Payments made to Vendors subject to TDS under Section 194C: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) in ACIT vs. M/s. WTI Advance Technology Ltd. held that payment made to Vendors for doing non-technical works are subject to TDS under Section 194C and not 194 J of the Income Tax Act, 1961.

The assessee is engaged in the business of Information Technology enabled services.  As a part of the Restructured Accelerated Power Development and Reforms Programme (R-APDRP) with an overall programme objective to provide an IT backbone and strengthening of the Electricity Distribution System across the Country, which enabled utilities in reduction of AT &C losses to 15% in project areas. The aforesaid work was to be executed in various States and for the State of Maharashtra and Gujarat Tata Consultancy services (TCS) was awarded with this project. The agreement had various modules and in turn TCS had entered into an agreement with the assessee company for creation of Geographical Information systems the execution of the project involved both technical and nontechnical work.

Though the technical work was performed by the assessee through its employees who were technical personnel, but however, the nontechnical and non-skilled work involving the collection of data etc. was outsourced by the assessee to various vendors in the relevant locations for operational convenience. The nature of such non-technical and supporting work that was outsourced by the assessee to the various vendors, involved the field survey for collection of names of major roads/base map features; collection of names/attributes of assets data from ledger available with utility companies‟; collection of consumer data through contact survey by door-to-door survey. The assessee deducted tax at source under Section 194C of the Income Tax Act, 1961. However, the Assessing Officer (A.O.) held that as the payments made by the assessee were in context of technical services, therefore, it was liable to deduct tax at source under Sec.194J and not under Sec. 194C of the Act. Allowing the appeal of the assessee the Commissioner of Income Tax (Appeals) (CIT(A)) held that the work carried out by the vendors did not fall within the ambit of technical services contemplated under Sec. 194J, and rather was clearly in the nature of contract work provided in Sec. 194C of the Act. Revenue appealed before the ITAT.

The Bench comprising of Judicial Member Ravish Sood and Accountant Member B.R. Baskaran affirming the findings of the CIT(A) observed “We find ourselves to be in agreement with the view taken by the CIT(A) that the activities performed by the vendors did not require any technical or professional knowledge, and the vendors had only deployed semi-skilled personnel to carry out the said work. We are persuaded to be in agreement with the view taken by the CIT(A) that as the payments made to the vendors for the work done by them by deploying semi-skilled personnel, did not involve any technical or professional knowledge on their part, the same could not be brought within the sweep of Sec. 194J and had rightly been subjected to deduction of tax at source by the assessee under Sec. 194C. We thus being of the view that the assessee had correctly deducted tax at source on the payment made to the vendors, therefore, no disallowance under Sec.40(a)(ia) as regards the same was liable to be made in the hands of the assessee.”