Justices Akil Khureshi and Biren Vaishnav, recently observed that the payment of licence fee to the Indian Railway Catering and Tourism Corporation (IRCTC) is not subject to tax deduction at Source (TDS) under section 194C of the Income Tax Act, 1961.
The assesse, in the instant case, was granted a contract by IRCTC for providing catering service for which the assessee would make payment in the nature of licence fee.
The sole grievance of the assesse was that the Assessing Officer has disallowed the payments made by the assessee to IRCTC by invoking section 40(a)(ia) of the Act. He was of the view that the assesse had to deduct tax at source on such payments under section 194C of the Income Tax Act.
The Appellate Tribunal held that section 194J of the Act would not apply nor would section 194C apply. According to the Tribunal, section 194C of the Act would cover payment made to a contractor. It noted that IRCTC was not Government. The Tribunal also applied the proviso to sub-section (1) of section 201 which was introduced in the statute subsequently.
Section 194C of the Act pertains to requirement of deduction of tax at source on payments to contractors.
Upholding the Tribunal order, the bench opined that under sub-section (1) of Section 194C, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and the specified person is required at the time of credit of such sum in the account of the contractor or at the time of payment to deduct tax at specified rate.
“In the present case, the payment of licence fee was made by the contractee to the contractor and therefore section 194C of the Act would not apply,” the bench said.
“We are broadly in agreement with the view of the Tribunal. In plain terms, section 194C of the Act does not cover the present situation where the assessee was making payment of licence fee to the IRCTC for catering service. In that view of the matter, we see no reason to interfere. However, this may not be seen as our confirmation of the Tribunal’s view that IRCTC was a government body and therefore also requirement of deducting tax at source did not arise or that proviso to sub-section (1) of Section 201 may have retrospective effect.”
Read the Full Text of the Order Below.
