The Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently ruled that technical services would not include services provided by the machines for the purpose of Tax Deducted at Source ( TDS ).
Assessee in the instant case is a private limited company has filed its return of income for the relevant assessment year and also filed an application under Section 197 of the Income Tax Act 1961, seeking a certificate for nil deduction of tax at source.
During the course of assessment proceedings the Assessing Officer (AO) noticed that the Assessee Company had made certain payments to M/s.UPL Environmental Engineers Ltd.(UEEL) in the nature of technical services on which tax had been deducted at the rates applicable under section 194C and not under section 194J of the Act. Accordingly a notice was issued to the Assessee by the AO for collection of the shortfall in deduction and for treating the payment as payment for technical services.
Further the AO held that the nature of contract was technical-service –contract and there was no human element and the work was carried out by machines. Studies revealed that the projects required mechanical and human interference that the processing of solid waste was done with the help of machinery. The services availed by UEEL from sub-contractors might involve services of professionals and technicians, that the nature of contract was of technical service contract.
On appeal CIT(A) upheld the action of the AO and confirmed the applicability of provisions of section 194J of the Act . Thereafter the Assessee approached the Tribunal on further appeal.
Before the bench counsel for the Assessee Advocate Sumant Chadha submitted that the assessee was not supplying any of the services of technical nature, that the services provided by it fell under works-contract. Further he submitted that the sub-contractor might be using technical help, that the assessee was not carrying out any technical service, that the sub-contractor was not imparting technical knowledge to the assessee, that from Municipal Corporation the assessee got the contract, that it sub contracted the job ,that the work done by the assessee was for service contract.
After considering the rival submissions of both the parties, the Tribunal bench comprising of Judicial Member Amarjit Singh and Accountant Member Rajendra observed that “mere use of machinery or human intervention by the sub-contractor are the decisive factors to decide the issue against the AO. Each and every payment for the contracts would not be for professional or technical services rendered by the contractor to the assessee as per the provisions of section 194J of the Income Tax Act. the collection, transportation and disposal of waste could be said to be covered under the provisions of section 194C of the Income Tax Act”.
The division bench also observed that, “the sole issue in the present issue involved was regarding the applicability of TDS provisions for payment made by the Assessee to UEEL. Counsel for the Assessee has rightly argued that technical services would not include services provided by the machines. While upholding the contention of the Assessee the Tribunal bench held that the payment made by the assessee to UEEL for exhibiting the work contract would fall within the provisions of section 194C of the Act and not under the section 194 J of the Income Tax Act”.
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