2004 (11) TMI 293 - AT - Income Tax

Deduction of tax at source - treatment of reimbursement of salaries as fees for professional and technical services - Assessee in default - charging of interest u/s 201(1A) - HELD THAT - In the present case, it is not in dispute that what is reimbursed by the assessee is the actual salary of the deputed personnel. Undoubtedly, for each deputed person, the amount received by it is income chargeable under the head salary and therefore, it cannot be termed as fees for technical services . It is amply clear that what s. 194J envisages is that what the recipient receives must not be salary whether professional services are rendered or whether technical services are rendered. So far as professional services are concerned, the amount must have been received in the course of carrying on the specified profession. So there is no question of deducting tax at source u/s 194J from the salary paid to an accounts executive, legal officer, etc. of the company. Likewise, amount received by a technical personnel must not be chargeable to tax under the head salaries . In the present case, what has been paid to the deputed personnel is a salary and hence, the assessee was not liable to deduct tax at source from the payment made by it to IHC as reimbursement of salaries in respect of various personnel deputed to the hotel of the assessee. Thus, we hold that the order passed under ss. 201 and 201(1A) is bad in law and the CIT(A) had also erred in confirming the same. Needless to add, since the assessee was not liable to deduct tax u/s 194J, there is no question of levying any interest also u/s 201(1A) of the Act. In the result, the appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in this case are the treatment of reimbursement of salaries as fees for professional and technical services, liability to deduct tax at source under section 194J, and charging of interest under section 201(1A) of the IT Act, 1961.

Treatment of Reimbursement of Salaries:
The appellant contested the order treating the reimbursement of salaries paid to deputed staff of group hotels as fees for professional and technical services. The AO argued that the deputed personnel from other hotels provided professional and technical services to the appellant, falling under the definition of "professional and technical services" as per relevant sections of the Act. The appellant maintained that the deputed staff were employees of their respective hotels, and the reimbursement was for salaries already subject to tax deduction at source by the hotels. The Tribunal noted that the deputed personnel were not carrying out professions but were employees, and the reimbursement of their salaries did not qualify as fees for technical services.

Liability to Deduct Tax at Source:
The Tribunal examined the provisions of section 194J, which require tax deduction at source from payments for professional or technical services. It was established that the deputed personnel were not rendering professional or technical services directly to the appellant but were employees of another entity. Therefore, the appellant was not liable to deduct tax at source under section 194J from the reimbursement of salaries paid to the deputed staff.

Charging of Interest under Section 201(1A):
The AO had raised a demand for tax and interest under section 201(1A) due to the alleged non-deduction of tax at source. However, the Tribunal found that since the appellant was not obligated to deduct tax under section 194J, there was no basis for levying interest under section 201(1A). The Tribunal concluded that the order under sections 201 and 201(1A) was legally flawed, and the CIT(A) erred in upholding it. Consequently, the appeal of the appellant was allowed, and no interest was deemed payable under section 201(1A) of the Act.