Facts of the Case

Dabur India Ltd. procured corrugated boxes from suppliers for packing its products. These boxes contained printed labels and specifications as required by the assessee.

The Revenue authorities took the view that the arrangement involved a contract for carrying out work and, therefore, payments made to suppliers attracted deduction of tax at source under Section 194C of the Income-tax Act, 1961.

Consequently, proceedings were initiated under Sections 201(1) and 201(1A) treating the assessee as an assessee in default for failure to deduct TDS.

The Income Tax Appellate Tribunal, however, held that the dominant object of the contract was the supply of corrugated boxes and that the printing on such boxes was merely incidental. Accordingly, the Tribunal set aside the demand raised by the Revenue.

The Revenue challenged the Tribunal’s decision before the Delhi High Court.

 

Issues Involved

  1. Whether the supply of corrugated boxes bearing printed labels constituted a works contract attracting TDS under Section 194C of the Income-tax Act, 1961.
  2. Whether the transaction was essentially a sale of goods outside the ambit of Section 194C.
  3. Whether the assessee could be treated as an assessee in default under Sections 201(1) and 201(1A) for non-deduction of tax at source.

 

Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • The suppliers were not merely supplying goods but were also undertaking printing work on the corrugated boxes.
  • The printing activity involved labour and skill, thereby making the arrangement more than a simple sale transaction.
  • Reliance was placed on the Supreme Court judgment in State of Tamil Nadu v. Anandam Viswanathan (73 STC 1), where printing of question papers was treated as a contract involving work and labour.
  • Therefore, the payments made by Dabur India Ltd. were liable for deduction of tax at source under Section 194C.

 

Respondent’s Arguments (Dabur India Ltd.)

The assessee argued that:

  • The dominant purpose of the contract was the purchase of corrugated boxes used for packaging products.
  • Printing of labels on the boxes was merely incidental to the supply of goods.
  • Ownership in the finished corrugated boxes passed to the purchaser as goods.
  • The transaction was essentially a sale of chattel and not a contract for carrying out work.
  • Reliance was placed upon judicial precedents recognizing that incidental printing does not alter the character of a transaction whose primary object is the sale of goods.

 

Court Order / Findings

The Delhi High Court upheld the Tribunal’s decision and dismissed the Revenue’s appeal.

The Court observed that:

  • In State of Himachal Pradesh v. Associated Hotels of India Ltd. (1972) 29 STC 474, the Supreme Court held that the determining test is the dominant object of the contract.
  • The Pune Bench of the Tribunal in Wadilal Dairy International Ltd. v. ACIT (118 Taxman 141) had held that purchase of packing material with incidental printing amounts to purchase of goods.
  • The dominant object of the contract in the present case was the supply of corrugated boxes.
  • Printing of labels on the boxes did not require any special skill, secrecy, or confidential work comparable to the printing of university examination papers.
  • The Supreme Court decision in State of Tamil Nadu v. Anandam Viswanathan was distinguishable because printing question papers involved confidentiality, specialized skill, and execution of work rather than sale of goods.
  • The transaction was therefore a contract for sale of goods and not a works contract covered by Section 194C.

The Court concluded that no substantial question of law arose for consideration and dismissed the appeal.

 

Important Clarification

The judgment reiterates the “dominant intention test” for determining whether a transaction constitutes a sale of goods or a works contract.

Where:

  • The primary object is the supply of goods;
  • Printing, labeling, embossing, or customization is merely incidental;
  • No specialized skill, confidentiality, or independent work component predominates;

the transaction remains a sale of goods, and Section 194C does not apply merely because some printing or customization has been carried out.

This principle is particularly relevant in cases involving:

  • Printed packaging material,
  • Corrugated boxes,
  • Labels and cartons,
  • Customized packing supplies,
  • Product packaging contracts.

 

Sections Involved

  • Section 194C, Income-tax Act, 1961 – TDS on payments to contractors.
  • Section 201(1), Income-tax Act, 1961 – Consequences of failure to deduct tax at source.
  • Section 201(1A), Income-tax Act, 1961 – Interest for failure to deduct or pay TDS.

 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2005:DHC:11250-DB/61325082005ITA3542005_113425.pdf

 

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