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TMI Blog2011 (9) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... se of services of technical qualified persons - Held that:- There might be use of services of technically qualified persons to render for maintenance of telephone exchange, annual maintenance contract for VHF wireless set, repairs and annual maintenance of computers, etc., but that itself did not bring the amount paid as 'fees for technical services' within the meaning of Explanation 2 to section 9(1)(vii). Therefore, the amount paid towards annual maintenance contract of Telephone Exchange and Computers by the assessee could not be considered as fee for technical services u/s 194J. Decided in favour of Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. GENERAL 8. Each one of the above grounds of appeal is without prejudice to the other. 2.1 The grounds raised by the assessee in its appeal for the assessment year 2008- 2009 are as under: "The appellant company objects to the order dated 15 September 2009 passed by the Commissioner of Income-Tax (Appeals)-I, Surat ['CIT(A)'] under section 250 of the Income Tax Act, 1961 ('the Act') on the following amongst other grounds: VEHICLE CHARGES 1. The CIT(A) erred in confirming that payments made by the appellant Company in respect of vehicle charges paid to M/s. Maruti Travels is covered under provisions of Section 194I of the Act and not under Section 194C of the Act as claimed by the appellant Company. 2. The learned CIT(A) erred in not appreciating that the payments made by the appellant Company to M/s. Maruti Travels and M/s.Jaydev Barot were similar to the payment made by the appellant Company to another travel agent, M/s. Baroda Travels, where the tax department has issued the certificate under Section 197 of the Act stating that payment is covered by provisions of Section 194C of the Act. REIMBURSEMENT OF FOOD EXPENSES 3. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o another travel agent, M/s. Baroda Travels, where the tax department has issued the certificate under Section 197 of the Act stating that payment is covered by provisions of Section 194C of the Act. REIMBURSEMENT OF FOOD EXPENSES 3. The learned CIT(A) erred in confirming that the reimbursement of food expenses of ₹ 600 per month paid to the employees is a taxable perquisite and chargeable to tax as salary for the purpose of deduction of tax at source under section 192 of the Act CERTAIN ITEMS OF EXPENSES ON WHICH TAX IS DEDUCTED U/S 194C As AGAINST U/S 194J OF THE ACT 4. The learned CIT(A) erred in confirming that the payment made of ₹ 4,964,850/-in respect of certain items of expenses viz Maintenance of telephone charges, repairs and maintenance of computers, installation, commissioning, simulator testing and training, testing of Iodine filters etc. are covered by the provisions of Section 194J of the Act instead of Section 194C of the Act as claimed by the appellant Company. BONAFIDE BELIEF 5. The learned. CIT(A) erred in not considering the submissions made by the appellant company in its correct perspective. 6. The learned CIT(A) erred in not apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 201(1). However, the assessee would still be liable for interest under section 201(1A) from the period TDS was deductible to the date when the payee has made payment on the entire receipt either as advance tax or by way of self-assessment tax or regular tax. 5. Aggrieved with the order of the ld. CIT(A), the assessee is in appeal in respect of all these three assessment years and for only ground for the assessment year 2009- 2010, the revenue is in appeal against the direction of the ld. CIT(A) regarding reworking of interest leviable under section 201(1A) of the I.T. Act, 1961. 6. At the time of hearing before us, on behalf of the assessee, Shri Sanjoy R. Shah appeared and pointed out that in respect of vehicle charges, TDS is required to be deducted under section 194C and not under section 194-I of the I.T. Act, 1961. In support of this, reliance is placed on the following decisions: i. Ahmedabad Urban Development Authority-vs- ACIT in ITA No.1637/Ahd/2010 ii. M/s. Mukesh Travels Co.-vs- ITO in ITA No.2594/Ahd/2010 iii. ACIT (TDS)-vs- Accenture Services Pvt. Ltd. iv. ACIT (TDS)-vs- Lotus Valley Education Society reported in 20 Taxmann.com 46 (Delhi ITAT) v. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the assessment years, is that the company is reimbursing food expenses to its employees, as per reimbursement of canteen subsidy scheme, for which a one time certificate is furnished by the employee that he/she has incurred an amount of ₹ 60/- per employee per month towards lunch/breakfast/tea, etc. a) Amount of Canteen Subsidy payable is ₹ 500/- per month. A certificate in prescribed format has to be furnished about incurring of expenditure. b) Payable for the entire month if the employee is on leave/absence in a particular month, for a period of 14 days or less including the period of prefix, suffix, intervening holiday, if any. c) Beyond the period specified above, the canteen subsidy shall be payable on pro-rata basis. d) Not eligible while under suspension. e) Sanctioned on uniform basis to all the eligible employees. 9.1 Before the ITO,TDS-I, it was contended that the assessee has not deducted tax at source on this reimbursement of food expenses because under the provisions of section 17(2) read with Rule3, food or beverage provided by the employer to its employees during office hours are not chargeable to tax in India. It is further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . is directed to do the recalculation after obtaining the same from the appellant company so that the perquisite is added to each employee's income and tax is calculated according to their respective slab of income." 11. Aggrieved, the assessee is in appeal for all the three assessment years before the Tribunal. 12. At the time of hearing, the ld. Counsel of the assessee pointed out that the plant of the assessee, located at Kakrapar, nearly 150 kms, away from Surat in the remote, mofussil and interior part of Gujarat, where no good facilities for food and restaurant are available. The assessee is wholly owned government company. The counsel of the assessee further submitted that the assessee company had introduced a scheme from 17.09.1994 called NPCIL (Reimbursement of Canteen Subsidy) scheme details whereof are available at pages 128 to 132 of paper book for assessment year 2007-08 and 2008-09 and 58 to 62 of the paper book for assessment year 2009-10. The ld. Counsel also submitted that according to this scheme, the canteen is run on "No Profit or No Loss basis". To adhere to this objective, the employees were reimbursed ₹ 500/- per month towards cante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability for TDs purposes. When employer bona fide believed that such reimbursement which is necessarily spent for the intended purpose is not perquisite, even if it is considered as taxable perquisite, employer cannot be made liable to pay tax u/s 201 (1) and interest u/s 201(1A). The assessee in this regard relies on case laws mentioned at serial no. 8 to 11 and 15 to 16 of the Paper Book on case law filed during hearing. 13. On the other hand, the ld. Sr. D.R., appearing for the Revenue, vehemently supported the order of the ld. CIT(A). He pointed out that Rule 3 of I.T. Rules, 1962 only prescribes as to how to arrive at the value of free food, if provided. In the instant case, no free food is provided instead of, employees are paid in cash. Therefore, the various decisions, relied on by the ld. Counsel of the assessee, are not applicable because free food literally means free food only and not cash payment. If no free food is provided, there is no question of finding the value and hence the whole amount is taxable, which is one kind of allowance granted to the employees, unless it is exempt under section 10(14)(i) or 10(14)(ii) of the I.T. Act, 1961. With regard to levy of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esultantly, this ground of appeal in respect of all the three assessment years is rejected. 15. Ground no. 4 of all the assessment years pertains to short deduction of tax in respect of certain items on which the assessee deducted the tax at source under section 194C, as against the view of Revenue that it should be deducted the tax under section 194J of I.T. Act, 1961. According to the AO, section 194J includes fees for technical services, which means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including the provision of technical or other personnel). The CBDT in its circular no.715 dated 08/08/1995 has clarified that in case of services of the electrician are provided by a contractor, or payments to an electrician, the provisions of section 194C would apply but specifically further clarified that routine maintenance contract which includes supply of spares will be covered under section 194C but where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source. On this basis, the AO held that the assessee was required to deduct TDS under section 194J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vendors, for taking up maintenance of warranty equipments and back-up management for serve-ups. From the above description, it is seen that this involves fees for technical services u/s.194J and not mere service contract. (iv) Payment of ₹ 48,670/- for contract HYDR.BEMCO.HYDROLIC. This is for servicing of mechanical devices, electrical devices, hydrolic devices, filers, etc. This also includes training of personnel for such purposes. From the description above, this appears to be clearly a contract for services and not for fee for technical services. Hence this is covered u/s.194C. (v) Payment of ₹ 67,344/- being AMC for X-ray machine. Since this is AMC of a machine this cannot be covered U/S.194J. It is clearly a works contract u/s.194C. (vi) Payment of ₹ 38,20,240/- under account code 77764. This is for indegration of ECIL, installation, commissioning, stimulating testing and training of modified FHS computer system. The description clearly shows that it is a contract of technical nature covered u/s.!94J. The payment is fee for technical services and not for works contract. Hence this is covered u/s.194J. (vii) and (viii) Payment of ₹ 4,52,249/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintenance of machines, etc. (vi) Two payments of AMC of PLCC system under Code 74800. The description has not been given by the A.O. or the appellant. In the absence of the description, the A.O.'s finding is upheld. A.Y. 2007-08:- (i) Payment of ₹ 79,690/- for maintenance of telephone exchange. This is same as item no.(i) of A.Y. 2009-10 above and hence these payments are treated as covered u/s.194J for the reasons discussed above. (ii) Payment of ₹ 49,590/- for maintenance of VHP wireless base station. The AMC is clearly a service contract covered by the provisions of Section 194C. The provisions of Section 194J will not be applicable. (iii) Payment of ₹ 1,59,380/- for maintenance of telephone exchange. This is same as item no.(i) of A.Y. 2009-10 above and hence these payments are treated as covered u/s.194J for the reasons discussed above. (iv) Payment of ₹ 71,364/- being AMC for station lighting. The AMC is clearly a service contract covered by the provisions of Section 194C. The provisions of Section 194J will not be applicable. (v) Payment of ₹ 53,622/- being AMC for cabling. The AMC is clearly a service contract covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring the amount paid as 'fees for technical services' within the meaning of Explanation 2 to section 9(1)(vii). The amount paid was towards annual maintenance contract of certain machinery or for converting POY into textured/twisted yarn. The technology or the technical knowledge of the persons were not made available to the assessee but only by using such technical knowledge, services were rendered to the assessee. Therefore, it could not be said that the amount was paid as 'fees for technical services'. Further, rendering services by using technical knowledge or skill is different than charging fees for technical services. In the latter case, the technical services are made available due to which the assessee acquired certain right which can be further used. In the instant case, it was not so. The persons rendering services had only maintained machinery or converted yarn, but that knowledge was not now vested with the assessee by which itself it could do research work. Therefore, the amount paid in question could not be considered as fees for technical services within the meaning of section 194J." 17.1 The Counsel of the assessee pointed out that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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