2014 (11) TMI 10 - AT - Income Tax

Amount paid covered u/s 194J or not - Compliance of TDS provisions - Business of rendering various telecommunication services including landline and internet services - Whether the payment made by the assessee company to M/s. Records and Data Warehousing Pvt. Ltd. for the services rendered in pursuance of the Master Services Agreement is in the nature of payment to contractor as envisaged in S.194C or fee for technical services as covered by S.194J or not - Held that - The amount was paid by the assessee company to M/s. Records and Data Warehousing Pvt. Ltd. for the services rendered in pursuance of a Master Services Agreement executed on 8th September, 2009 - services provider M/s. Records and Data Warehousing Pvt. Ltd. has necessary infrastructure, manpower and experience in providing world class record management services and it has base financial capabilities to perform the record management and related services. Following the decision in Commissioner of Income-tax Versus Bharti Cellular Ltd. & Hutchison Essar Telecom Ltd. 2010 (8) TMI 332 - Supreme Court of India the expression appearing in S.194J has the same meaning as given in Explanation (2) to S.9(1)(vii), which means any consideration for rendering of any managerial, technical or consultancy services - the rule of noscitur a sociis is clearly applicable and this would mean that the word technical would take colour from the words managerial and consultancy in between which it is sandwiched - Elaborating further, Hon ble Delhi High Court observed that it is obvious that the expression manager and consequently managerial service has a definite human element attached to it and similarly, the services consultancy also necessarily intends human intervention - the expression fee for technical services , as appearing in S.194J, they found that the question of human intervention was never raised even upto the level of the Tribunal thus, the order is remitted back to the AO for fresh adjudication Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of payments made by the assessee to M/s. Records and Data Warehousing Pvt. Ltd. under Section 194C or Section 194J of the Income Tax Act.
2. Liability of the assessee for short deduction of tax at source under Section 201(1) and interest under Section 201(1A).
3. Applicability of the Supreme Court decision in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT regarding recovery of tax already paid by the deductee.

Detailed Analysis:

Issue 1: Classification of Payments under Section 194C or Section 194J
The primary issue was whether payments made by the assessee to M/s. Records and Data Warehousing Pvt. Ltd. should be classified under Section 194C (contract for work) or Section 194J (fee for technical services) of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] held that the payments were for technical/professional services under Section 194J, necessitating a higher rate of tax deduction at source (TDS).

The assessee argued that the services provided were routine and clerical, involving no technical expertise, and thus fell under Section 194C. The CIT(A) disagreed, noting that the Master Service Agreement required the service provider to have expertise, experience, and skills in record and data management, which indicated that the services were technical in nature.

The Tribunal, however, recognized the need to examine whether the services involved a "human element" or "human interface" as per the Supreme Court's interpretation in CIT v. Bharti Cellular Ltd. The Tribunal decided to remand the case to the AO for a fresh decision, considering expert evidence on the involvement of human intervention in the services rendered.

Issue 2: Liability for Short Deduction of Tax at Source
The AO treated the assessee as an "assessee in default" under Section 201(1) for short deduction of tax at source and levied interest under Section 201(1A) for the assessment years 2006-07 to 2010-11. The CIT(A) upheld this decision but noted that since the payee had already paid the tax on the income received from the assessee, the tax could not be recovered again from the assessee. However, the assessee was still liable to pay interest under Section 201(1A) from the date the tax was deductible until the date it was actually paid by the deductee.

Issue 3: Applicability of Supreme Court Decision in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT
The assessee cited the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT, arguing that no demand under Section 201(1) should be enforced if the deductee had already paid the taxes. The CIT(A) accepted this argument, stating that the assessee could not be treated as an assessee in default under Section 201(1) for short deduction of tax at source since the payee had paid the tax. However, the liability for interest under Section 201(1A) remained.

Conclusion:
The Tribunal set aside the orders of the CIT(A) and remanded the matter to the AO to decide afresh, considering the involvement of human intervention in the services rendered by M/s. Records and Data Warehousing Pvt. Ltd. to determine if they qualify as technical services under Section 194J. The AO was directed to re-examine the issue in light of the Supreme Court's decision in CIT v. Bharti Cellular Ltd. and provide the assessee with an opportunity for a hearing. The appeals were allowed for statistical purposes.