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2011 (10) TMI 21 - AT - Income TaxPayment made pursuant to the contracts - Nature of security services - Technical services - TDS u/s 194C or 194J - Assessee in default - Circular No 715 dated 8/8/1995 - Held that - the services provided by security personal under a contract with the agency cannot be categorized as technical service unless the provisions of Clause (vii) to Explanation 2 to Section 9(1) are fulfilled. A payment to be covered u/s. 194J should be fees for technical services and such fees should be for rendering of any technical managerial or consultancy services and not anything else. - the payments made by the assessee to security services are covered u/s. 194C and there is no scope for applying the provisions of Section 194J.
Issues Involved:
1. Applicability of Section 194J vs. Section 194C for TDS on payments for security services. 2. Validity of interest charged under Section 201(1A). 3. Jurisdiction of CIT(A) under Section 201(1) when taxes have been paid by the recipient. 4. Calculation errors in interest liability. Issue-wise Detailed Analysis: 1. Applicability of Section 194J vs. Section 194C: The primary issue was whether the payments made by the appellant for security services fall under the ambit of Section 194J or Section 194C of the Income-tax Act. The AO held that the payments for security services were covered under Section 194J, treating them as professional or technical services, and thus demanded TDS at 10%. The appellant argued that these payments should be categorized under Section 194C as they were for the supply of manpower for guarding premises. The Tribunal referenced the CBDT Circular No. 715 dated 8/8/1995, which clarified that payments for services like those of an electrician provided by a contractor fall under Section 194C. The Tribunal concluded that security services are akin to skilled labor provided under a contract and do not constitute technical services as defined under Section 9(1)(vii). Therefore, the Tribunal held that the payments for security services should be covered under Section 194C, not Section 194J. 2. Validity of Interest Charged under Section 201(1A): The appellant challenged the interest charged under Section 201(1A) on the grounds that they had correctly deducted tax under Section 194C. The Tribunal, having established that Section 194C was applicable, found the interest charge under Section 201(1A) to be unsustainable. The Tribunal directed the AO to accept the TDS deductions made under Section 194C and thereby negated the interest liability. 3. Jurisdiction of CIT(A) under Section 201(1): The appellant contended that if the recipient of the payment had already paid the taxes, the CIT(A) had no jurisdiction to demand further tax under Section 201(1). This alternative ground was raised considering that the recipients had included the fees in their total income and paid appropriate taxes. The Tribunal, however, did not need to adjudicate this point as it had already decided in favor of the appellant on the primary issue. 4. Calculation Errors in Interest Liability: The appellant also raised a ground regarding calculation errors in computing the interest liability, arguing that interest should only be calculated up to the end of March of the relevant year if the taxes were paid by the recipients by that time. Since the Tribunal ruled that Section 194C was applicable and the interest charge under Section 201(1A) was invalid, this issue became moot and did not require further adjudication. Conclusion: The Tribunal concluded that the payments made by the appellant for security services were correctly subjected to TDS under Section 194C and not Section 194J. Consequently, the orders of the lower authorities were set aside, and the AO was directed to accept the TDS deductions made by the appellant. The appeals were allowed in favor of the appellant, and the related grounds were decided accordingly. The order was pronounced in the open Court on 7th October 2011.
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