2014 (5) TMI 510 - AT - Income Tax

TDS u/s 194C or 194J - comprehensive maintenance contracts for its various equipments, installations, viz. Air Conditioners, Lifts, Vehicles and Engine alternator services - Failure to deduct TDS Held that - the work of a cobbler, a carpenter, barber, weaver, et. al. is all highly skilled and specialized, when considered from the stand point of a common, lay person. However, the technology involved or, rather, the interface therewith, as required, is fairly simple and of low calibre; the gadgets involved being of everyday use and, therefore, of common user and repair. That is, the job involves work of regular, low-technical nature, which could thus be contracted out on a pre-determined basis in-as-much the routines involved or to be followed are well established. - Relying upon Tata AIG General Insurance Co. Ltd. Versus Income-tax Officer (OSD) 3(2) 2010 (10) TMI 359 - ITAT, MUMBAI , the payments made have been correctly classified for the purpose of deduction of tax at source u/s.194-C, as against u/s. 194-J - Decided in favor of assessee. TDS on vehicle hiring charges - Held that - the arrangement is not toward the provision of carriage services, as understood by the first appellate authority, but for making available cars for the assessee s personnel. At the same time, clearly, the arrangement also includes making available services of a chauffeur as well as meeting the fuel cost of transportation. The same cannot by any means be considered as toward car rental. Subject to a reasonable deduction in respect of charges in its respect, based on the materials and/or information led by the assessee, which would though stand to be considered as toward contractual services covered by section 194-C, the balance amount would fall to be governed by u/s.194-I. - Decided against the assessee. Recovery of TDS where the tax on the relevant income stands paid by the deductee. - Held that - The TDS provisions are only a mode and manner of collecting the tax of the deductee (through the deductor), so that there could be no double payment of tax, even as in fact clarified by the Board itself per its circular - The onus to exhibit that the tax on the relevant income has been assessed or brought to tax, so that no further tax is required to be deducted/paid in its respect, is on the assessee - The AO directed to allow the assessee reasonable opportunity to satisfy him ans decide the matter after due verification Decided partly in favour of Assessee.

Summary

Issues:
1. Exigibility to tax deduction at source (TDS) for payments made to contractors.
2. Classification of payments for maintenance contracts under section 194-C or 194-J.
3. Classification of payments for vehicle hiring under section 194-C or 194-I.
4. Implications of reversal of decision on demand under sections 201(1) and 201(1A).

Issue 1: Exigibility to tax deduction at source (TDS) for payments made to contractors:
The judgment involves three consecutive years of assessment where the Revenue contested orders allowing the assessee's appeals against demands under sections 201(1) and 201(1A) of the Income Tax Act, 1961. The primary issue is the correct provision of law under which tax deduction is required for payments made to contractors. The Revenue raised demands for shortfalls in tax deduction and interest. The Tribunal analyzed the nature of payments involved to address this issue comprehensively.

Issue 2: Classification of payments for maintenance contracts under section 194-C or 194-J:
The first category of payments under review pertains to maintenance contracts for various equipment and installations. The assessee argued for tax deduction under section 194-C for works contracts, while the Revenue insisted on section 194-J for professional or technical services. The Tribunal considered the nature of work, qualifications of personnel, and maintenance schedules to determine the appropriate tax deduction provision. Referring to precedents and CBDT circulars, the Tribunal concluded that the payments were correctly classified under section 194-C, in line with the decisions in relevant cases.

Issue 3: Classification of payments for vehicle hiring under section 194-C or 194-I:
The next set of payments in question related to vehicle hiring. The assessee deducted tax under section 194-C, while the Revenue argued for section 194-I covering rent for plant or machinery. The Tribunal examined the nature of services contracted and the availability of vehicles to determine the appropriate tax provision. Referring to CBDT circulars and factual considerations, the Tribunal concluded that the arrangement was not for carriage services but for making cars available to personnel, with additional services like chauffeurs and fuel costs. The decision was based on factual findings, and the Tribunal directed the Assessing Officer to verify and decide the matter accordingly.

Issue 4: Implications of reversal of decision on demand under sections 201(1) and 201(1A):
In case of a reversal on merits, the assessee raised an alternate plea regarding demands under sections 201(1) and 201(1A). Citing a Supreme Court decision, the assessee argued against double payment of tax where the tax on relevant income was paid by the deductee. The Tribunal directed the Assessing Officer to allow the assessee an opportunity to demonstrate that the tax on relevant income had been assessed or brought to tax, thereby preventing further tax deduction or payment. The decision was made in line with established principles and legal precedents.

In conclusion, the judgment addressed the issues of tax deduction at source for payments made to contractors, classification of payments under relevant provisions, and the implications of reversal on demands under the Income Tax Act, providing detailed analysis and legal reasoning for each issue.