2010 (6) TMI 822 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance/addition of Rs. 14,98,181/- u/s 40(a)(ia) for non-deduction of tax at source u/s 194J.
2. Applicability of section 194J versus section 194C for effluent treatment charges.

Summary:

Issue 1: Disallowance/addition of Rs. 14,98,181/- u/s 40(a)(ia) for non-deduction of tax at source u/s 194J

The assessee challenged the disallowance of Rs. 14,98,181/- made by the Assessing Officer (AO) under section 40(a)(ia) on the grounds of non-deduction of tax at source u/s 194J. The AO treated the payment made to Vapi Waste and Effluent Management Company Ltd (VWEMCL) as fees for technical services. The CIT (A) affirmed the AO's decision, holding that section 194J was correctly applied. The assessee contended that VWEMCL was not taxed on the receipts and operated on a mutual benefit concern basis, thus not falling under the purview of section 194J.

Issue 2: Applicability of section 194J versus section 194C for effluent treatment charges

The assessee argued that the payment to VWEMCL was not for technical services but for a standard facility provided to all members without significant human interface, thus not attracting section 194J. The learned Counsel cited several case laws, including CIT vs Bharti Cellular Ltd. and Skycell Communications Ltd. vs DCIT, to support the argument that technical services should involve a human element. The learned DR, however, maintained that effluent treatment involves technical analysis and human interface, thus falling under section 194J.

Judgment:

The Tribunal analyzed the facts and relevant case laws, concluding that the services rendered by VWEMCL did not involve a significant human element and were more of a standard facility provided to all members. The Tribunal noted that the payments were made on a no-profit-no-loss basis and any excess amount was passed on to members as a discount. It was also observed that in subsequent years, the AO did not invoke section 194J for similar payments and accepted the mutuality concept.

The Tribunal held that the impugned payments did not constitute fees for technical services u/s 194J and thus, the disallowance made u/s 40(a)(ia) was not in accordance with law. The appeal filed by the assessee was allowed.

Order pronounced in the open Court on 11-06-2010.