2013 (11) TMI 1237 - AT - Income Tax

TDS u/s 194C or 194J - assessee engaged the contractors having the expertise in the respective fields - nature of contract - simple works contract or technical services contract - Held that - Assessing Officer was not justified in treating the contract entered into by the assessee with various parties for exploration or extraction of mineral oil and natural gas as a contract for technical services. The services for mining, obtained by the assessee, were not the technical services. As such the Assessing Officer was not justified in holding that the provisions of section 194J of the Act were applicable because the assessee entered into contract for technical services with the service providers. - Decided in favor of assessee. TDS u/s 194I - payments made to contractors for hiring of crane - Held that - Assessing Officer treated the crane fitted with truck as plant & machinery and held that the provisions of section 194I were applicable for deducting TDS. However, the provisions contained in section 194I of the Act are applicable for plant & machinery or for land and building or land appurtenant to a building or , plant, equipment, furniture or fittings but as we have already observed in the earlier part of this order that cranes are not the plant & machinery as per the ratio laid down by the Hon ble Gujarat High Court in the case of Gujco Carriers Vs. CIT (2002 (2) TMI 48 - GUJARAT High Court). Therefore, the provisions of section 194J of the Act were not applicable. - Decided in favor of assessee.

Summary

Issues Involved:
1. Application of provisions of Section 194J vs. Section 194C for payments to contractors.
2. Application of provisions of Section 194I vs. Section 194C for payments for hiring cranes.
3. Validity of non-deduction certificate for payments to a cooperative society.

Detailed Analysis:

1. Application of Provisions of Section 194J vs. Section 194C:
The primary issue was whether the payments made by the assessee to various contractors should be subjected to TDS under Section 194J (fees for technical services) or Section 194C (payments to contractors). The Assessing Officer (AO) held that the services provided by the contractors involved specialized technical knowledge and expertise, thus falling under Section 194J. The AO cited several case laws to support this view. However, the assessee argued that the payments were for simple work contracts related to mining activities, which should be covered under Section 194C. The assessee relied on various judicial precedents and CBDT instructions, particularly Instruction No. 1862 dated 22/10/1990, which clarified that services related to mining operations do not fall under the definition of fees for technical services.

The CIT(A) upheld the AO's decision, stating that the contractors were providing technical services and not merely executing work. However, the Tribunal found that the services obtained by the assessee were part of mining operations and thus fell under the exclusionary clause of Explanation 2 to Section 9(1)(vii). The Tribunal emphasized the principle of consistency, noting that the Department had accepted similar deductions under Section 194C in previous years. Consequently, the Tribunal ruled that the assessee correctly deducted TDS under Section 194C and deleted the demand raised under Section 201/201(1A).

2. Application of Provisions of Section 194I vs. Section 194C for Hiring Cranes:
The second issue was whether the payments made for hiring cranes should be subjected to TDS under Section 194I (rent for machinery) or Section 194C. The AO argued that the cranes were machinery and thus fell under Section 194I. The assessee contended that the contracts involved comprehensive services, including operation and maintenance of cranes, which should be treated as work contracts under Section 194C.

The Tribunal referred to the definition of "work" under Section 194C, which includes carriage of goods by any mode of transport other than railways. It also cited the Gujarat High Court's decision in Gujco Carriers Vs. CIT, which held that mobile cranes mounted on trucks fall within the category of motor trucks. The Tribunal concluded that the cranes, being part of mobile trucks, were used for carriage of goods and thus fell under Section 194C. Consequently, the Tribunal ruled in favor of the assessee, stating that TDS was correctly deducted under Section 194C.

3. Validity of Non-Deduction Certificate for Payments to a Cooperative Society:
The third issue concerned the validity of a non-deduction certificate issued to a cooperative society. The AO held the assessee liable for not deducting TDS on payments made to the society, arguing that the certificate did not specify the period of validity. The assessee contended that the certificate was presumed valid until explicitly withdrawn or modified.

The Tribunal noted that the assessee furnished a certificate dated 08/05/2008, valid until 31/03/2009, which exempted the society from TDS. The Tribunal found that neither the AO nor the CIT(A) had considered this certificate. Therefore, the Tribunal remanded the issue back to the AO for verification, instructing that if the certificate was found valid for the relevant period, the assessee should not be treated as in default.

Conclusion:
The Tribunal allowed the appeal for the assessment year 2008-2009 and partly allowed the appeal for the assessment year 2009-2010 for statistical purposes, directing the AO to re-examine the validity of the non-deduction certificate for the cooperative society.