ESSAR OIL LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE appellant, in the present Tax Appeal, has challenged the Order of the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot ["Tribunal" for short] dated 28th February 2000 passed in ITA No. 193/Rjt/1999 for A.Y 1998 -99. This Court, while admitting the appeal, has framed following question as substantial question of law :

(2.) TO briefly state the facts ­ the appellant was in the process of setting up an Oil Refinery at Vadinar, District - Jamnagar. For the purpose, the appellant entered into three different agreements with Messrs. Essar Projects Limited; viz., [1] for supply of Indian sources equipments & materials; [2] for labour -cum -erections; and [3] for construction of the refinery, for a sum of Rs. 1,100 Crores; Rs. 438 Crores & Rs. 455 Crores respectively.

(3.) THE appellant -Company, while submitting a letter dated 18th May 1998 providing the details of payments made to Messrs. Essar Projects Limited, made a mention of payment made towards procurement of material to the tune of Rs. 72.60 Crores. The I.T.O with regard to the supply of these materials, discussed the issue in its order and held that the circular relied upon by the appellant being Circular No. 8 of 8th March 1994 has been issued after the judgment of the Apex Court in ACC Limited v. CIT, after which the scope of Section 194C of the Act has been enlarged by the Finance Act, 1995 w.e.f 1st July 1995. The said Section provides that any person responsible for paying any sum to any resident [contractor] for carrying out any work in pursuance of contract between the contractor and bodies mentioned therein shall, at the time of credit of such sum to the account of the contractor or payment thereof in cash or by issue of cheque or draft or any other mode; whichever is earlier, deduct an amount equal to 2 percent of such sum as Income Tax on the income comprised therein. Circular No. 681 stipulates that these provisions shall now apply to all types of contracts for carrying out any work; including the transport contracts, service contracts, advertisement contracts, broadcasting contracts, tele -casting contracts, labour contracts, material contracts and work contracts. The Assessing Officer was also of the opinion that the term "material contract" would mean that, "any contract for supply of materials where the principal contract is for work and labour, and not contract for sale of materials."