Tds

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M. Santhosh kumar (Querist)
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05 August 2011 We are buying a boiler from some supplier, they are also doing the erection and commissioning work for which i have to deduct TDS under which Section 194C or 194J? pls send me the reply asap.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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05 August 2011 This is a contract of sale so no TDs will be made
pl refere to the follwoing case
 The Hon’ble Supreme Court in the case of State of A.P. v. Kone Elevators (India) Ltd. (2005) 3 SCC 389 considering the case of installation of lifts held that the contract is a “contract for sale”.
 In the case of Andhra Pradesh State Road Transport Corporation v. DCIT (2002) 74 TTJ 531 (Hyd-Trib), the Hon’ble Bench has held as follows:
“……There may be many common characteristics in both the contract, some neutral in a particular contract and yet certain clinching terms in a given case may fortify the conclusion one way or the other. Al that will depend upon the facts and circumstances of each case. This question to be answered is not an easy and has perplexed the jurists all over. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of the property in and the delivery of the possession of a chattel as a chattel to the buyer. Where the dominant object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed and in anything that can properly become the subject of sale, neither the ownership of materials is conclusive although such factors may be relevant and be taken into consideration in ascertaining and determining whether the contract in question is in pith and substance a contract for work and labour or one for the sale of chattel. These principles have enunciated and culled out from Halsbury Laws of England, 3rd Edn., Vol. 34, 6-7.”
 Certain guidelines have been laid down by the Apex Court in the case of P.S. Company v. State of Andhra Pradesh 56 STC 283 to determine the true construction of a contract so as to determine in turn as to whether transaction covered by that contract is one of sale or of work and labour. Though these guidelines cannot be termed as infallible tests yet they provide valuable help and insights to arrive at correct decision. These guidelines are as under:
(1) The essence of the contract or the reality of the transaction as a whole has to be taken into consideration in judging whether the contract is for a sale or for work and labour.
(2) If the thing to be delivered has any individual existence before the delivery, as the sole property of the party who is to deliver it, then it is a sale.
(3) If the main object of the contract is the transfer from A to B, for a price, of the property in a thing in which B had no previous property, then the contract is a contract of sale.
(4) Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour.
(5) If the bulk of the material used in the construction belongs to the manufacturer who se ls the end-product for a price that will be a strong pointer to a conclusion that the contract is in substance one for the sale of goods and not one for work and labour.
(6) A contract where not only work is to be done but the execution of such work requires goods to be used, may take one of three forms:
(a) the contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price;
(b) it may be a contract for work in which the use of materials is accessory or incidental to the execution of work; or
(c) it may be a contract for supply of goods where some work is required to be done as incidental to the sale;
Where a contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and the other for work and labour.
The second type of work is clearly a contract for work and labour not involving sale of goods.
While the third type is contract for sale where the goods are sold as chattels and some work is undoubtedly done, but it is done merely as incidental to the sale.
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