2018 (4) TMI 988 - AT - Income Tax

TDS liability to be deductible u/s 194J or 194C - short deduction of tds on administrative fee - assessee in default - Held that - AO while framing the order under section 143(3) read with section 144C dated 31.03.16 disallowed the payments to Lobo Staffing Solutions Pvt. Ltd. under section 40(a)(ia) and added the same to the income of the assessee. The Dispute Resolution Panel directed the AO to make the deletion by holding that the payments to Lobo Staffing Solutions Pvt. Ltd. were a contractual payments and not professional fee and therefore TDS is not required to be made under section 194J. Merit in the contention of the A.R. that even if the payment to the said company by way of administrative fee of 45, 42, 411/-was liable for TDS u/s 194J of the Act the assessee has deducted TDS of 44, 17, 617/- which constitute 97% of the administrative fee. Hence there is no short deduction of TDS from administrative fee. Thus as regards non deduction of TDS on the reimbursement of expenses we are inclined to set aside the order of Ld. CIT(A) and hold that there is no short deduction of TDS and hence there is no default under section 201(1) of the Act. Consequently there can not be interest under section 201(1A) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
- Determination of whether payments made to a company should be treated as fee for professional services or contractual payments.
- Assessment of whether TDS should be deducted under section 194J or section 194C of the Act.
- Validity of interest levied under section 201(1A) of the Act.

Analysis:

Issue 1:
The primary issue in this case is whether the payments made to the company, M/s. Lobo Staffing Solutions Pvt. Ltd., should be classified as fee for professional services or contractual payments. The assessee contended that the payments were for day-to-day duties, data entry work, and reimbursements, while the Revenue argued that the payments constituted technical fee. The AO treated the payments as technical fee, leading to a demand for interest under section 201(1A) of the Act.

Issue 2:
Another crucial aspect of this case is the determination of whether TDS should be deducted under section 194J or section 194C of the Act. The AO insisted on TDS deduction under section 194J, considering the recipient as a recruitment agency. However, the Dispute Resolution Panel reversed this decision, stating that the payments were contractual and not professional fees, thus no TDS was required under section 194J.

Issue 3:
The final issue pertains to the validity of the interest levied under section 201(1A) of the Act. The assessee argued that all provisions related to tax deduction at source were duly complied with, and therefore, the interest imposed by the AO and upheld by the CIT(A) should be deleted. The Tribunal agreed with this argument, emphasizing that there was no short deduction of TDS and hence no default under section 201(1) of the Act, leading to the dismissal of the interest under section 201(1A).

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and ruling in favor of the assessee based on the facts presented and the legal position regarding TDS deductions on reimbursement of expenses.