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TMI Blog2014 (4) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... it by the holding company as detailed above in the grounds of appeal. No tax was deducted at source by the assessee/appellant on the above payments to its holding company. The AO further observed that as per sec. 194C of the Income Tax Act 1961, the appellant was responsible for deduction of tax at source on paying such sum to any resident i.e. to its holding company. Similar provisions were there u/s. 194J of the Act in respect of fees paid for professional or technical services. The A.O. held that the payment made by the appellant company to its holding company were in the nature of payments covered u/s. 194C/ 194J of the Act. The A.O. further observed that that similar issue was there in the case of the assessee for A.Y. 2007-08 wherein also the entire payment was disallowed for want of deduction of tax at source. Since the appellant failed to deduct tax at source on such payments made under different heads, as mentioned above, totaling Rs. 1,12,06,172/- , hence the said expenditure was disallowed by the A.O. u/s. 40(a)(ia) of the Act. In appeal, the ld. CIT(A) confirmed the additions so made by the A.O. on the above noted issues. The assessee is thus in appeal before us. 3. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration before us is whether such services provided by the holding company in the light of the terms and conditions of the MOU constituted "work contract" u/s 194C and providing of professional and technical services to the appellant falling u/s194J of the act or otherwise. The real intentions of the parties to the agreement can be gathered from going through the terms and conditions of the agreement. We have gone through the various clauses of the sample agreement placed in file before us and a harmonious reading of the whole agreement reveals that the said agreement is essentially an agreement of contract for work and services. The relevant clauses of the sample agreement placed in file before us, for the sake of convenience, are reproduced as under: 'NOW THEREFORE THIS MOU WITNESSETH AS FOLLOWS (1) DEFINITIONS In this MOU: (a) "Facilities" means the fixed assets including but not limited to land and buildings (office premises), capitalized furniture and fittings, computer hardware and software, systems, network connectivity and such other assets held by UTISEL and to be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appropriate modification in the Service Fee to be mutually agreed to between UTISEL and UTISEC COM. 3.2 Service Fee In consideration for the provision of Support Services by UTISEL as aforesaid, UTISEC COM shall pay to UTISEL as follows: (a) Towards any direct identifiable cost including but not limited to exclusive telephone connections, VSAT charges, internet connections, deputation; the actual amount paid by UTISEL to the third party; i.e. (b) Towards services provided by the staff of UTISEL rendering support servicesto UTISEC COM (including but not limited to Accounts, Finance, HR &Administration, Legal & Secretarial, Compliance), Rs.10,000/- per month(Rupees Ten Thousand only). (c) The service fee would be applicable from July 1, 2005 to June 30, 2006. It may be reviewed periodically and shall be subject to such modification as may be mutually settled. (d) However, other related expenditure e.g. Printing & Stationery, conveyance ,legal expenses, stamp duty, advertisement etc. shall be borne by UTISEC COM on actual basis.' 5. The ld. AR has sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any income, hence profit element was not involved. So the disallowance u/s.40(a)(ia) was not liable to be made in the case of the assessee. We do not agree with this contention of the ld. Counsel for the Assessee . As observed above, the agreement in question is a composite agreement. A perusal of the clauses of the agreement reveals that there is no such clause in the agreement from which it can be gathered that the services provider i.e. the first party in the agreement will provide services on actual cost basis or that no profit element is involved as has been alleged by the ld. Authorized Representative. Rather it may be observed that there is a specific clause in the agreement regarding payment on service charges. Even the assessee has claimed that it has deducted the tax in relation to service fee. It may be observed that the sum payable or paid to a contractor for the work, as provided under section 194C, refers to the entire payment and not the profit element only. Such payment u/s 194C refers to the entire payment i.e. the cost to the contractor for the work carried out plus profit element if any. 6.1 The related expenditure, the cost of which was to be borne by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sstt. CIT in ITA No.477/Viz./2008 dated 29.03.2013, wherein it has been so held by the Special Bench of the ITAT. He has further relied upon an authority of the Hon'ble Allahabad High Court styled as CIT v. Vector Shipping Services (P) Ltd. Muzaffarnagar (ITA No.122 of 2013 decided on 9.7.13) 9. We have gone through the judgment of Hon'ble Allahabad High Court in the case of Vector shipping Services (P.) Ltd. Muzaffarnagar (supra). The question of law framed by the Hon'ble High Court for adjudication in the said appeal was as under :- "Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by AO under section 40(a)(ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s. Mercator Lines Ltd. had performed ship management work on behalf of assessee. M/s. Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between the companies and as per the definition of memorandum of understanding, it included contract also." 9.1 While answering the said question the Hon'ble Allahabad High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad High Court in the said case did not answer any question of law rather the findings of the Tribunal were upheld being factual and not legal. 11. On the other hand this issue has been discussed in detail and specifically adjudicated by the Hon'ble High Court of Calcutta as well as the Hon'ble High Court of Gujarat. This question came for consideration before the Hon'ble Calcutta High Court in CIT v. Crescent Export Syndicate (Appeal No. -ITAT 20 OF 2013, GA 190 OF 2013) wherin the honble High court has held that the provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. The Hon'ble High Court further observed that the Special Bench verdict of the ITAT in Merilyn Shipping& Transpots case (supra) is not good law. The Hon'ble Calcutta High Court after making detailed discussion on the issue and relying upon various case laws relating to the interpretation of the statute has finally observed that the key words used in section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. Secondly, the principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). The Hon'ble Gujarat high Court thus held that 'Merilyn Shipping' (Supra) does not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year. 13. In view of the law laid down by the Hon'ble Calcutta High Court and further by the Hon'ble High Court of Gujarat as discussed above, there is no merit in the contention of the ld. Authorized Representative on this issue also. It may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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