2018 (2) TMI 1700 - AT - Income Tax

TDS u/s 194C OR 194J - tds on the services of testing and commissioning received from the BHEL - Held that - Identical issue has been decided by the Hon ble Punjab and Haryana High Court in Pr. CIT Vs. Bharat Heavy Electricals Ltd 2016 (12) TMI 955 - PUNJAB AND HARYANA HIGH COURT as held that the contract entered into between the respondent and each of the contractors, therefore, did not involve the supply of professional or technical services at least within the meaning of Section 194J. The consideration paid under the contracts, therefore, was not for the professional or technical services rendered by the contractors to the respondent. Section 194J is, therefore, not applicable to the present case. Section 194J is not a residuary clause. In other words, it is not that if a contract does not fall within the ambit of Section 194C, it must be deemed to fall within the ambit of Section 194J. As the respondent has accepted that it falls within Section 194C and has complied with its obligations thereunder, we refrain from deciding the issue as to whether it falls within Section 194C. Departmental Representative could not point out that how the services are different from the nature of services considered before the Hon ble High Court. No other contrary decision was also pointed out before us. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the services of testing and commissioning received from BHEL fall under section 194J or section 194C of the Income Tax Act, 1961.
2. The correctness of the tax deduction rate applied by the assessee on the payments made for these services.

Issue-Wise Detailed Analysis:

1. Applicability of Section 194J vs. Section 194C:

The primary issue in these appeals was whether the services of testing and commissioning received from BHEL by the assessee should be categorized under section 194J (fees for technical services) or section 194C (contract work) of the Income Tax Act, 1961.

The assessee, a company engaged in the generation of power, had deducted tax at source at the rate of 2% under section 194C for services involving transportation, insurance, erection, installation, testing, and commissioning. The Assistant Commissioner of Income Tax (TDS) contended that these services should be classified as "fees for technical services" under section 194J, requiring a 10% TDS deduction. The ACIT based this on the complexity and technical nature of the testing and commissioning work, which involved specialized technical manpower.

Upon appeal, the assessee referenced the decision of the Hon’ble Punjab and Haryana High Court in Pr. CIT Vs. Bharat Heavy Electricals Ltd (390 ITR 322), where similar services were held to fall under section 194C. The High Court had concluded that the contracts, which included erection, testing, commissioning, and trial operation of equipment, were primarily for work and labor, not for technical services. The Court emphasized that the employment of technical personnel was to ensure the proper execution of the contract, not to provide technical services to the respondent.

The ITAT, following the High Court's decision, concluded that the services availed by the assessee were indeed covered under section 194C. The tribunal noted that the departmental representative could not differentiate the nature of services from those considered by the High Court. Hence, the ITAT reversed the findings of the lower authorities and canceled the orders passed under section 201(1) and 201(1A) for the assessment years 2013-14 and 2014-15.

2. Correctness of the Tax Deduction Rate:

The second issue was whether the assessee had correctly deducted tax at the rate of 2% under section 194C or if it should have been 10% under section 194J. The ACIT had determined a short deduction of tax and calculated interest under section 201(1A), leading to a significant demand against the assessee.

The ITAT, after evaluating the rival contentions and the decision of the Hon’ble Punjab and Haryana High Court, found that the assessee's deduction under section 194C was appropriate. The tribunal held that the services of testing and commissioning were part of the work contract and did not constitute technical services under section 194J. Consequently, the ITAT allowed the appeals for the assessment years 2013-14 and 2014-15, canceling the demands raised by the lower authorities.

Conclusion:

In conclusion, the ITAT ruled in favor of the assessee, determining that the services of testing and commissioning received from BHEL were covered under section 194C, not section 194J. Therefore, the assessee had correctly deducted tax at the rate of 2%. The appeals for the assessment years 2013-14 and 2014-15 were partly allowed, while the appeal for the assessment year 2012-13 was dismissed as not pressed.