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TMI Blog2014 (7) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made to the vendor companies do fall under 194C - Even though assessee is in the software business and services rendered/work undertaken are also on the field of software services, these cannot be considered as per professional services as they have not rendered any personal services to the company - It is a contract between a company and company - Even though the nature of contract differs from activity to activity, assessee s nature of work do indicate that those companies have not rendered any technical / professional services so as to come within the definition of section 9(1)(vii) - categorization of works contract as agreement for services cannot be accepted. Relying upon Glaxosmithkline Pharmaceuticals Ltd., vs. ITO 2011 (10) TMI 21 - ITAT, PUNE] - payment made for services of security guard provided by contractor cannot be kept in the nature of managerial, technical or consultancy services so as to attract clause 7 to section 9(1) read with section 194J - for treating the payment for technical services to be covered u/s 194J, there should be consideration for acquiring or using technical knowhow simplicitor provided, or made available by human element and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 194J of the Act and accordingly calculated the tax and interest of Rs.18,06,000/- u/s. 201(1) r.w.s. 194J and Rs.14,17,170/- u/s.201(1A) of the Act and reduced the amount of Rs.7,22,4090/- of TDS made u/s. 194C by assessee and raised the total demand of Rs.25,01,310/-. 3.1. Likewise, in Financial Year 2006-07 the demands are raised as under : (i) TDS u/s. 194J Rs.10,96,452/- (ii) Interest u/s.201(1A) Rs. 7,28,674/- -------------------- Rs.18,25,026/- 3.2 Likewise, in Financial Year 2007-08 the demands are raised as under : (i) TDS u/s. 194J Rs.1,68,89,432/- (ii) Interest u/s.201(1A) Rs. 92,04,396/- ---------------------- Rs.2,60,93,828/- ----------------------- 3.3. It was the contention of assessee that it has entered into agreements with various companies for undertaking the work for development of software and I.T. enabled services and various modules for effective management information system of exchange of information between Head Office in India and its employees working at various client s sites. It was the contention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the A.O. was directed to verify if the vendor-deductees have paid the taxes on the income received from assessee and if he was satisfied, to delete the demand raised under section 201(1) of the I.T. Act and to re-calculate the interest under section 201(1A) of the I.T. Act, as per law. 6. Even though Ld. CIT(A) confirmed the action of the A.O. to the extent of application of provisions of section 194J, surprisingly Revenue has raised the grounds as under in its appeals in ITA.No.991/Hyd/2013 ITA.No.992/Hyd/2013 : A.Y. 2005-06 : 1. The order of the CIT(A)-II is erroneous and prejudicial to the interest of the revenue. 2. The CIT(A)-II, Hyderabad has erred in not deciding the core issue of the provisions of the Act with regard to applicability of section 194C or 194J which covers such payments impugned in appeal. 3. Any other matter that may be urged during the course of appellate proceedings. 6.1 As can be seen from the order of the Ld. CIT(A), Ld. CIT(A) upheld the contention of the A.O. that the amounts are covered by the provisions of section 194J. In fact, assessee also preferred the appeal on the same issue. We are surprised that Revenue is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical services as considered by the A.O. The Ld. CIT(A) remanded matter to the A.O. and obtained the remand report. A.O. analysed the provisions of 194J read with Explanation-2 to section 9(1)(vii) to come to the decision that fees for technical services means any consideration for rendering any managerial technical or consultancy services. He has given a detailed note to the Ld. CIT(A) which was also extracted in the impugned order. The contentions as extracted by Ld. CIT(A) in para 4.1 of the A.O. are as under : 4.1 The Addl.CIT, in his forwarding note has submitted as under: 2.2 The Assessing Officer has submitted the comments for all the three years. During the remand proceedings, assessee was requested to file copies of agreements etc., entered into by assessee with these Jour companies. Copies of agreements filed by assessee are enclosed to this report. The correspondence with M/s. Global Infosystems Limited is dated 15.10.2005, with M/s. Hitec Computech. Pvt. Ltd. is dated 01.09.2005, with MI s. Integra Telecommunications Software Limited is dated 01.10.2005 and with CAM Soft (India) Pvt. Ltd. is dated 01.09.2005. The content of the correspondence with all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information technology is nothing but applied electronics. In other words, it is a super specialty within the field of engineering and any services rendered in such sphere of activity cannot be anything other than 'Professional Services'. Therefore, the Assessing Officer had rightly concluded that the nature of activities are covered under sec. 194J of the I. T. Act. It may not be out of place to mention here that any agreement between two parties is in the nature of contract. However, the nature of a contract differs from activity to activity. A contract may be entered into for completing a civil work or for rendering legal consultancy or for rendering any technical services. But, the nature of services being rendered in all these three instances is different. Therefore, mere existence of contract is not decisive in itself for categorizing the activity under sec. 194C of the Act. What is required to be seen is the nature and content of contract and the nature of services being rendered as per the contract. The comments of AO are duly recommended on this issue. 4.2 The remand report was forwarded to the appellant for its comments/objections and the appellant vide i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as referred in order. Considering that nature of agreement and the work undertaken on behalf of assessee, we are of the opinion that payments made to the vendor companies do fall under 194C. Even though assessee is in the software business and services rendered/work undertaken are also on the field of software services, these cannot be considered as per professional services as they have not rendered any personal services to the company. It is a contract between a company and company. Even though the nature of contract differs from activity to activity, assessee s nature of work do indicate that those companies have not rendered any technical / professional services so as to come within the definition of section 9(1)(vii). We are of the opinion that categorization of works contract as agreement for services cannot be accepted. In view of this, assessee s contentions are to be upheld. 13. The Coordinate Bench in the case of Glaxosmithkline Pharmaceuticals Ltd., vs. ITO (2011) 48 SOT 643 considered similar services and held that payment made for services of security guard provided by contractor cannot be kept in the nature of managerial, technical or consultancy services so as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has paid software development, salary and benefits and expenses abroad, A.O. was of the opinion that since these expenses were claimed to have been incurred for software expenses overseas and took entire expenditure as a claim in India, the amounts are to be covered under section 194J. He accordingly raised the demands. As seen from the order, it is not clear whether the entire amount considered by the A.O. is for payments made to the domestic companies or made abroad for overseas services. However assessee has raised two issues and Ld. CIT(A) also decided the two issues with out stating the amounts involved. Accordingly, we were also considering the issues only but the amounts involved are not clear from the orders of authorities. 17. Coming to the issue of payments abroad, the facts as stated and extracted in the order of Ld. CIT(A) are that assessee has incurred expenditure overseas for providing onsite services to the clients abroad by engaging man power. Assessee explained that company is providing on-site services to clients abroad by engaging man power from M/s. Plutus Solutions Inc USA for execution of works at customer s work place in USA and an amount of Rs.30.16 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01(1) can be raised again is considered and there appears merit in the contention. In view of the decision of Hon'ble Supreme Court in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT (supra), the Assessing Officer is directed to verify if the vendor deductees have paid the taxes on the income received from the appellant and if he is satisfied, to delete the demand raised u/s. 201(1) of I.T. Act and recalculate the mandatory interest u/s. 201(1A) of the I.T. Act as per law . 18. Ld. Counsel submitted that both A.O. and Ld. CIT(A) are not correct in invoking the Explanation 2 without establishing that the same is chargeable under the provisions of the Act as held by the Hon ble Supreme Court. He relied on the decision of Hon ble Supreme Court in the case of GE Technology Centre P. Ltd.vs CIT 327 ITR 456 and also decision of ITAT, Hyderabad in the case of ACIT vs. IEC System P. Ltd., 127 TTJ 435. 19. Ld. D.R. however, relied on the orders of the A.O. and Ld. CIT(A). 20. We have considered the rival contentions, examined the details on record. There is no dispute with reference to the fact that assessee has undertaken on-site work in USA and the receipts a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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