2012 (10) TMI 1079 - AT - Income Tax

Whether TDS to be deducted u/s 194C @1% or u/s 194J @10% - Nature of contract - services availed are on contract basis or technical services - contract for collection of data locating and marketing of certain buildings office etc. - Held that - all technical work was performed by assessee himself and the parties from whom work was out-sourced has performed non-skilled work either by supplying non-skilled labours at the site for helping assessee to monitor the work or by specialized machines - 194J suggest that professional service would constitute all services which are rendered by a person in the course of carrying on legal medical engineering or architectural profession etc - The jobs availed by the assessee from the persons did not fall within the ambit of this explanation rather they are ancillary jobs connected with main performed by the assessee under clause F & I of Explanation-1 to section 194C - Decided against the revenue.

Summary

Issues Involved:
1. Whether the payments made by the assessee were subject to TDS under Section 194C or Section 194J of the Income Tax Act, 1961.
2. Whether the disallowance under Section 40(a)(ia) was justified due to short deduction of TDS.
3. The sufficiency of evidence regarding the nature of work performed by the parties to whom payments were made.

Issue-wise Detailed Analysis:

1. Applicability of Section 194C vs. Section 194J:
The primary issue was whether the payments made by the assessee should have been subjected to TDS under Section 194C (which deals with payments for work contracts) or Section 194J (which deals with fees for professional or technical services). The assessee, running a consultancy under M/s Alps Engineers, was engaged in planning and development services. The Assessing Officer (AO) argued that the services availed by the assessee were of a technical nature, necessitating TDS under Section 194J at 10%. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the work performed by the parties was non-technical and fell under the ambit of Section 194C, which requires TDS at 1%. The CIT(A) noted that similar payments in previous years had not been disallowed and characterized the services as composite work contracts rather than professional/technical services.

2. Justification of Disallowance under Section 40(a)(ia):
The AO made an addition under Section 40(a)(ia) due to the alleged shortfall in TDS deduction. The assessee contended that even if there was a shortfall, disallowance under Section 40(a)(ia) was not warranted. The Tribunal referred to a decision by ITAT Calcutta, which held that disallowance under Section 40(a)(ia) is applicable only if tax is not deducted or not deposited. In cases of short deduction due to a genuine difference of opinion about the applicable TDS provision, the assessee could be treated as a defaulter under Section 201 but not subjected to disallowance under Section 40(a)(ia).

3. Sufficiency of Evidence on Nature of Work:
The AO based the disallowance on the statements of two parties, Jai Ambey Computers and S.K. Nigam, who claimed that their work was technical. However, the assessee argued that these were isolated instances and did not represent the nature of work performed by all parties. The CIT(A) and Tribunal found that the AO's evidence was insufficient to generalize that all payments were for technical services. The Tribunal emphasized that the work outsourced was ancillary and non-technical, supporting the CIT(A)'s decision to delete the disallowance.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the payments made by the assessee were correctly subjected to TDS under Section 194C and not Section 194J. The Tribunal also ruled that disallowance under Section 40(a)(ia) was not justified in cases of short deduction due to a bona fide difference of opinion. The appeal by the revenue was dismissed, affirming that the evidence did not support the AO's conclusion that all outsourced work was of a technical nature. The judgment was pronounced in the open court on 26.10.2012.