2015 (11) TMI 1451 - AT - Income Tax

TDS u/s 194C OR 194J - whether services provided for payments made for supply of personnel would be technical service u/s.194J or mere contract u/s.194C? - Held that - Taking note that the word technical is preceded by the word managerial and succeeded by the word consultancy in CIT vs. Bharti Cellular Ltd (2008 (10) TMI 321 - DELHI HIGH COURT) held that 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, the 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. It was held by the Delhi High Court that the expression technical services thus necessarily involves human element or what is now a days fashionably called human interface . In the case of Bharti Cellular Ltd (supra) before the Delhi High Court, the facility provided by MTNL and other companies to the assessee for interconnection/port access was one which was provided technically by the machines and since it did not involve any human interface, the Delhi High Court held that the same could not be regarded as technical services as contemplated under S.194J of the Act. It is worthwhile to note that the decision of the Delhi High Court in the case of Bharti Cellular Ltd (supra) was challenged by the Revenue before the Supreme Court, and although the Supreme Court in the judgment reported in 2010 (8) TMI 332 - Supreme Court of India , substantially agreed in principle with the meaning assigned by the Delhi High Court to 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. The Supreme Court also felt that some expert evidence was required to be brought on record to show how a human intervention takes place during the course of rendering of the services. The matter, therefore, was restored by the Supreme Apex Court to the file of the Assessing Officer with a direction to decide the same afresh, after examining a technical expert. However in the present case, there is no dispute that there is human interface in rendering service provider to the assessee. Being so, the said decision is squarely applicable to the assessee case and there is no need to sent the file back to the Assessing Officer to decide the issue a afresh. Decided against assessee

Summary

Issues Involved:
1. Whether the assessee is liable to deduct TDS under Section 194J or Section 194C of the Income Tax Act, 1961 for payments made for the supply of manpower.
2. Whether the assessee can be treated as "assessee in default" under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 for failing to deduct the appropriate TDS.

Issue-wise Detailed Analysis:

1. TDS Deduction under Section 194J or Section 194C:
The core issue revolves around whether the payments made by the assessee for manpower services should attract TDS under Section 194J (fees for technical services) or Section 194C (contract for work). The assessee argued that the services provided, such as front office management, liaison work, and data entry, did not require technical expertise and thus, TDS should be deducted at 2% under Section 194C. The Assessing Officer (AO), however, observed that the nature of services provided involved technical and managerial expertise, thus falling under the ambit of Section 194J, which mandates a 10% TDS deduction.

2. Assessee in Default under Sections 201(1) and 201(1A):
The AO treated the assessee as "assessee in default" for not deducting TDS under Section 194J and invoked Sections 201(1) and 201(1A) for the recovery of the shortfall and interest. The assessee contended that the payments made were for services that did not qualify as technical services and thus, the TDS was correctly deducted under Section 194C. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading the assessee to appeal to the ITAT.

Findings and Judgment:
The ITAT examined the nature of services provided, which included support services (field activations, vendor payment queries, entering receipts into SAP, field verification) and customer support services (tele-calling for bill payments and new activations). It was determined that these services required technical and managerial expertise, thus falling under Section 194J. However, housekeeping services were classified under Section 194C as they did not involve technical expertise.

The ITAT referenced the Delhi High Court's judgment in CIT vs. Bharti Cellular Ltd, which clarified that technical services involve a human element or interface. Since the services provided to the assessee involved human intervention and technical expertise, they were rightly classified under Section 194J.

Conclusion:
The ITAT confirmed the findings of the Commissioner of Income Tax (Appeals) and held that the payments for support and customer support services should attract TDS under Section 194J, while housekeeping services should attract TDS under Section 194C. The appeal of the assessee was dismissed, and the classification of the assessee as "assessee in default" was upheld.

Result:
The appeals in ITA Nos. 564 & 565/Mds/2015 were dismissed. The order was pronounced on 16.9.2015.