2015 (9) TMI 1489 - HC - Income Tax

TDS u/s 194C - payment made against the supply of materials included in composite contracts for executing Turnkey Projects - Held that - As from clause 3.5 of the contract agreement, made it clear that there were three separate contracts entered into, but all the separate contracts were integral parts of a composite contract on single sale responsible basis. The invoices raised on the basis of the said composite contract separately mentioning the value of the material supplied, no deduction was permissible under section 194C of the Act. The said provision could not be pressed into service to deduct tax at source. The whole object of introduction of that section was to deduct tax in respect of payments made for works contracts. No division was, therefore, permissible in respect of a contract for supply of materials for carrying out the work as in case of distinct contracts. The contract for supply of material being a separate and distinct contract, no division was permissible under section 194C of the Act. Section 194C was amended with effect from October 1, 2009 and the provision is unambiguous. Therefore, it was concluded by this court that if a person executing the work, purchases the materials from a person other than the customer, the same would not fall within the definition of work under section 194C of the Act. Provisions of section 194J or section 194C - payments made by an assessee towards bill management services - Held that - The services rendered by the agencies engaged by the assessee at several places are not professional services, and, therefore, section 194J was not attracted. The demand towards the alleged short deduction of tax deducted at source and interest, was hence improper and the contract was rightly held to be a service contract by the Tribunal. This court had affirmed that it was a contract, which should be covered under section 194C of the Act.

Summary

Issues:
1. Whether provisions under section 194C of the Income-tax Act, 1961 apply to payments made against the supply of materials in composite contracts for Turnkey Projects.
2. Whether payments made for Bill Management Services fall under section 194J for professional and technical services or section 194C for work contracts.

Analysis:
1. The appeals by the Revenue challenged the orders of the Income-tax Appellate Tribunal, which upheld the Commissioner of Income-tax (Appeals) orders. The issue of applicability of section 194C on payments for materials in Turnkey Projects was addressed. The Tribunal's decision in CIT v. Karnataka Power Transmission Corporation Ltd. was deemed binding, concluding that no tax deduction under section 194C was required for material supply contracts in composite projects. The court found that section 194C did not apply to separate material supply contracts within a composite agreement, emphasizing the unambiguous nature of the provision post-amendment in 2009.

2. Regarding payments for Bill Management Services, the court determined that such services did not qualify as professional under section 194J but fell under section 194C as service contracts. The Tribunal's classification of the contract as a service contract under section 194C was upheld, dismissing the claim of short deduction of tax at source and interest. The court affirmed that the services provided did not meet the criteria for professional services under section 194J.

3. The court concluded that the appeals did not raise substantial legal questions necessitating consideration, leading to their dismissal. The subsequent appeals faced a similar fate and were also dismissed. The judgment provided a detailed analysis of the issues raised, clarifying the application of sections 194C and 194J in the context of the specific payment scenarios presented in the case.