2017 (1) TMI 242 - HC - Income Tax

TDS u/s 194H or u/s 194J - applicability u/s 40(a)(ia) - TDS on Services Charges made to RCDF - Held that - Tribunal as held apropos the payment to RCDF cess it has not been demonstrated by the Department that any managerial services in this connection have been rendered to assessee by RCDF qua this amount. RCDF is an apex cooperative body and cess is paid to it by virtue of federal structure in Rajasthan cooperative set up. Thus as far as assessee s business is concerned there is no rendering of any managerial services by RCDF as alleged by the AO u/s 194H and upheld ld. CIT(A) u/s194J. Since there is no rendering of any services and the payment is not made for any managerial services to RCDF therefore payment can neither be held as liable for TDS u/s 194H of the Act as commission/brokerage as held by the AO nor u/s 194J for rendering any managerial services as held by the ld. CIT(A). In view thereof we hold that assessee s impugned payment to RCDF are not liable for TDS. It is true that the counsel for the appellant contended that the the payment which has been made till 16.12.2013 (Annexure-4) on completion of financial year will be applied or not. Therefore we are not confirming the reasoning adopted by the Tribunal but confirming only the conclusion drawn by the Tribunal. However question regarding Section 194J & H of the Income Tax Act. It is payment made on the basis of Federation and Membership. It is on the ground of mutuality payment is made.

Summary

Issues:
1. Challenge to Tribunal's judgment allowing assessee's appeal and dismissing department's appeal.
2. Substantial questions of law regarding TDS applicability on payments made to RCDF and milk societies.
3. Interpretation of services provided by RCDF to assessee for TDS liability determination.
4. Tribunal's decision on TDS liability of payments to RCDF and milk societies.
5. Applicability of TDS provisions under Sections 194H and 194J of the Income Tax Act.
6. Consideration of payments made based on Federation and Membership for mutuality.

Analysis:
1. The appellant challenged the Tribunal's judgment that favored the assessee and dismissed the department's appeal. The substantial questions of law raised concerned the applicability of TDS on payments made to RCDF and milk societies under Sections 194H and 194J of the IT Act, 1961.

2. The CIT (Appeals) examined the nature of services provided by RCDF to the appellant, emphasizing that the payments were not reimbursement of expenses but fees for professional or technical services. The CIT (Appeals) found that the appellant failed to deduct TDS, leading to disallowance of expenditure under Section 40(a)(ia) of the Act.

3. The Tribunal, however, disagreed with the department's contention, stating that no managerial services were demonstrated to have been rendered by RCDF to the assessee. The Tribunal held that the payments to RCDF were not liable for TDS under Sections 194H or 194J since no managerial services were provided, and the payments were not for such services.

4. The Tribunal's order emphasized that the payments to RCDF were related to a cess paid as part of the cooperative structure, not for managerial services. Therefore, the Tribunal concluded that the payments were not subject to TDS under Sections 194H or 194J, contrary to the department's assertions.

5. The Tribunal's decision was based on the lack of evidence of managerial services being provided by RCDF, leading to the allowance of the assessee's ground regarding the TDS liability of payments to RCDF. The Tribunal's conclusion was upheld, although the reasoning was not entirely confirmed.

6. The judgment clarified that the payments made to RCDF and milk societies were based on Federation and Membership principles, involving mutuality. The Tribunal disposed of the appeal accordingly, considering the specific grounds related to Sections 194H and 194J of the Income Tax Act.