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Commissioner Of Income-Tax v. Dabur India Ltd.
Factual and Procedural Background
The case concerns the classification of a contract involving the supply of corrugated boxes with printed labels, specifically whether the contract constitutes a sale of goods or a contract for work and labour. The Income-tax Appellate Tribunal (Pune Bench) had to determine if the contract fell within the ambit of section 194C of the Income-tax Act, 1961, which relates to contracts for work and labour. The Tribunal relied on precedents to conclude that the dominant object of the contract was the supply of goods (corrugated boxes), and consequently set aside the demand raised against the assessee under sections 201(1) and 201(1A) of the Income-tax Act. The Revenue challenged this view before the court.
Legal Issues Presented
- Whether the contract for supply of corrugated boxes with labels printed on them is a contract for sale of goods or a contract for work and labour.
- Whether such a contract falls within the purview of section 194C of the Income-tax Act, 1961.
Arguments of the Parties
Revenue's Arguments
- The Revenue contended that the addition of skilled labour in printing the labels on the boxes takes the contract out of the category of a simple contract for supply of goods.
- Relying on the Supreme Court decision in State of Tamil Nadu v. Anandam Viswanathan, the Revenue argued that the involvement of skilled labour and the nature of the work should classify the contract as for work and labour rather than sale of goods.
Tribunal's (Assessee's) Arguments
- The Tribunal held that the dominant object of the contract was the supply of goods (corrugated boxes) despite the printing of labels.
- Relying on the Supreme Court's decision in State of Himachal Pradesh v. Associated Hotels of India Ltd. and the Pune Bench's decision in Wadilal Dairy International Ltd. v. Asst. CLT, the Tribunal reasoned that the contract was essentially for sale of goods and not for work and labour.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Himachal Pradesh v. Associated Hotels of India Ltd., [1972] 29 STC 474 | Established the test for distinguishing contracts of sale from contracts for work and labour based on the dominant object being transfer of property or possession of chattel. | Applied to determine that the main object of the contract was sale of goods (corrugated boxes), despite printing labels. |
| Wadilal Dairy International Ltd. v. Asst. CLT, [2001] 118 Taxman-Mag 141 | Held that buying packing material with minor printing is tantamount to purchase of goods and not a contract for work and labour. | Relied upon to support the view that supply of corrugated boxes with printed labels is a contract for sale of goods. |
| State of Tamil Nadu v. Anandam Viswanathan, [1989] 73 STC 1 | Held that printing of question papers involving skill and confidentiality is a contract for work and labour, not sale of goods. | Considered and distinguished on facts; the present case did not involve skill or confidentiality in printing labels, so the precedent was not applicable. |
Court's Reasoning and Analysis
The court analyzed the nature of the contract by applying the test from the Supreme Court’s decision in Associated Hotels of India Ltd., which focuses on whether the dominant object is the transfer of property in goods or the provision of skilled labour. The Tribunal's finding that the contract’s predominant purpose was the supply of corrugated boxes was upheld. The court distinguished the facts from those in State of Tamil Nadu v. Anandam Viswanathan, where the work involved skill and confidentiality in printing question papers, which was not the case here. The court found no merit in the Revenue’s argument that the printing of labels involved special skill or secrecy. Consequently, the contract was correctly classified as a contract for sale of goods, excluding it from section 194C of the Income-tax Act.
Holding and Implications
The court dismissed the Revenue's challenge, affirming the Tribunal’s decision that the contract was for sale of goods and not for work and labour under section 194C of the Income-tax Act.
This decision directly affects the parties by negating the demand raised under sections 201(1) and 201(1A) against the assessee. The court did not set any new precedent beyond applying existing legal principles to the facts of this case.
1. In State of Himachal Pradesh v. Associated Hotels of India Ltd., [1972] 29 STC 474 the Supreme Court declared that if the main object underlying the contract is to transfer property in or delivery of possession of a chattel as chattel, then the contract is one of sale. The test, observed their Lordships, is whether or not the work and labour bestowed ended in anything that can properly become the subject of a sale. Neither the ownership of the materials nor the value of the skill and labour, as compared with the value of the materials is conclusive, although such matters may be taken into consideration in determining whether the contract is in substance one for work and labour or one for the sale of chattel.
2. Relying upon the above decision, the Income-tax Appellate Tribunal of Pune Bench in Wadilal Dairy International Ltd. v. Asst. CLT, [2001] 118 Taxman-Mag 141 held that buying packing material was tantamount to purchasing goods for the purpose of packing and that just because some printing was required to be done by the supplier on such goods was of no consequence.
3. In the instant case also the supply of corrugated boxes were to be made with some labels printed on the same.
4. The question that was raised before the Tribunal, therefore, was whether the supply of the such boxes was a contract for sale of chattel and as such outside the purview of section 194C of the Income-tax Act, 1961. The Tribunal has relying upon the decision of the Supreme Court in Associated Hotels of India Ltd.'s case, [1972] 29 STC 474 and the order passed by the Pune Bench of the Tribunal in Wadilal Dairy, [2001] 118 Taxman-Mag 141, referred to above, held that the dominant object underlying the contract in the instant case was the supply of goods in the form of corrugated boxes. It has accordingly, set aside the order passed by the Commissioner of Income-tax (Appeals) and the consequent demand raised against the assessee under sections 201(1) and 201(1 A).
5. Ms. Bansal counsel for the Revenue finds fault with the view taken by the Tribunal. Relying upon the decision of the Supreme Court in the case of State of Tamil Nadu v. Anandam Viswanathan, [1989] 73 STC 1, she submits that the very fact that some labour was added which requires skill was sufficient to take the contract out from the category of a simple contract for supply of goods.
6. We have carefully gone through the decision relied upon by counsel but find it difficult to accept the submission made by her. In the case of Anandam Viswanathan, [1989] 73 STC 1 (SC) the work entrusted to the assessee was printing of question papers for universities. The question was whether such printing work could be treated to be a simple case of contract for sale of goods. Answering the question in the negative, the court held that printing of question papers at the behest of a university or educational institution is a delicate and confidential type of work and the price paid for supplying such printed question papers or printed matter entails primarily the confidence and secondly the skill and to a very small extent the material. Hence, such work undertaken by the concerned agency could not be categorised as entailing sale of goods. It was instead a contract for works done. There is no similarity between the facts with which the Supreme Court was dealing in Viswanathan's case, [1989] 73 STC 1 (SC) and those in the present case. It is nobody's case before us that the printing of the labels on the corrugated boxes required any special skill or involve any confidence or secrecy. In the circumstances, the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of section 194C of the Act.
7. No substantial question of law arises for consideration. Dismissed.
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