2018 (9) TMI 1399 - AT - Income Tax

TDS u/s 194J OR 194C - non tds on payments made by the assessee company as professional fees - whether services received by assessee from BEL falls within the ambit of professional and technical services ? - Held that - Section 194J refers to definition of fees for technical services , as having same meaning as per Explanation 2 to sub clause (vii) of subsection (1) of section 9. In this case the agreement very clearly spells out that BEL undertook assembling of raw materials provided by assessee in respect of module M1 and M2, as per specifications provided by assessee. No doubt certain training has been provided by assessee to the engineers of BEL, however these rendering of training has been separately remunerated by BEL to assessee. Thus payment received by BET towards the work carried on under Phase II of the agreement, will not fall under the definition of the term professional services as no new technical consultancy has been offered by BEL to assessee. No fault in the observations of Ld.CIT (A) in holding that the work undertaken by BEL is covered under the provisions of section 194C. Accordingly we dismiss the ground raised by the revenue.

Summary

Issues:
1. Interpretation of provisions of sections 194J and 194C of the Income Tax Act.
2. Determination of whether payments made by the assessee to another party fall under the definition of "professional services" or "work" as per the Act.

Analysis:
1. The case involved a dispute over the applicability of sections 194J and 194C of the Income Tax Act regarding payments made by the assessee to another party. The Assessing Officer (AO) contended that the payments made were for technical services falling under section 194J, while the assessee claimed that the payments were for work under section 194C.

2. The assessee, a subsidiary of a US company, made payments to a Government undertaking for assembling activities. The AO argued that the involvement of qualified engineers and technical staff made the payments qualify as technical services under section 194J, requiring a higher tax deduction rate.

3. The AO held the assessee in default for not deducting tax under section 194J and raised a demand. However, the Commissioner of Income Tax (Appeals) (CIT(A)) ruled in favor of the assessee, stating that the payments did not constitute professional services as no technical consultancy was provided.

4. The Revenue appealed against the CIT(A)'s decision, arguing that the involvement of professional engineers and technical staff in the contract indicated the provision of professional and technical services falling under section 194J.

5. The Tribunal analyzed the agreement between the parties and found that the payments were for specific work phases involving the supply of materials and assembly, rather than technical consultancy. The Tribunal concluded that the payments fell under section 194C for work and not under section 194J for professional services.

6. The Tribunal highlighted that the agreement clearly outlined the nature of the work to be carried out by the other party, which did not involve new technical consultancy but rather assembly based on the specifications provided by the assessee. The training provided was separately remunerated, supporting the conclusion that the payments were for work and not professional services.

7. Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the payments made by the assessee fell under the provisions of section 194C for work and not under section 194J for professional services.

In conclusion, the judgment clarified the distinction between payments for work and professional services under sections 194J and 194C of the Income Tax Act, emphasizing the specific nature of the activities performed and the absence of new technical consultancy in determining the tax treatment of the payments made by the assessee.