2021 (11) TMI 1104 - AT - Income Tax

TDS u/s 194C OR 194J - short deduction of tax and for interest u/s 201(1A) imposed - payments made for supply and installation of computers, commissioning of computer laboratories and technical manpower and to Vimal Electronics for supply and installation of solar photo voltaic panels - HELD THAT - Entire contract is for supply of computer hardware, software, connected accessories, UPS, furniture, stationary, consumables, etc., and this contract is to be carried out by the contract through its own personnel. Thus, it is a simple contract of carrying out a work. Section 194J applies to a person responsible for paying to any resident any sum by way of fees for professional/technical services. In the present case, the contractor has not made available any technical services to the assessee but has only provided the computer hardware, software, etc., and employed his own personnel for implementing the same in various schools as per the terms and conditions of the contract. Hence, section 194J is not applicable and the assessee has rightly deducted tax at source under section 194C. We draw strength from the decision of Senior Manager (Finance), Bharat Heavy Electricals Ltd. 2016 (12) TMI 955 - PUNJAB AND HARYANA HIGH COURT where contract was for erection, installation, commissioning, testing and trail operations of various equipment and other related machinery and that under the terms of the contract it was the duty of the contractor to provide all type of labour, supervisors, engineers, inspectors, etc., for execution of the project, the AO held that section 194J is applicable as the level of human interaction was high and sophisticated. Commissioner of Income-tax (Appeals) however held that the scope of the work given to the sub-contractor did not fall in the scope of technical services merely because technical persons were employed in execution of contract and therefore, tax is deductible only under section 194C. No professional or technical services were rendered to the assessee rather the persons were employed by the parties for execution of the contract and thus tax is deductible under section 194C of the Act. While reaching to this conclusion, we also relied upon the decision in the case of Rajasthan Council of Elementary Education wherein on the same facts, it was held that the agreement is a contract for carrying out a work and therefore, taxes required to be deducted at source under section 194C and not under section 194J of the Act, therefore, we direct to delete the addition. Hence, grounds raised by the assessee are allowed.

Summary

Issues involved:
Appeals against orders of Commissioner of Income-tax (Appeals) for assessment years 2013-14 and 2014-15; Determination of correct section for tax deduction on payments made to contractors; Interpretation of contracts for supply and installation of computers, solar panels, and related services; Applicability of section 194J or 194C for tax deduction; Previous dismissal of appeals by co-ordinate Bench and subsequent restoration by High Court for fresh consideration.

Analysis:
The appeals were filed against orders of the Commissioner of Income-tax (Appeals) for the assessment years 2013-14 and 2014-15, concerning tax deduction on payments to contractors. The issue revolved around whether tax should be deducted under section 194J or 194C for supply and installation of computers, solar panels, and related services. The contracts involved the provision of hardware, software, accessories, and personnel for project implementation. The Assessing Officer raised demands for short deduction of tax under section 201(1) and 201(1A) for both assessment years.

Upon review, the Income-tax Appellate Tribunal considered the nature of the contracts and the services provided by the contractors. It was observed that the contracts primarily involved the supply of goods and services for educational programs, with the contractors responsible for their own personnel. The Tribunal emphasized that the contractors did not render professional or technical services to the assessee, but rather executed the contracts through their own resources. Citing precedent and High Court rulings, the Tribunal concluded that tax deduction under section 194C was appropriate, as the contracts were for carrying out work and not for technical services.

Furthermore, it was highlighted that all contractors had paid taxes on the amounts received, precluding the imposition of demands under section 201(1). Referring to a similar case involving the Rajasthan Council of Elementary Education, where tax deduction under section 194C was upheld, the Tribunal directed the deletion of the tax demands raised by the Assessing Officer. The Tribunal's decision was supported by the factual matrix of the case and previous legal interpretations, leading to the allowance of the appeals filed by the assessee for both assessment years.

The Tribunal's ruling in the lead case for the assessment year 2013-14 was applied mutatis mutandis to the subsequent appeal for the assessment year 2014-15, resulting in the allowance of both appeals. The orders were pronounced in open court on November 2, 2021, in favor of the assessee, providing a comprehensive analysis and resolution of the tax deduction issues raised in the appeals.