2016 (8) TMI 507 - HC - Income Tax

TDS u/s 194J - non deduction of TDS on technical work payments - Held that - Both the appellate authorities have taken into consideration the agreement entered by and between the parties/stakeholders and the dominant intention of the parties was to conduct the business of providing specific e-learning courses in the State of Rajasthan and share the revenue generated by way of fees received from the learners. Admittedly, in the revenue sharing model, the entry fees (course fee/exam fee), collected from the learners have been received by the respondent, which in turn redistributed it to be shared with the ITGKs and VMOU as per the agreement. For instance, the aggregate revenue of ₹ 2,300 for RS-CIT course, which is received by the ITGK from the learner, is transferred to the respondent which is shared among the three stakeholders. In our view, the transaction between the ITGK and RKCL and VMOU are not of a service provider or service receiver. The relation between these stakeholders is one of collaborators as per the agreement made and the revenue shared cannot be said to be payments for technical services rendered by ITGKs and VMOU to RKCL as held by the Assessing Officer. - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 194J of the Income-tax Act, 1961.
2. Nature of payments made to IT Gyan Kendras (ITGKs) and their classification.
3. Revenue sharing model and its implications on tax deduction at source (TDS).
4. Precedents and relevant case laws.

Issue-wise Detailed Analysis:

1. Applicability of Section 194J of the Income-tax Act, 1961:

The primary issue revolves around whether the payments made by the respondent-company to ITGKs are subject to tax deduction at source under Section 194J of the Income-tax Act, 1961. Section 194J mandates TDS on payments made for professional or technical services. The Assessing Officer (AO) contended that the payments to ITGKs were for technical services, thus requiring TDS under Section 194J. However, the Tribunal and the Commissioner of Income-tax (Appeals) found that these payments were part of a revenue-sharing model rather than fees for technical services. The court upheld this view, stating, "the amount paid in the instant case is neither in the nature of professional or technical services rendered by the respondent-assessee to the stakeholders/collaborators or vice versa."

2. Nature of Payments Made to IT Gyan Kendras (ITGKs) and Their Classification:

The AO classified the payments to ITGKs as fees for technical services, necessitating TDS. The respondent argued that the payments were shared revenue among stakeholders, not fees for services. The court noted that the payments were part of a collaborative agreement among stakeholders, including ITGKs, VMOU, and the respondent-company. The court observed, "the relation between these stakeholders is one of collaborators as per the agreement made and the revenue shared cannot be said to be payments for technical services rendered by ITGKs and VMOU to RKCL as held by the Assessing Officer."

3. Revenue Sharing Model and Its Implications on Tax Deduction at Source (TDS):

The revenue-sharing model involved collecting fees from learners and distributing it among stakeholders. The AO argued that the respondent was obligated to deduct TDS on the Rs. 1,450 paid to ITGKs. The court, however, found that the revenue-sharing agreement did not constitute a service provider-service receiver relationship. Instead, it was a collaborative effort to provide e-learning courses. The court stated, "the transaction between the ITGK and RKCL and VMOU are not of a service provider or service receiver... it is merely sharing of the fee in the manner agreed to by and between them."

4. Precedents and Relevant Case Laws:

The court referred to similar cases to support its decision. In CIT v. NIIT Ltd., the Delhi High Court found that sharing revenue with franchisees was not a payment for services but a collaborative business model. Similarly, in CIT v. Career Launcher India Ltd., the Delhi High Court held that revenue sharing between a company and its franchisees did not attract TDS under Section 194C. The court noted, "the facts are pari materia with that of the above case because in the present case also... the dominant intention in the present facts is that the fees is being shared based on the agreement as noticed earlier."

Conclusion:

The court concluded that the payments made by the respondent-company to ITGKs were part of a revenue-sharing agreement and not fees for technical services, thus not attracting TDS under Section 194J. The court dismissed the Revenue's appeal, stating, "no substantial question of law can be said to arise out of the order passed by the Tribunal as it is based essentially on finding of facts." The appeal was deemed devoid of merit and was dismissed.

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