Vildirect: IncomeTax-caselaws-2013-VIL-987-ITAT-PNE

2013-VIL-987-ITAT-PNE

Income Tax Appellate Tribunal PUNE

ITA No. 1357/PN/2010,ITA 1358/PN/2010

Date: 31.01.2013

BHARAT FORGE LTD.

ADDL. COMMISSIONER OF INCOME TAX

BENCH

Shri Shailendra Kumar Yadav And Shri R. K. Panda,JJ.

JUDGMENT

Per R. K. Panda, AM :-

These are cross appeals filed by the assessee and the revenue and are directed against the separate orders dated 09-08-2010 and 10-08-2010 of the CIT(A)-V, Pune relating to A.Y. 2007-08 and 2008-09 respectively. Since common issues are involved in the above cross appeals, therefore, these were heard together and are being disposed of by this common order for the sake of convenience.

ITA No. 1357/PN/2010 (By Assessee- A.Y. 2007-08) :-

2. The grounds raised by the assessee are as under :

"1. On the facts of the case and in law, the learned Commissioner of Income Tax (A) - V, Pune erred in confirming that :

(a) payment of Sitting Fees aggregating to Rs. 3,50,000/- to Resident Non- Executive Directors are covered u/s. 194J of the Income Tax Act, 1961 as against the Appellant 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 Appeal."

3. The learned counsel for the assessee while arguing the first issue in the grounds of appeal submitted that the assessee has paid an amount of Rs. 3,50,000 as Directors Sitting Fees to resident directors on which no TDS was made. According to the Assessing Officer the provisions of section 194J are applicable for such payments since director is also a manager under the provisions of Companies Act, 1956 and therefore a technical personnel. Since the assessee had not deducted the tax out of such payments the Assessing Officer held that there is short deduction of tax to the tune of Rs. 17,850.

4. Before the CIT(A) it was submitted that section 194J was inserted by the Finance Act, 1995 w.e.f. 01-7-95 and that the department has all along accepted the position that sitting fees paid to non-executive resident directors are not covered u/s.194J. The dispute arose only for the A.Y. 2007-08 and 2008-09. It was submitted that the assessee has deducted tax from salary and commission paid to such non-executive resident directors and the provisions of section 194J are not applicable to the sitting fees paid to the directors.

5. However, the learned CIT(A) was not convinced with the arguments advanced by the assessee and upheld the action of the Assessing Officer in holding that there is short deduction of tax from the sitting fees paid to the directors. According to him, director is also a manager under the provisions of the Companies Act, 1956 and therefore a technical personnel. Merely because the department has not taken any action in the past cannot act as an estoppel against taking the correct legal position for the current year.

6. The learned counsel for the assessee reiterated the same arguments as made before the Assessing Officer and the CIT(A). Referring to the provisions of section 194J he submitted that as per the explanation Professional Service means 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. Therefore, director's sitting fees does not fit into any of the categories. Further, 194J(1)(ba) which was introduced by the Finance Act, 2012 w.e.f. 01-07-2012 has amended the provisions of section 194J according to which TDS should 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 hand heavily relied on the orders of the Assessing Officer and the CIT(A).

8. 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. The only dispute in this ground is regarding deduction of tax at source from the sitting fees paid to the directors. According to the learned counsel for the assessee the provisions of section 194J is not applicable from such sitting fees since fees does not fall in any of the categories of professional service as per explanation to section 194J. Further, no such objection was taken in the past by the department for such non deduction and in view of insertion of sub section (ba) to section 194J(1) TDS is required to be made out of such director sitting fees w.e.f., 01-07-2012. Therefore, for non-deduction of tax at source from the sitting fees for the impugned assessment year there is no default on the part of the assessee. According to the revenue the director is also a manger under the provisions of the Companies Act and therefore a technical personnel and therefore the company is liable to deduct tax at source under the provisions of section 194J.

8.1 As per the explanation to provisions of section 194J professional service means services 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. We, therefore, find force in the submission of the learned counsel for the assessee 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). We further find from 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. We find the provisions of section 194J(1)(ba) speaks of any remuneration or fees or commission by whatever name called other than those on which tax is deductible u/s.192 to a director of a company on which tax has 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. Before the CIT(A) it was submitted that the charges were paid for getting jobs done like testing, inspection of materials etc. and were of the nature of material and labour contract. Although technical expertise may be used, the charges paid cannot be construed to be fees for professional service or technical service. It was further argued that merely because the payee used technical knowledge or installs sophisticated equipments it does not result into the above services to be professional or technical services. It was further submitted that the department in the past had never objected to such deduction u/s.194C. However, the learned CIT(A) was not convinced with the arguments advanced by the assessee and upheld the action of the Assessing Officer. While doing so, he held that the payments made by the assessee in the instant case for testing/inspection of materials can be described as technical consultancy and therefore provisions of section 194J are applicable.

12. The learned counsel for the assessee drew the attention of the Bench to some sample copies of the bills. Referring to Page No.31 of the Paper Book he submitted that the bill issued by Engineers and Testing instruments Pvt. Ltd. for Rs. 24,850 gives the description asservicing and calibration of impact machine. Similarly the bill issued by Datta Company, copy of which is placed at Paper Book Page 33, is towards stamping, verification and repair of various weighing seals and weights. Referring to the bill issued by Krupa Engineering he submitted that the same is for impact machining, grinding and notching, micro cutting and macro cutting, machining and grinding etc. He submitted that none of the items are coming under the category of professional service as defined in the explanation to section 194J. Referring to the following decisions he submitted that payment for technical services in order to cover u/s.194J should be a consideration for acquiring or using technical know-how simplicitor provided or made available by human element. There should be direct and live link between payment and receipt/use of technical services/information :

1. ITAT Pune decision in the case of Glaxosmithkline Pharmaceuticals Ltd.

2. Skycell communications Ltd. reported in 251 ITR 53

3. Parasampuria Synthetic Ltd. reported in 20 SOT 248 (Delhi).

12.1 The learned Departmental Representative on the other hand heavily 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 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 as mentioned in the bills, in our opinion, cannot be considered as payment for technical consultancy. The Pune Bench of the Tribunal in the case of Glaxosmithkline Pharmaceuticals Pvt. Ltd. (Supa) has held that any payment for technical services in order to cover u/s.194J should be a consideration for acquiring or using technical know-how simplicitor provided or made available by human element. There should be direct and live link between the payment and receipt/use of technical services/information. If the conditions of section 194J r.w.s 9(1), explanation 2 clause (vii) are not fulfilled, the liability under this section is ruled out. We, therefore, hold that the payments made by the assessee in the instant case towards testing and inspection charges cannot be construed as payments towards professional service as per the provisions of section 194J and the assessee has rightly deducted the tax u/s.194C. In this view of the matter, we set-aside the order of the CIT(A) and hold that there is no short deduction of tax. The ground raised by the assessee on this issue is accordingly allowed.

14. The third issue in the grounds raised by the assessee relates to deduction of tax u/s.194C from the payment of hiring of cranes (with driver/operator) for loading and unloading of the material at factory.

15. Facts of the case, in brief, are that during the impugned Financial Year the assessee has made payment for hiring of cranes and loading and unloading of material at the factory and has deducted the tax u/s.194C. According to the Assessing Officer the assessee should have deducted tax u/s.194I. In response to the show cause notice it was explained by the assessee that the contract for hiring is a composite contract for hiring of crane with driver who shall follow the instructions of the assessee company. The petrol, repairs and maintenance expenses are also on account of the contractor. Therefore, the charges are paid in terms of a service contract and does not amount to rent contract. The CBDT Circular No.558 dated 28- 03-1996 was also brought to the notice of the Assessing 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.

1. Swayam Shipping Services (P) Ltd. reported in 339 ITR 647 (Gujarat)

2. Shree Mahalaxmi Transport Co. reported in 339 ITR 484 (Gujarat)

3. Indian Oil Corporation (marketing Division) reported in 12 ITR 79 (Delhi) 17.1 The learned Departmental Representative on the other hand heavily relied on the order of the Assessing Officer and CIT(A).

18. 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. The only dispute to be decided in the instant ground is regarding the applicability of provisions of section 194C or 194I on account of payments for hiring of cranes for loading and unloading of material at its factory when the cranes are provided by the parties along with driver/operator and all expenses are borne by the owners only. We find the Hon'ble Gujarat High Court in the case of Shree Mahalaxmi Transport Company (Supra) has discussed an identical issue and has observed as under :

"Chapter XVII of the Income-tax Act, 1961, makes provision for collection and recovery of tax. Part B thereof makes provision for deduction at source and is comprised of sections 192 to 206AA. Section 194C bears the heading "Payments to contractors" and lays down that any person responsible for paying any sum to any resident for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash of by issue of cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to the percentage specified thereunder of such sum as income-tax on income comprised therein.

Section 194-I of the Act which bears the heading "Rent" provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or by draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate specified thereunder.

Thus, section 194C of the Act 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 in upholding the order passed by the Commissioner (Appeals).

In view of the above discussion, it is not possible to state that the Tribunal has committed any legal error so as to warrant interference. No question of law, much less, a substantial question of law can be stated to arise out of the impugned order of the Tribunal. The appeal is, accordingly, dismissed."

18.1 We find the Hon'ble Gujarat High Court in the case of Swayam Shipping Services (P) Ltd. (Supra) has held as under (short notes) :

"Held, dismissing the appeal, that there was nothing to indicate that the assessee had taken trailers/cranes on rent so as to attract the provisions of section 194-I of the Act. The assessee had given sub-contracts for transportation of goods. Therefore, the transactions would fall within the purview of section 194C of the Act as the assessee was responsible for paying the amount in question for carrying out work in pursuance of contracts between the assessee and the transporters and as such the assessee was required to deduct tax at source at the rate prescribed under that section. The Commissioner (Appeals) was, therefore, justified in holding that the assessee was not an assessee in default within the meaning of the expression as contemplated under section 201 of the Act and, consequently, the Tribunal was justified in confirming the order passed by the Commissioner (Appeals)".

18.2 Since the facts in the instant case are identical to the cases decided by Hon'ble Gujarat High Court, therefore, respectfully following the same we hold that provisions of section 194C are only applicable for such payments and not provisions of section 194I. The order of the CIT(A) on this issue is accordingly set-aside and the ground raised by the assessee is allowed.

18.3 Since the assessee succeeds on all the issues, therefore, the assessee cannot be held as an assessee in default. Accordingly, Ground No. 2 of the assessee's appeal is allowed. ITA No. 1358/PN/2010 (By Assessee- A.Y. 2008-09) :-

19. The grounds raised by the assessee are as under :

"1. On the facts of the case and in law, the learned Commissioner of Income Tax (A) - V, Pune erred in confirming that :

(a) payment of Sitting Fees aggregating to Rs. 4,15,000/- to Resident Non- Executive Directors are covered u/s. 194J of the Income Tax Act, 1961 as against the Appellant 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. 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.

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 sides we find the grounds raised by the assessee in the impugned appeal are identical to grounds in ITA No.1357/P N/2010. We have already decided the issues and the grounds raised by the assessee have been allowed. Following the same ratio, the grounds in the instant appeal are allowed.

ITA No. 1326/PN/2010 (By Revenue- A.Y. 2007-08) :-

21. Grounds of appeal No.1.1 by the revenue reads as under : "The Ld. CIT(A) erred in holding that the payment of Rs. 27,84,766/- made by the assessee to Enercon India Ltd. for windwill operation and maintenance were rightly covered by the assessee u/s.194C and not u/s.194J. The Ld. CIT(A) erred in placing reliance on the decision of Madras High Court in the case of Skycell Communications Ltd., reported in 251 ITR 53, the facts of which are not applicable in the instant assessee's case.

22. Facts of the case, in brief, are that the assessee Company has installed windwill near Satara, manufactured by Enercon India Ltd. During the relevant financial year, the assessee company made payments amounting to Rs. 27,84,790/- to the said company. The assessee explained that the payment was made to the company towards maintenance of Windmill, replacement of parts and spares at no cost to the assessee company, assistance in complying with statutory duty of reporting periodically to governmental agencies, implementing safety norms, and conduct of training programmes, prevention of damage, injury or loss in the event of an emergency, provision of round the clock security at wind mills site. The assessee, therefore, contended before the Assessing Officer that the contract was a comprehensive contract for material and labour services required. The Assessing Officer , however, held that the operation and maintenance of windmill, repair and replacement of parts, and other work carried out by M/s. Enercon India Ltd. requires technical skills and knowledge and is covered under section 194J of the Act and therefore, tax should have been deducted u/s.194J instead of section 194C of the Act. He thus worked out the short deduction on this count at Rs. 93,735.

23. Before CIT(A) it was submitted that the company has correctly deducted tax at source under section 194C. A copy of the contract entered into between the company M/s. Enercon India Ltd. was furnished by the assessee. It was further submitted that the position that the said payment is covered 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. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railways to the airline for having used it for travelling from one destination to another. The electricity supply to a customer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on payment made for the power consumed and remit the same to the revenue".

Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the use of such equipment does not result in the provision of technical service to the customer for a free". ....

When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber does not on that score make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes so, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable to fixed telephone service. Neither service can be regarded as 'technical service' for the purpose of section 194J of the Act". Considering the above decision of the Hon'ble Madras High Court, I am of the view that the mere fact that technical skill and knowledge was required for rendering the type of services which were rendered by M/s. Enercon to the assessee company did not render the amount paid by the assessee company for a comprehensive contract covering annual maintenance, 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 contrary material brought to our notice against the order of the CIT(A) and since the learned CIT(A) while deciding the issue has relied on the decision of Hon'ble Madras High Court and the ITAT Ahmedabad Bench, therefore, we find no infirmity in the same and uphold the order of the learned CIT(A) on this issue. The ground raised by the revenue is therefore dismissed.

26. Ground of appeal No.1.2 by the revenue reads as under :-

"The CIT(A) erred in coming to the conclusion that the payments of Rs. 1,21,61,895/- made by the assessee to various parties were contractual payments requiring deduction of tax u/s.194C and not u/s.194J by placing reliance on the Madras High Court decision, Supra, the facts of which are not applicable to the instant assessee's case. While coming to the conclusion, the CIT(A) erred in not appreciating the true import of the Answer to Q.No.29 of the Board's circular No.715 dated 08-08-1995".

27. Facts of the case, in brief, are that for the impugned Financial Year the assessee made payments amounting to Rs. 1,21,61,895/- to various parties including Reliance Communications, Bharti Airtel, Blue Star Ltd., Aircool Services, Avery India Ltd. and various other parties. The assessee has deducted tax as per provisions of section 194C. According to the Assessing Officer these payments were towards technical managerial and professional services rendered by these parties and therefore the assessee should have deducted tax under the provisions of section 194J. The Assessing Officer accordingly determined the short deduction at Rs. 2,49,005/-.

28. Before CIT(A) it was submitted that these payments were made towards annual maintenance contract. The CBDT circular No.715 dated 08-08-95 was also brought to the notice of the CIT(A) according to which routine/normal maintenance contract including supply of spares are covered u/s.194C. Further, the decision of Hon'ble Madras High Court in Skycell Communication Ltd. was also cited. Based on the arguments advanced by the assessee the learned CIT(A) decided the issue in favour of the assessee and held that provisions of section 194C are applicable for such AMC charges paid and credited.

28.1 Aggrieved with such order of the CIT(A) the revenue is in appeal before us. 28.2 The learned Departmental Representative heavily relied on the order of the Assessing Officer.

29. The learned counsel for the assessee 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 result in the provision of technical service to the customer for a fee. Keeping in view the ratio of this decision, in the instant case, 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(l)(vii). Therefore, the amount paid towards annual maintenance contract of Telephone Exchange and Computers by the assessee, in the present case, could not be considered as fee for technical services within the meaning of section 194J. We, therefore, following the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd.(supra), which is followed by the ITAT, Delhi Bench 'H' in the case of Parasrampuria Synthetics Ltd. (supra), held that the assessee was required to deduct TDS under section 194C and not under section l94J of the I.T Act. Consequently, it is held that the assessee cannot be deemed to be "assessee in default" within the meaning of section 201(1) in respect of such tax. Accordingly, it is held that the assessee rightly deducted the TDS under section 194C of the I.T. Act, 1961. Consequently, no interest under section 20l(1A) of the I.T. Act is leviable. Hence, ground nos. 4 of the assessee's appeals for all the three assessment years are allowed. The ground nos. 5 and 6 in respect of all the assessment years need no separate adjudication, in view of our decision in respect of each and every item of shortfall (supra)."

31. We find the CBDT vide circular No.15 dated 08-08-95 has replied to Question No.29 which reads as under :

"Question No.29 : Whether a maintenance contract including supply of spares would be covered u/s.194C or 194J of the Act?

Answer : Routine, normal maintenance contracts including supply of spares will be covered u/s.194C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source"

31.1 Since in the instant case the assessee has made payments to various parties for AMC, therefore, respectfully following the decision of the Ahmedabad Bench of the Tribunal cited (Supra) and in view of answer to Question No.29 in CBDT Circular No.715 dated 08-08-95 we hold that the 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 fees are on delegate basis for employees attending the seminars. Further, no TDS has been made in respect of lunch and banquet expenses, reimbursed or contributed at the request of CII or other charitable/mutual associations etc. The Assessing Officer noted that the payments made on this account are covered u/s.194J of the I.T. Act. The employees are getting training from experts in various fields having professional knowledge to give training and lectures to the employees for the benefit of the company. Therefore, tax should have been deducted u/s.194J in respect such payments and not u/s.194C. He accordingly calculated such short deduction at Rs. 1,06,364/-.

34. In appeal the learned CIT(A) held that training and seminar expenses do not fall under the definition of professional services and accordingly decided the issue in favour of the assessee.

34.1 Aggrieved with such order of the CIT(A) the revenue is in appeal before us. The learned Departmental Representative heavily relied on the order of the Assessing Officer.

35. The learned counsel for the assessee, on the other hand, while supporting the order of the CIT(A) submitted that most of the payments are for attending seminars organised by CII and other reputed institutes and such payments are basically reimbursement of the lunch, banquet expenses and other expenses. He submitted that by attending the seminars the employees of the assessee company come to know about the latest developments in various fields. There is no technical or professional services rendered by anybody and therefore the payments made are not covered u/s.194J.

36. 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. In our opinion, the payments made to various organisations towards attending seminars by the employees of the assessee company cannot be considered as towards rendering of professional services by those training institutes as per the provisions of section 194J. We, therefore, agree with the findings given by the learned CIT(A) that training and seminar expenses of the nature under consideration in the instant case do not fall under the category of services rendered u/s.194J and the assessee has rightly deducted tax u/s.194C and there is no short deduction of tax. The ground raised by the revenue 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.	525000	16230
	Total	3858905	119297

39. Before the CIT(A) it was submitted that the above payments are in the nature of routine AMC contracts for software maintenance. The answer to Question NO.29 of the CBDT Circular No.715 dated 08-08-95 was brought to the notice of the CIT(A).

40. Based on the arguments advanced by the assessee the learned CIT(A) held that since the payments made are in the nature of AMC, therefore, provisions of section 194C are applicable. Aggrieved with such order of the learned CIT(A) the revenue is in appeal before us.

40.1 The learned Departmental Representative heavily relied on the order of the Assessing Officer.

41. The learned counsel for the assessee on the other hand while supporting the order of the CIT(A) also relied on the following decisions :

1. Swayam Shipping Services (P) Ltd. reported in 339 ITR 647 (Gujarat)

2. Shree Mahalaxmi Transport Co. reported in 339 ITR 484 (Gujarat)

3. Indian Oil Corporation (marketing Division) reported in 12 ITR 79 (Delhi)

42. 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 cited before us. We find the learned CIT(A) has given a finding that the Assessing Officer has not discussed the nature of these payments but has simply stated that the payments were for professional, technical and managerial services on which tax was deductible u/s.194J. The finding given by the leaned CIT(A) that the payments are infact in the nature of AMC could not be controverted by the learned Departmental Representative. We have already held in Ground of appeal No.1.2 of the revenue that payments made for AMC are covered u/s.194C and not u/s.194J. Following the same ratio, we hold that the payments made to the parties mentioned above are covered u/s.194C and not u/s.194J. Accordingly, the order of the CIT(A) on this issue is upheld and the ground raised by the revenue is dismissed.

43. Ground of appeal No.2 by the revenue reads as under :-

"The Ld. CIT(A) erred in directing the Assessing Officer to admit fresh evidence in respect of payment of taxes by deductee assessee. The CIT(A) failed to appreciate that no such evidence was adduced by the assessee at the time of proceeding u/s.201(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.1327/PN/2010 (By Revenue) (A.Y. 2008-09) :-

47. Grounds raised by the revenue are as under :-

"The Ld. CIT(A) erred in holding that the payment of Rs. .22,96,845/- made by the assessee to Enercon India Ltd. for windwill operation and maintenance were rightly covered by the assessee u/s.194C and not u/s.194J. The Ld. CIT(A) erred in placing reliance on the decision of Madras High Court in the case of Skycell Communications Ltd., reported in 251 ITR 53, the facts of which are not applicable in the instant assessee's case.

"The CIT(A) erred in coming to the conclusion that the payments of Rs. 53,43,163/- made by the assessee to various parties were contractual payments requiring deduction of tax u/s.194C and not u/s.194J by placing reliance on the Madras High Court decision, Supra, the facts of which are not applicable to the instant assessee's case. While coming to the conclusion, the CIT(A) erred in not appreciating the true import of the Answer to Q.No.29 of the Board's circular No.715 dated 08-08-1995. The Ld. CIT(A) erred in holding that the payments of Rs. 52,74,226 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.

The Ld. CIT(A) erred in holding that the amount of Rs. 8,75,431/- paid by assessee to TLC, Faxon Imaging Technology, GEM Integrators, RAC, I.T. Solutions and Synise Technology 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.

The Ld. CIT(A) erred in directing the Assessing Officer to admit fresh evidence in respect of payment of taxes by deductee assessee. The CIT(A) failed to appreciate that no such evidence was adduced by the assessee at the time of proceeding u/s.201(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.

The appellant prays that the order of the CIT(A) be vacated and that of the Assessing Officer be restored"

48. After hearing both the sides, we find the above grounds by the revenue are identical to grounds in ITA No.1326/PN/2010 filed by the Revenue. We have already decided the issues and the grounds raised by the revenue have been dismissed. Following the same ratio, the above grounds by the revenue are dismissed.

49. In the result, both the appeals filed by the assessee are allowed and the appeals filed by the revenue are dismissed.

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