2007 (6) TMI 301 - AT - Income Tax

Summary

Issues Involved:
1. Whether the payment for the shared use of the computer network for the sale of Online Lottery Tickets constitutes "Technical Services" under section 194J of the Income-tax Act, 1961.
2. Whether the assessee is liable for interest under section 201(1A) for non-deduction of TDS, even when the computer network provider had no taxable income.

Summary:

Issue 1: Nature of Payment for Shared Use of Computer Network
The assessee contested the CIT(A)'s decision that the payment for the shared use of the computer network for selling Online Lottery Tickets was in the nature of "Technical Services," thus requiring TDS deduction u/s 194J. The assessee argued that the payment did not fall under section 194C, as it was for hiring computers, not technical services. The CIT(A) held that the services provided by Playwin were indeed technical, involving maintenance and operation of a customized computer network, and thus fell under section 194J. The Tribunal upheld this view, distinguishing it from the Skycell Communications Ltd. case, as Playwin provided a customized service rather than a standard facility. The Tribunal emphasized that in modern business practices, "Technical Services" should be interpreted broadly to fulfill the TDS provisions' objectives. Therefore, the assessee was liable to deduct tax under section 194J.

Issue 2: Liability for Interest under Section 201(1A)
The assessee argued against the interest liability u/s 201(1A), citing that Playwin had no taxable income and had claimed a refund. The Tribunal noted that interest under section 201(1A) is compensatory for withholding government money and is mandatory. The Tribunal referred to the Gujarat High Court's decision in CIT v. Rishikesh Apartment Cooperative Housing Society Ltd., which held that interest should not be charged if the recipient had paid due taxes on time. However, the Tribunal found that the assessee did not establish that all taxes were paid on time. Therefore, the Tribunal directed the Assessing Officer to verify the facts and determine the correct interest liability, considering any timely tax deductions and deposits by the payers. If the entire tax liability was covered by timely deductions and deposits, no interest would be charged.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the CIT(A)'s decision on the nature of the payment as "Technical Services" under section 194J, but remanded the issue of interest liability under section 201(1A) to the Assessing Officer for verification.