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TMI Blog2013 (11) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... e that sitting fees paid to the directors does not amount to fees paid for any professional services as has been mentioned in the explanation to section 194J(1) - the memorandum explaining to provisions of the Finance Bill 2012 that as per clause No.71 it was specifically mentioned that there was no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. Deduction of Tax u/s.194C and 194J - Testing and Inspection Charges - Held that:- The payments made by the assessee towards testing and inspection charges cannot be construed as payments towards professional service as per the provisions of section 194J and the assessee had rightly deducted the tax u/s.194C - there was no short deduction of tax - The explanation to section 194J(1) defines professional service means the service rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board. The nature of expenditure made by the assessee towards payments made to various persons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant Company's contention that no tax was deductible at source on above payments and thus there was shortfall of deduction of tax to the extent of Rs. 17,850/- thereon. (b) payment of testing charges and inspection charges aggregating to Rs. 16,96,774/- are covered u/s. 194J as against u/s. 194C as per the Appellant Company's contention and thus there was shortfall of deduction of tax of Rs. 55,368/- thereon. (c) payment of hiring of cranes (with driver/operator) for loading and / or unloading of material at factory of Rs. 24,35,285/- is in the nature of "rent" as defined in the Explanation to Section 194l as against covered u/s. 194C as per the Appellant Company's contention and thus there was shortfall of deduction of tax of Rs. 3,16,419/- thereon. 2. The learned Commissioner of Income Tax (Appeals)-V, Pune erred in confirming that the Appellant Company was to be treated as assessee in default for non-deduction/ short deduction to tax within the "meaning of Section 201 and 201(1A) in respect of amounts mentioned in Ground No. 1 (a) to (d) above. 3. The Appellant Company craves leave to add to, alter, amend, modify and / or delete any or all of the above Grounds of Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deducted on any remuneration or fee or commission paid to a director. This amendment is applicable from 01-07-2012. Referring to the copy of the memorandum explaining the provisions of Finance Bill 2012 he drew the attention of the Bench to the following : "TDS on remuneration to a director : Under the existing provisions of the Income Tax Act, a company, being an employer, is required to deduct tax at the time of payment to its employees including Managing Director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration. This amendment will take effect from Ist July, 2012." He accordingly submitted that TDS is required to be deducted out of the Director Sitting Fees. He also relied on the decision of the Kolkata Bench of the Tribunal in the case of Jahangir Biri Factory (P) Ltd. Vs. DCIT reported in 126 TTJ 567. 7. The learned Departmental Representative on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deducted at the applicable rate and the above provision has been inserted by the Finance Act, 2012 w.e.f., 01- 07-2012. We, therefore, find force in the submission of the learned counsel for the assessee that no tax is required to be deducted u/s.194J out of such director's sitting fees for the A.Y. 2007-08. In this view of the matter, the order of the CIT(A) is set-aside and the ground raised by the assessee on the issue of TDS on sitting fees paid to Directors is allowed. 9. The second issue raised by the assessee relates to deduction of tax u/s.194C from testing charges and inspection charges as against deduction of tax u/s.194J as held by the Assessing Officer and upheld by the CIT(A). 10. The learned counsel for the assessee submitted that the assessee had paid an amount of Rs. 69,25,844 to various entities for testing and inspection of material on which the assessee had deducted tax u/s.194C. According to the Assessing Officer the assessee should have deducted TDS u/s.194J since the services rendered by the said parties are in the nature of technical/professional service. The Assessing Officer accordingly calculated short deduction of tax at Rs. 55,586. 11. Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly relied on the order of the CIT(A). 13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee. We find in the instant case the Assessing Officer applying the provisions of section 194J on account of payments made to various entities for testing and inspection of material held that there is short deduction/lower deduction since the assessee has deducted the tax under the provisions of section 194C. According to the Assessing Officer the services provided by the parties are in the nature of technical or professional service, therefore, TDS should have been made u/s.194J instead of 194C. According to the CIT(A) the payments made by the assessee for testing and inspection of material can be described as technical consultancy and therefore provisions of section 194J are attracted. 13.1 In the preceding paragraphs we have already noted that the explanation to section 194J(1) defines professional service means the service rendered by a person in the course of carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer. 16. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. According to him the definition of rent u/s.194I means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any machinery, plant, equipment, fittings whether or not any or all of the above are owned by the payee. Since the assessee company has taken cranes on hire being plant and not bus for carrying passengers as per Circular No.558 TDS should have been deducted u/s.194I instead of 194C. He accordingly held that there is short deduction of tax. In appeal, the learned CIT(A) upheld the action of the Assessing Officer. 17. The learned counsel for the assessee reiterated the same arguments as made before the Assessing Officer and the CIT(A). He submitted that it is not a case of simple hiring of crane. The crane owner provides the operator and is also responsible for the day-to-day maintenance and its operational costs. Relying on the following decisions he submitted that payment made for the use of cranes or for hiring of tankers is covered u/s.194C and not u/s.194I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes provision for deduction of tax at source in respect of payments made to contractors whereas section 194-I makes provision for deduction of tax at source in respect of income by way of rent. Examining the facts of the present case in the light of the aforesaid statutory provisions, from the findings of fact recorded by the Commissioner (Appeals) it is apparent that the assessee has not taken the dumpers on hire/rent from the parties in question. The assessee has given contracts to the said parties for the transportation of goods and has not taken machineries and equipment on rent. In the circumstances, the Commissioner (Appeals) was justified in holding that the transactions in question being in the nature of contracts for shifting of goods from one place to another would be covered as works contracts, thereby attracting the provisions of section 194C of the Act. That since the assessee had given sub-contracts for transportation of goods and not for the renting out of machineries or equipment, such payments could not be termed as rent paid for the use of machinery and the provisions of section 194-I of the Act would not be applicable. The Tribunal was, therefore, justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was deductible at source on above payments and thus there was shortfall of deduction of tax to the extent of Rs. 35,022/- thereon. (b) payment of testing charges and inspection charges aggregating to Rs. 18,45,719/- are covered u/s. 194J as against u/s. 194C as per the Appellant Company's contention and thus there was shortfall of deduction of tax of Rs. 1,48,550/- thereon. (c) payment of hiring of cranes (with driver/operator) for loading and / or unloading of material at factory of Rs. 70,52,375/- is in the nature of "rent" as defined in the Explanation to Section 194l as against covered u/s. 194C as per the Appellant Company's contention and thus there was shortfall of deduction of tax of Rs. 4,29,131/- thereon. 2. The learned Commissioner of Income Tax (Appeals)-V, Pune erred in confirming that the Appellant Company was to be treated as assessee in default for non-deduction/ short deduction to tax within the "meaning of Section 201 and 201(1A) in respect of amounts mentioned in Ground No. 1 (a) to (d) above. 3. The Appellant Company craves leave to add to, alter, amend, modify and / or delete any or all of the above Grounds of Appeal." 20. After hearing both the sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered u/s.194C has been accepted in one of the cases of Enercon's customers by CIT(A), Mumbai. 24. Based on the arguments advanced by the assessee, the learned CIT(A) allowed the ground by holding as under : "I have given careful consideration to the matter. On perusal of the order passed by the learned CIT(A), Mumbai, it is seen that the same is regarding operations performed in connection with installation of the windmill and the facts of that case cannot directly be compared to the present case. As already stated, the main contention of the learned Assessing Officer is that the functions performed by M/s. Enercon for which payment was to be made by the assessee company required technical skill and knowledge, and, therefore, was covered u/s.194J. In Skycell Communications Ltd. Vs. DCIT 251 ITR 53 (Mad), however, the Hon'ble Madras High Court observed as follows : "When a person hires a taxi to move from one place to another, he uses the product of science and technology, namely, an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering the technical service to the person who uses the automobile. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replacement, security, emergency services etc. "fees for technical services". The said payment was of the nature of payment for a comprehensive contract covering all these functions and others, on which the Appellant company had rightly deducted tax u/s.194C and not 194J. This view is also supported by the decision of ITAT, Ahmedabad in Gujarat State Electricity Corporation Ltd. Vs. ITO 82 TTJ 456 wherein it was held that a composite contract for operation and maintenance would come within the ambit of section 194C and not 194J. This issue is therefore decided in the Appellant's favour." 24.1 Aggrieved with the order of the CIT(A) the Revenue is in appeal before us. 25. We have considered the rival arguments made by both the sides. We find in the instant case the learned CIT(A) while holding that provisions of section 194C are applicable for payments towards windmill operation and maintenance has followed the decision of Hon'ble Madras High Court and the decision of ITAT, Ahmedabad Bench in the case of Gujarat State Electricity Corporation (Supra). The learned Departmental Representative could not distinguish the decisions relied on by the learned CIT(A). In absence of any contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on the other hand while relying on the order of the CIT(A) also relied on the following decision :- a. ITAT, Pune decision in the case of Fluent India Pvt.Ltd. b. Skycell Communications Ltd. reported in 251 ITR 53 c. Parasrampuria Syntehtics Ltd. reported in 20 SOT 248 (Delhi). d. Nuclear Power Corporation of India Ltd. e. ITAT Pune decision in the case of Glaxosmithkline Pharmaceuticals Ltd. 30. After hearing both the sides, we find the Ahmedabad Bench of the Tribunal in the case of Nuclear Corporation of India Ltd. Vs. ITO reported in 2011-TIOL-659-ITAT-Ahmedabad has held that payments made for AMC of Telephone exchange and computer cannot be considered as fees for technical services within the meaning of section 194J. The relevant observation of the Tribunal at Para 19 of the order reads as under :- "19. After hearing both the sides, we have carefully gone through the orders of the authorities below. The Hon'ble Madras High Court, in the case of Skycell Communication Ltd. vs. DCIT (supra), held that installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of benefit of the user of such equipment does not resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has rightly deducted tax at source u/s.194C on account of payments for annual maintenance charges. We accordingly uphold the order of the CIT(A) on this issue and the ground raised by the revenue is dismissed. 32. Ground of appeal No.1.3 by the revenue reads as under : "The Ld. CIT(A) erred in holding that the payments of Rs. 81,53,188/- by the assessee towards training programmes and seminars organised by various entities would be covered u/s.194C and not u/s.194J. The Ld. CIT(A) erred in holding that the training and seminars do not fall in the list of activities of professional services enumerated in Section 194J." 33. Facts of the case, in brief, are that an amount of Rs. 81,53,188/- was paid by the assessee towards training programmes and seminars organised by various entities including CII towards attending training and seminars by its employees. The Assessing Officer noted that the assessee had made short deduction of tax on the payments made to the above concerns. In response to the show cause notice issued by the Assessing Officer the assessee replied that the company has deducted tax at source u/s.194J in most of the cases except in a few cases where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is accordingly dismissed. 37. Ground of appeal No. 1.4 by the revenue reads as under : "The Ld. CIT(A) erred in holding that the amount of Rs. 38,58,905/- paid by assessee to TLC, Zenith Infotech and Wipro Ltd. were covered u/s.194C and not u/s.194J. The Ld. CIT(A) once again failed to appreciate the true import of Answer to Q.29 of Board's Circular No.715 dated 08-08-95, supra" 38. After hearing both the sides, we find the assessee company made payment of Rs. 38,58,905/- to M/s. Tata Consultancy Service, Zenith Infotech Ltd., Wipro Ltd. during the year towards EDP expenses for professional, technical and managerial services rendered by the above parties. The assessee has deducted tax under the provisions of section 194C. However, the Assessing Officer held that provisions of section 194J are applicable for such payments and that the assessee has made short deduction of tax at Rs. 1,19,217, the details of which are as under :- S.No. Name of the company Amount paid Short deduction 1 Tata Consultancy services 1850000 57100 2 Zenith Infotech Ltd. 1483905 45877 3 Wipro Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) 201(1A). The CIT(A) also failed to appreciate the correct import of two decisions and Board's Circular dated 29-01-97 cited by him in his order. The CIT(A) has failed to appreciate that by issuing such a direction, he is rendering the proceedings u/s.201(1) redundant". 44. The learned Departmental Representative submitted that the CIT(A) was not justified in directing the Assessing Officer that if the payees have ultimately paid the tax, the tax which is not deducted by the assessee should not be collected from the assessee. 45. The learned counsel for the assessee on the other hand submitted that in view of decision of Hon'ble Supreme Court in the case of Hindustan Coco Cola Beverages Pvt. Ltd. reported in 293 ITR 226 the Ld. CIT(A) was justified in directing the Assessing Officer for non collection of short deduction of tax in case the payees have ultimately paid the tax. 46. In the preceding paragraphs we have already allowed the appeal filed by the assessee and dismissed the appeal filed by the revenue. Therefore, there is no short deduction of tax by the assessee. Therefore, this ground raised by the revenue becomes infructuous and therefore is dismissed. ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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