Commissioner of Income Tax vs Reebok India Co.

The issue sought to be raised by the Revenue in this appeal pertains to the nature of the transaction which the assessee has entered upon with its suppliers. The assessee markets footwear, apparel accessories and sport goods. For this purpose, the assessee has entered into agreements with various manufacturers who manufacture the said items according to the specifications, drawings and designs provided by the assessee.

The question arose as to whether the payments that the assessee makes to its manufacturers would fall within the purview of Section 194C of the Income Tax Act, 1961. The issue is essentially as to whether the transaction is one of sale simpliciter or is a works contract. If the transaction is in the nature of a works contract, it would fall u/s 194C and, therefore, the assessee would have had to deduct tax at source in terms thereof. Since the assessee had not deducted any tax at source, the Revenue''s contention was that the assessee was in default in view of the provision of Sections 201(1) and 201(1A) of the said Act. The Assessing Officer had found that the nature of the transaction was that of a works contract and, therefore, invoking the provisions of Section 194C of the said Act, held the assessee to be in default.

Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who reversed the findings of the Assessing Officer and concluded that the transactions between the assessee and its manufacturers were of sales simpliciter and not that of works contracts. This finding has also been confirmed by the Tribunal after examining the terms and conditions of the agreements entered into between the assessee and the manufacturers as also Circular No. 681, dated March 8, 1994, issued by the Central Board of Direct Taxes. The Tribunal also considered various decisions of High Courts as well as the Supreme Court and then returned a conclusive finding that the transaction between the assessee and the manufacturer was that of purchase and sale of goods and not of works contract u/s 194C of the said Act. Consequently, the Tribunal was of the view that the assessee could not be deemed to be an assessee in default u/s 201(1)/201(1A) of the said Act. Thereby, the Tribunal confirmed the order passed by the Commissioner of Income Tax (Appeals) and dismissed the Revenue''s appeal.

We find that the Commissioner of Income Tax (Appeals) as well as the Tribunal have on consideration of facts and circumstances of the case returned a finding of fact that the transaction between the assessee and the manufacturer is pf one of the sale of goods and is not in the nature of works contract.

No substantial question of law arises for our consideration. The appeal is dismissed.