2017 (10) TMI 484 - HC - Income Tax

TDS u/s 194C OR 194J - payments made by the assessee to IRCTC - non deduction of tds - disallowance under section 40(a)(ia) - whether IRCTC was not Government and that the payment was made to a contractor and therefore required deduction of tax at source in view of section 194C? - Held that - The assessee was granted a contract by IRCTC for providing catering service for which the assessee would make payment in the nature of licence fee. According to the Revenue on such payments the assessee had to deduct tax at source which admittedly the assessee had not done. Under sub-section (1) of Section 194C any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and the specified person is required at the time of credit of such sum in the account of the contractor or at the time of payment to deduct tax at specified rate. The Tribunal was thus right in observing that section 194C of the Act would apply in case of a payment being made by a contractor to a contractee and not vice-versa. In the present case the payment of licence fee was made by the contractee to the contractor and therefore section 194C of the Act would not apply. In that view of the matter we see no reason to interfere. However this may not be seen as our confirmation of the Tribunal s view that IRCTC was a government body and therefore also requirement of deducting tax at source did not arise or that proviso to sub-section (1) of Section 201 may have retrospective effect. We keep both these questions open.

Summary

Issues:
1. Interpretation of sections 194C and 194J of the Income Tax Act for tax deduction on payments made by an assessee to IRCTC.
2. Determination of whether IRCTC is considered a government body for tax deduction purposes.
3. Consideration of the applicability of the proviso to sub-section (1) of Section 201 of the Income Tax Act.

Analysis:
The High Court addressed tax appeals arising from the Income Tax Appellate Tribunal's judgment concerning the assessment years 2006-07 to 2007-08 and 2009-10, focusing on the assessment year 2008-09. The core issue revolved around the disallowance under section 40(a)(ia) of the Act on payments made by the assessee to IRCTC. The Commissioner (Appeals) determined that IRCTC was not a government entity and that tax deduction at source was necessary under section 194C of the Act for payments made to a contractor.

The Tribunal, however, ruled that neither section 194J nor section 194C applied in this scenario. It clarified that section 194C pertains to payments made by a contractor to a contractee, which was not the case with the payment of license fee by the assessee to IRCTC. The Tribunal also deemed IRCTC as a government body and referred to the proviso to sub-section (1) of Section 201 introduced subsequently.

Upon hearing arguments from both sides, the High Court acknowledged that the assessee had a contract with IRCTC for catering services, involving payments akin to license fees. It was noted that the provisions of section 194J, concerning professional or technical service fees, were not applicable in this context. Section 194C, which mandates tax deduction on payments to contractors, was deemed irrelevant as the payment in question was from the contractee to the contractor, exempting it from section 194C's purview.

The Court concurred with the Tribunal's interpretation, emphasizing that section 194C did not encompass situations where license fees were paid to IRCTC for catering services. However, the Court refrained from confirming the Tribunal's view regarding IRCTC's classification as a government body and the retrospective effect of the proviso to sub-section (1) of Section 201. Both these aspects were left open for further consideration. Ultimately, the Court dismissed both tax appeals, subject to the aforementioned observations.