<p>The issue has been raised by the income-tax department saying that consumer electronics and home appliances manufacturer Samsung India Electronics Ltd is liable to deduct tax in respect of goods outsourced for manufacturing to other manufacturers or original equipment manufacturers (OEMs).<br />A Bench headed by Justice S H Kapadia has sought reply from Samsung on this.<br />Challenging the Delhi High Court judgment that dismissed its plea, the I-T department said that the contracts for manufacturing products bearing the company's trademark are not sale deals but agreements for carrying out work.<br />It further said that under Section 194-C of the Income-Tax Act, 1961, tax should be deducted on such Contracts.<br />Relying on the apex court's decisions in various cases, Additional Solicitor General Gourab Bannerjee said that in a works or service contract, the person performing or rendering the service has no property in what has been produced, notwithstanding the fact that part or even the whole of the material used by him might be his property. <br /><br />The I-T department said that goods produced must have an individual existence as the property of the manufacturer who produced it.<br />After studying Samsung's transactions and the agreements, it was clear that those were not contracts for selling goods, the petition said, adding that as the goods carried the brand name Samsung, they could not have been legally sold by the manufacturers and, therefore, they were not commercial commodities.<br />"The manufacturers were not at liberty to dispose the products in the manner they found most beneficial or apt. Thus, the transactions were contracts for carrying out work and the respondent (Samsung) was liable to deduct tax on the same," the petition said.<br />"The entire production was being undertaken at the behest of the respondent (in accordance with) its technical specifications, which in turn were governed through strict quality controls audits, personal supervisions and other measures," it stated.<br />The department rejected Samsung's contention that the arrangement with the manufacturers was in the nature of 'purchase and sale' and on a principal-to-principal basis.<br />The authorities had also dismissed the company's argument that sales tax and excise duty were being paid by the manufacturers and the goods remained their property till they were delivered to Samsung. <br /><br />However, the Commissioner of Income-Tax (Appeals), on Samsung'plea, while holding that the transactions were sales, had set aside the department's order asking the company to pay tax of more than Rs 1.67 crore for 2003-04.<br />Both the Income Tax Appellate Tribunal and the High Court had held that the transactions were in the nature of the contracts for sale and not in nature of work contracts.</p>
<p>The issue has been raised by the income-tax department saying that consumer electronics and home appliances manufacturer Samsung India Electronics Ltd is liable to deduct tax in respect of goods outsourced for manufacturing to other manufacturers or original equipment manufacturers (OEMs).<br />A Bench headed by Justice S H Kapadia has sought reply from Samsung on this.<br />Challenging the Delhi High Court judgment that dismissed its plea, the I-T department said that the contracts for manufacturing products bearing the company's trademark are not sale deals but agreements for carrying out work.<br />It further said that under Section 194-C of the Income-Tax Act, 1961, tax should be deducted on such Contracts.<br />Relying on the apex court's decisions in various cases, Additional Solicitor General Gourab Bannerjee said that in a works or service contract, the person performing or rendering the service has no property in what has been produced, notwithstanding the fact that part or even the whole of the material used by him might be his property. <br /><br />The I-T department said that goods produced must have an individual existence as the property of the manufacturer who produced it.<br />After studying Samsung's transactions and the agreements, it was clear that those were not contracts for selling goods, the petition said, adding that as the goods carried the brand name Samsung, they could not have been legally sold by the manufacturers and, therefore, they were not commercial commodities.<br />"The manufacturers were not at liberty to dispose the products in the manner they found most beneficial or apt. Thus, the transactions were contracts for carrying out work and the respondent (Samsung) was liable to deduct tax on the same," the petition said.<br />"The entire production was being undertaken at the behest of the respondent (in accordance with) its technical specifications, which in turn were governed through strict quality controls audits, personal supervisions and other measures," it stated.<br />The department rejected Samsung's contention that the arrangement with the manufacturers was in the nature of 'purchase and sale' and on a principal-to-principal basis.<br />The authorities had also dismissed the company's argument that sales tax and excise duty were being paid by the manufacturers and the goods remained their property till they were delivered to Samsung. <br /><br />However, the Commissioner of Income-Tax (Appeals), on Samsung'plea, while holding that the transactions were sales, had set aside the department's order asking the company to pay tax of more than Rs 1.67 crore for 2003-04.<br />Both the Income Tax Appellate Tribunal and the High Court had held that the transactions were in the nature of the contracts for sale and not in nature of work contracts.</p>