Act, on the other hand, are different, once an activity is found to be sale, under one enactment, it is difficult to treat it to be otherwise, under the other, unless a different definition is provided for in that enactment. What is a sale, under the Sales tax Act can certainly be treated as such, under the Income-tax Act also, particularly when the Income-tax Act did not coin any different definition for it. We are in agreement with the order passed by the Tribunal.
Accordingly, we dismiss the appeals. There shall be no order as to costs.
The miscellaneous petitions filed in these appeals shall also stand disposed of.