2012 (6) TMI 546 - AT - Income Tax

Contract to maintain operation theatre and surgical equipments, RO system, CT Scan Machine, MRI machine, Lift, Sterlisation and Medical equipments - applicability of Section 194C or 194J - Held that - Aforesaid contracts cannot be the contracts in a routine or normal manner but for which technical service has been rendered and provisions of section 194J r.w.s. 9(1) of Explanation-2 are attracted, r.w.s. 201(1) and 201(1A), which the AO has rightly applied. Reliance also placed on CBDT Circular 715 dated 8.8.1995 - Decided in favor of Revenue Contract for Anti-termite treatment - Held that - This treatment though does not require technical expertise but it requires professional skill, in the absence of which there can be a loss to the life of the human being living therein. hence, Section 194J is applicable in such contracts - Decided in favor of Revenue Contract for supply of Bread and Butter and supply of security and personnel - Held that - In present contract, no technical part or technical services as per facts is available on record. Hence Section 194C is applicable in such contracts - Decided in favor of assessee.

Summary

Issues Involved:
1. Classification of payments under section 194C vs. section 194J of the Income Tax Act.
2. Applicability of CBDT Circular No. 715.
3. Relevance of the precedent set by M/s. Eastern Typewriters Services vs. State of A.P.
4. Admissibility of the appeal based on the monetary limits set by Instruction No. 3 of 2011.

Issue-Wise Detailed Analysis:

1. Classification of Payments under Section 194C vs. Section 194J:
The primary issue was whether the payments made by the assessee (a Government Medical College) for maintenance contracts should be classified under section 194C (work contracts) or section 194J (technical services) of the Income Tax Act. The Assessing Officer (AO) observed that the assessee made payments for technical services and thus should have deducted tax under section 194J, leading to a demand for short deduction and late payment of tax. The CIT(A) held that these payments were for routine maintenance and did not involve technical services, thus falling under section 194C. However, the Tribunal found that the maintenance of highly technical equipment like operation theatres, RO systems, CT Scan machines, MRI machines, lifts, and sterilization equipment required technical services. Thus, these payments should be classified under section 194J.

2. Applicability of CBDT Circular No. 715:
The CIT(A) relied on CBDT Circular No. 715, which states that routine maintenance contracts, including the supply of spares, fall under section 194C, while contracts involving technical services fall under section 194J. The Tribunal agreed that the maintenance of highly technical equipment required technical services and thus should be classified under section 194J, aligning with the Circular's guidance on technical services.

3. Relevance of the Precedent Set by M/s. Eastern Typewriters Services vs. State of A.P.:
The CIT(A) relied on the precedent set by M/s. Eastern Typewriters Services vs. State of A.P., which classified the maintenance of typewriters as a work contract under section 194C. However, the Tribunal distinguished this case, noting that the equipment in question (operation theatres, CT Scan machines, etc.) was far more sophisticated and required specialized technical services, unlike typewriters. Therefore, this precedent was not applicable.

4. Admissibility of the Appeal Based on the Monetary Limits Set by Instruction No. 3 of 2011:
The Tribunal addressed the preliminary objection regarding the monetary limit for filing appeals. The tax demand for the financial year 2007-08 was Rs. 2,64,390/-, below the Rs. 3,00,000/- limit set by Instruction No. 3 of 2011. However, since the appeal involved a composite order for two assessment years with a combined demand exceeding Rs. 3,00,000/-, the Tribunal held that the appeal was maintainable.

Judgment:
The Tribunal concluded that the payments for maintaining highly technical equipment should be classified under section 194J as technical services, reversing the CIT(A)'s order for these contracts. However, the Tribunal upheld the CIT(A)'s classification under section 194C for contracts involving the supply of bread and butter and security personnel. Consequently, the appeals of the Revenue were partly allowed.