2016 (9) TMI 504 - AT - Income Tax

TDS u/s 194C or 194J - payments made for processing charges to Adlab for supplying copies of final negative - nature of payment - Held that - Such payments would be covered under sub-clause (e) of Explanation to Section 194C of the Act and may not be covered u/s. 194J of the Act, as no specialised job was to be done, nor any technical services have been rendered to the assessee. In the order u/s.201 of the Act, Assessing Officer had given details about various facilities available in Adlabs, but those facilities are used only for preparation of the final copy of negative. There is no technical service in such activity. Such jobs or work contracts of making several prints or the same final negative may not involve any technical or professional services as such, requiring the assessee to deduct tax u/s. 194J of the Act, but such contracts will be covered under the provisions of Section 194C of the Act. It was found evident that assessee has been consistently making TDS on payments for taking prints of negative, as per the provisions of Section 194C of the Act, while for original payments, it had been deducting TDS under the provisions of Section 194J of the Act and such deduction of tax had been accepted by same Assessing Officer and in assessee s own case for subsequent years in similar state of circumstances. Payments for supplying various copies of final negative has been made by assessee to Adlabs at the rate of ₹ 220/- per 100 mtrs., which itself indicated that the kind of work done by them was not very sophisticated or specialized. At the same time, the payment made to Kodak India Ltd., for processing of the final negative, was significantly higher, indicating that the nature of the work done by them was technical and specialized manner. In view of above, CIT(A) was justified in holding that assessee has rightly deducted TDS on the payments made to Adlabs, for supplying copies of final negative, as per the provisions of Section 194C of the Act. Consequently, CIT(A) was justified in granting relief to assessee on this account.

Summary

Issues:
Applicability of provisions of Section 194C vs. Section 194J of the Income Tax Act for payments made for processing charges to Adlab for supplying copies of final negative.

Detailed Analysis:

Issue 1: Applicability of Section 194C vs. Section 194J
- The appeals were filed by Revenue against the orders of Commissioner of Income-Tax (Appeals) regarding the applicability of provisions of Section 194C as against Section 194J for payments made to Adlabs for processing charges.
- The Assessing Officer found the assessee in default for short deduction of TDS amounting to ?37,95,763, as payments were not made as per Section 194J but under Section 194C.
- The CIT(A) granted relief to the assessee, which was opposed by Revenue, arguing for the applicability of Section 194J.
- The issue revolved around whether the payments for processing charges to Adlab fell under Section 194C or Section 194J of the Act.

Issue 2: Analysis of Section 194C and Section 194J
- Section 194C pertains to payments for carrying out any work under a contract, including manufacturing or supplying a product as per customer requirements. It involves deduction of income tax at specified rates.
- Section 194J deals with payments for professional or technical services, royalties, etc., with a higher rate of TDS deduction.
- The Assessing Officer contended that TDS should have been deducted under Section 194J for obtaining film prints, but the assessee argued that payments to Adlabs were for making copies, not technical services, falling under Section 194C.

Issue 3: Decision and Rationale
- The Tribunal analyzed the nature of work done by Adlabs and Kodak India Ltd. The work of Adlabs was deemed to be covered under Section 194C as it did not involve specialized or technical services, unlike Kodak India Ltd.
- The Tribunal upheld the CIT(A)'s decision that the payments to Adlabs for supplying copies of final negatives were rightly deducted under Section 194C, considering the nature of the work and past TDS practices of the assessee.
- The Tribunal dismissed the Revenue's appeals for both assessment years, affirming that the relief granted to the assessee was justified based on the provisions of the Income Tax Act.

Conclusion:
The Tribunal upheld the applicability of Section 194C over Section 194J for payments made to Adlabs, emphasizing the nature of work and past TDS practices. The appeals filed by Revenue were dismissed for both assessment years, affirming the relief granted to the assessee by the CIT(A).