2013 (3) TMI 287 - AT - Income Tax

Annual maintenance contracts (AMC) - liable to TDS u/s 194C OR u/s 194J - TDS survey u/s 133A was carried out from 08-09-2008 to 16-09-2008 at the premises of the assessee - can TDS be once again recovered where the proper tax has been paid by the payees on such income? - Held that - Perusal of annual maintenance contract between assessee and M/s Mcnally Bharat Engineering Company Ltd, OTIS Elevators, it is noticed that the AM contractor shall carry out all repairs as per detailed description in the agreements. It is not found that these contracts were in respect of managerial or technical or consultancy services. Thus, it is clear that these agreements were related to annual maintenance of machineries and not for technical services. The revenue s view that the contractors have utilized services of technical persons presumed that the assessee made payments for technical services is not acceeptable as it may be technical services for contractor but not for the assessee. The case of assessee is simply a case of annual maintenance of machineries for section 194J is not applicable. Pilotage Contract - liable to TDS u/s 194C OR u/s 194J - Held that - On perusal of relevant agreement the assessee has engaged pilots on contract basis for Kandla Pilotage operation on periodical basis who will be treated as an employee of Kandla Port Trust from time to time. The pilots engaged for Kandla, Vadinar will be available for pilotage job at either place in exigencies. The payment is provided to be made for days. He is available for pilotage operation. The other condition in the agreement are in respect of engagement of initial period, termination of the contract by giving one month notice, accommodation, medical facilities, etc. concludes that the payment to pilots is in the nature of salary as their contracts agreement were not for managerial and technical or consultancy services and not covered by section 194J. Taxi & Tug Hire Charges - liable to TDS u/s 194C OR u/s 194(I) - Held that - The assessee entered into agreement with Thakkar Travels for hiring of vehicles where it is provided that the rates at which the payments will be made for normal running of 12 hours from time of reporting and for deployment beyond 12 hours. In the agreement nowhere it is stated that the possession of the vehicles were given to the assessee. As in case of Vodafone Essar Ltd vs DCIT (2010 (12) TMI 842 - IAT, MUMBAI while dealing with section 194I held that merely making use of the facility without himself using the equipment and without taking possession the payment cannot be said to be a rent - not liable u/s 194(I). Alternative contention of the assessee is acceptable relying on Hindustan Coca Cola Beverages Pvt Ltd vs CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA wherein held that if payee has already paid tax due on the payment received by him from the assessee, the tax could not be recovered once again from the deductor. The assessee has furnished the list of such pilots along with their PAN - appeal in favour of assessee.

Summary

Issues Involved:
1. Treatment of Annual Maintenance Contracts (AMC) under TDS provisions.
2. Treatment of Pilotage Contracts under TDS provisions.
3. Treatment of Taxi and Tug Hire Charges under TDS provisions.

Detailed Analysis:

1. Treatment of Annual Maintenance Contracts (AMC) under TDS Provisions:
The primary issue is whether AMCs should be treated under Section 194C or Section 194J of the Income Tax Act. The assessee deducted TDS under Section 194C, which pertains to payments to contractors. The department argued that these payments should fall under Section 194J, which deals with fees for technical services.

The Tribunal examined the nature of the AMC and found that these contracts were related to the maintenance of machinery and not for technical services. The Tribunal stated, "From these agreements we did not find that these contracts were in respect of managerial or technical or consultancy services." Therefore, it was concluded that Section 194J was not applicable, and the assessee had correctly deducted TDS under Section 194C.

2. Treatment of Pilotage Contracts under TDS Provisions:
The second issue concerns whether payments to pilots for pilotage operations should be treated under Section 194C or Section 194J. The assessee treated these payments under Section 194C, while the department contended they should fall under Section 194J.

The Tribunal analyzed the contract terms and concluded that the payments were in the nature of salary and not for managerial, technical, or consultancy services. The Tribunal noted, "The payment to pilots is in the nature of salary as their contracts agreement were not for managerial and technical or consultancy services." Thus, Section 194J was deemed not applicable, and the payments were correctly subjected to TDS under Section 194C.

3. Treatment of Taxi and Tug Hire Charges under TDS Provisions:
The third issue is whether payments for hiring vehicles and tug boats should be treated under Section 194C or Section 194-I, which pertains to rent. The assessee deducted TDS under Section 194C, but the department argued that these payments should fall under Section 194-I.

The Tribunal reviewed the agreements and found that the payments were for the hiring of vehicles and not for rent. It was noted, "In the agreement nowhere it is stated that the possession of the vehicles were given to the assessee." The Tribunal cited the ITAT Mumbai Bench's decision in the case of Vodafone Essar Ltd vs DCIT, which held that merely making use of the facility without taking possession does not constitute rent. Thus, the Tribunal concluded that Section 194-I was not applicable, and the payments were correctly subjected to TDS under Section 194C.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the assessee had correctly deducted TDS under Section 194C for all three types of payments-AMC, pilotage contracts, and vehicle hire charges. The Tribunal's decision was based on the nature of the services and the terms of the contracts, affirming that Sections 194J and 194-I were not applicable in these cases.