2019 (1) TMI 1294 - AT - Income Tax

TDS u/s 194C OR 195 - payments made to the consortium - Short deduction of tax u/s 201(1) and Interest u/s 201 (1A) - Held that - As decided in DCIT (TDS) ACIT, TDS AND JCIT, TDS, DEHRADUN VERSUS THE JOINT SECRETARY ORGANIZING COMMITTEE FOR WINTER GAMES 2018 (10) TMI 1174 - ITAT DELHI in so far as the payments made to various parties which are public sector undertakings, the Tribunal dealt with such an issue at length and reached a conclusion that the matter needs to be set aside to the file of the learned AO with a direction to assessee to produce the bills etc. before the learned AO , who will examine them. It cannot be a reason for non-deduction of tax at source that recipient of the income have onward distributed the work to the sub contractors and recipient of the income have in turn deducted the tax at source on payment made by them to those sub- contractors. According to the provision of 194C of the Act even, the contractor is also required to deduct tax at source on payment made to their sub contractors. Thus we hold that payment made to the above parties are subject to tax deduction at source u/s 194C of the Act and assessee is liable to deduct tax at source u/s 194C of the Act. Therefore, to this extent we uphold the order of lower authorities. We direct the learned AO to delete the addition made u/s 195 of the Act in respect of the payments made to Snow Star SPA and M/s Pomagalski SA France We set aside the order u/s 201 of the Act with a direction that assessee may submit the requisite prescribed detail in specified manner before the ld Assessing Officer and then ld AO may decide the issue and, if found in accordance with the law, shall not treat the assessee in default u/s 201 of the Act. With respect to the interest u/s 201(1A) of the Act similar proviso is also added and AO may work out, based on the details furnished by the assessee, appropriate interest in accordance with law. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Applicability of Section 195 of the Income Tax Act, 1961.
2. Applicability of Section 194C of the Income Tax Act, 1961 for payments to public sector undertakings.
3. Payments to the Winter Games Federation of India and their tax implications.

Issue-wise Detailed Analysis:

1. Applicability of Section 195 of the Income Tax Act, 1961:
The primary issue was whether payments made to foreign companies under a consortium agreement required tax deduction at source under Section 195. The Assessing Officer (AO) held that these payments were for technical services and thus subject to TDS under Section 195. However, the CIT(A) and the Tribunal found that the consortium did not constitute an Association of Persons (AOP) as per CBDT Circular No. 7/2016. The Tribunal noted that each consortium member was responsible for distinct parts of the contract, and payments were made directly to them. It was determined that the title of goods passed outside India, and no income accrued to the foreign parties in India. Therefore, the provisions of Section 195 did not apply, and the assessee was not required to deduct tax at source on these payments.

2. Applicability of Section 194C of the Income Tax Act, 1961 for payments to public sector undertakings:
The AO observed that the assessee made payments to various public sector undertakings for construction and development work without deducting TDS under Section 194C. The assessee argued that these payments were grants to government agencies, which in turn deducted TDS where applicable. The Tribunal, however, held that the assessee was responsible for TDS as the payments were made for specific work executed as per the assessee’s requirements. The Tribunal directed the AO to verify if the recipients had included these amounts in their income and paid taxes. If so, the AO was instructed to grant relief to the assessee, following the principles laid down by the Supreme Court in Hindustan Coca Cola Beverages P. Ltd. vs. CIT and CIT vs. Dewan Chand.

3. Payments to the Winter Games Federation of India and their tax implications:
The AO contended that payments to the Winter Games Federation of India (WGFI) were subject to TDS under Section 194C. However, the CIT(A) and the Tribunal found that WGFI was not a contractor but an associate in organizing the winter games. Therefore, payments to WGFI did not fall under the purview of Section 194C, and no TDS was required.

Conclusion:
The Tribunal directed the AO to delete the additions made under Section 195 for payments to foreign companies and to re-examine the payments to public sector undertakings and other parties based on the directions and principles established in the previous assessments and relevant judicial pronouncements. The appeal was partly allowed for statistical purposes.