2015 (8) TMI 361 - AT - Income Tax

TDS u/s 194J OR u/s 192 - remuneration to consultants - re-characterisation of the arrangement between the company and consultants as employer-employee in place of consultant arrangement between the assessee entity and the said consultants - AO raised a demand being the difference in tax deductible u/s 192 and 194J on payments made to consultants - CIT(A) deleted demand - Held that - AO re-characterised the relation between the assessee company and the consultant/technocrat and relation of employer and employee but we are unable to see any basis or allegation supporting this recharacterisation and action of the AO to treat the payments by the assessee company to these consultants/technocrats as salary instead of remuneration/consultation fee and expecting the assessee to deduct TDS u/s 192 of the Act instead of remuneration/consultation fee and expecting the assesse to deduct TDS u/s 192 of the Act instead of 194J of the Act. Per contra, from the explanation, details and evidence submitted by the assessee, we are satisfied that the payments made by the assessee company was not salary and the same was remuneration/consultation fee paid to the highly experienced technocrats/consultants which could not be engaged on full time basis as regular employees due to high remuneration and temporary requirement of the assessee company. We cannot ignore this fact that all technocrats and consultants are more than 60 years of age and are in post retirement/superannuation life cycle and we cannot expect them to work as regular employees unless there is an exceptional case. We may further note that the AO has not demolished this contention of the assessee that the said consultant/technocrat had filed their income tax return with the department which were also submitted before the AO and they have paid tax thereon, therefore, respectfully following the ratio laid down by the Hon ble Supreme Court in the case of Hindustan Coca Cola (2007 (8) TMI 12 - SUPREME COURT OF INDIA ), there was no need of expecting the assessee deductee to again pay the tax on the said payment on account of short deduction of TDS, specially when the TDS deducted by the assessee company u/s 194J of the Act was on the higher side as deductible u/s 192 of the Act. - Decided against revenue.

Summary

Issues Involved:
1. Whether the taxes were correctly deducted under Section 194J of the IT Act instead of Section 192 due to an alleged employer-employee relationship.
2. Whether the liability of the deductor under Section 201(1) of the IT Act ceases after four years.

Detailed Analysis:

Issue 1: Correctness of Tax Deduction under Section 194J vs. Section 192
The revenue's primary contention was that the relationship between the company and its consultants was akin to an employer-employee relationship, necessitating tax deduction under Section 192 (salaries), not Section 194J (professional fees). The Assessing Officer (AO) recharacterized the arrangement, raising a demand of Rs. 2,05,94,240 for the financial years 2007-08 and 2008-09.

The CIT(A) granted relief to the assessee, concluding that the consultants were not employees but independent professionals, thus justifying the deduction under Section 194J. The CIT(A) noted that all consultants were above 60 years of age, often post-retirement, making full-time employment impractical. It was also observed that the tax deducted under Section 194J was higher than what would have been deducted under Section 192, and the consultants had already paid taxes on their income.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's recharacterization lacked merit. The Tribunal found that the consultants were highly experienced technocrats engaged on a part-time basis, and the nature of their work did not support an employer-employee relationship. The Tribunal also noted that the consultants had filed their tax returns, and further recovery from the deductor was unwarranted, referencing the Supreme Court's decision in Hindustan Coca Cola Beverage (P) Ltd. vs. CIT, which stated that no further recovery should be made if the payee had already paid the taxes.

Issue 2: Liability of Deductor under Section 201(1)
The revenue argued that the CIT(A) erred in holding that the liability under Section 201(1) ceases after four years. The CIT(A) had observed that the consultants had paid their taxes, and the AO could verify this through their PAN and tax returns. The Tribunal agreed with the CIT(A), noting that the tax deducted under Section 194J was higher than what would have been under Section 192, and the consultants' tax payments negated any further liability for the deductor.

The Tribunal also referenced the CBDT Circular No. 275/201/95-IT(B) dated January 29, 1997, which states that no demand under Section 201(1) should be enforced if the deductee has paid the taxes due. This circular supports the CIT(A)'s conclusion that the deductor's liability ceases after four years if the taxes have been paid by the deductee.

Conclusion
The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s order that the taxes were correctly deducted under Section 194J and that the deductor's liability under Section 201(1) ceases after four years if the deductee has paid the taxes. The Tribunal found no basis for the AO's recharacterization of the relationship between the company and its consultants as that of employer and employee. The decision was pronounced in the open court on 5.8.2015.