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2017 (11) TMI 191 - AT - Income TaxTDS u/s 194C OR 194J - nature of technical services - short deduction of tds - levy of tax u/s. 201(1) and levy of interest u/s. 201(1A) - Held that - Whether the tax is to be deducted u/s. 194C or 194J, it does not matter, so long as the demand u/s. 201(1) cannot be raised as per the provisions of the Act, on the fact that deductees have paid taxes thereon on the incomes. CIT(A) has considered that assessee has correctly deducted tax u/s. 194C and the issue of demand u/s. 201(1) was considered as an alternative plea. However, we noticed that certain amounts are to be considered u/s. 194J. Therefore, this issue of considering the amounts u/s. 194C or 194J of various services rendered is to be restored to the file of AO for verification afresh keeping in mind the services rendered, the principles of law involved and the facts of the case. In case assessee satisfies that the deductees have paid taxes, the proviso to Section 201(1) may apply and no further demand u/s. 201(1) can be raised. The so called Chartered Accountant s certificate, filed before the CIT(A) can also be examined, keeping in mind the observations of the CIT(A) in the alternate, plea discussed in para 12 of the order of the CIT(A). Therefore, AO is directed to examine about the nature of services and which of the services are coming u/s. 194J, then examine whether a demand u/s. 201(1) can be raised in AYs. 2013-14 and 2015-16. If assessee satisfies that the deductees have paid taxes thereon on the incomes, no demand u/s. 201(1) can be raised. We are of the opinion that to the extent of levy of interest u/s. 201(1A) is concerned, the issue is to be examined whether any of these services are required to be considered u/s. 194J. In case any of the services are considered to be covered u/s. 194J, then AO is statutorily required to levy interest u/s. 201(1A) even though no demand is raised u/s. 201(1). This requires a separate consideration by the AO. The issue of levy of interest u/s. 201(1A) for the duration of interregnum period i.e., from the date of payment on which TDS was to be made and to the dates payment of tax by the deductees is required to be levied after due examination of the facts. AO is directed to examine the facts and consider the principles of law before levying interest u/s. 201(1A). Assessee should be given due opportunity before deciding the issue. Assessee is also directed to furnish necessary details to examine the services which may be covered u/s. 194C/194J. With these observations, the issues in these appeals are restored to the file of AO, for which purpose the orders of the CIT(A) and AO which were originally passed are hereby set aside with a direction to reexamine the issue as stated above.
Issues Involved:
1. Liability of the assessee to pay interest under Section 201(1A) for all the impugned assessment years. 2. Liability of the assessee to pay tax under Section 201(1) for AYs 2013-14 and 2015-16. 3. Classification of payments made by the assessee to service providers under Section 194C or 194J of the Income Tax Act. 4. Validity of the demands raised by the Assessing Officer (AO) under Sections 201(1) and 201(1A). Issue-wise Detailed Analysis: 1. Liability of the Assessee to Pay Interest under Section 201(1A): The AO raised demands under Section 201(1A) for short deduction of tax, arguing that the services provided were technical in nature and should be taxed at 10% under Section 194J instead of 2% under Section 194C. The CIT(A) held that the agreements were for 'works contract' and thus, the tax deduction at 2% was correct. Consequently, the levy of interest under Section 201(1A) was canceled. However, the Tribunal directed the AO to re-examine the nature of services to determine if any fall under Section 194J, and if so, to levy interest under Section 201(1A) accordingly. 2. Liability of the Assessee to Pay Tax under Section 201(1) for AYs 2013-14 and 2015-16: The AO raised demands under Section 201(1) for AYs 2013-14 and 2015-16 due to the assessee's failure to furnish necessary tax remittance details of the deductees. The CIT(A) canceled these demands, stating that the assessee had correctly deducted tax under Section 194C. The Tribunal upheld that if the deductees had paid taxes, the demand under Section 201(1) could not be raised, following the Supreme Court's principles in Hindustan Coca Cola Beverage (P.) Ltd. vs. CIT and the proviso to Section 201(1). The AO was directed to verify if the deductees had paid taxes and, if satisfied, no demand under Section 201(1) should be raised. 3. Classification of Payments under Section 194C or 194J: The AO classified the payments as technical services requiring a 10% deduction under Section 194J. The CIT(A) disagreed, classifying them as 'works contract' under Section 194C, requiring a 2% deduction. The Tribunal noted that similar services were treated differently in another case (Sri Gowtham Academy) and directed the AO to re-examine the nature of services rendered. The AO was instructed to determine which services fall under Section 194J and which under Section 194C, considering the principles laid down by the Supreme Court and other relevant judgments. 4. Validity of Demands Raised by the AO under Sections 201(1) and 201(1A): The CIT(A) canceled the demands raised by the AO, concluding that the assessee had correctly deducted tax under Section 194C. The Tribunal found merit in the CIT(A)'s conclusion but directed a re-examination of the services to determine the correct classification under Sections 194C and 194J. The AO was also directed to verify the tax payment details provided by the deductees and, if confirmed, not to raise demands under Section 201(1). For interest under Section 201(1A), the AO was to consider the period between the due date of TDS deduction and the actual tax payment by the deductees. Conclusion: The Tribunal allowed the Revenue's appeals for statistical purposes, directing the AO to re-examine the nature of services and the corresponding tax deductions under Sections 194C and 194J. The AO was also instructed to verify the tax payments by deductees and adjust demands and interest accordingly, ensuring compliance with the principles laid down by higher judicial authorities.
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