What is the difference between Contract of Service and Contract for Service? state with some example and also mention its taxability under Income Tax ACT.
Answers
Answer:
The Taxation of Works Contract was always a subject matter of dispute because both Service and Transfer of Property in Goods were involved in the very same transaction.
In the case of Gannon Dunkerly, the Hon’ble Supreme Court had held that in case of a works contract, the dominant intention of the contract is the execution of works, which is a service and there is no element of sale of goods (as per Sale of Goods Act). The contract being one indivisible contract, it cannot be broken up to levy VAT on sale of goods involved in the execution of works contract. This decision led the Central Government to amend the Constitution of India and insert Article 366(29A) (b) which enabled the State Governments to levy tax (VAT) on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.