In a recent ruling,the division bench of the Punjab & Haryana High Court held that the provisions of section 194J of the Income Tax Act, 1961 is not applicable in case of payments made in respect of construction, erection of plants involving inputs from technical personnel.
In the instant case, the Assessing Officer completed assessment against the assessee and observed that all the contracts involved in the provision of professional and technical services would fall within s. 194J and not s. 194C. the Officer held that “the contracts were not only for the erection and installation work, but also for the commissioning, testing and trial operation of the various equipments and other related machinery and that under the terms of the contract it is the duty of the contractor to provide all types of labour, supervisors, engineers,inspectors, measuring and testing equipments, testing and commissioning for the execution of the project as per the specifications of the respondent.”The contract specifies that, the contractor should deploy all the skilled workmen to carry out the work as per the specifications. Therefore, the contractors were required to employ qualified engineers and highly skilled manpower to execute certain activities so as to provide fault-free services to the assessee. The contractors were, therefore, providing technical services to the respondent which attract the provisions of Section 194J.
On appeal, both the CIT(A) and the ITAT held in favour of the assessee. Therefore, the revenue approached the High Court on appeal contending that the contract falls within the ambit of s. 194J.
The Court noted that the contract is for the purposes set out in clause 1 thereof itself, namely, erecting, commissioning, testing and trial operation of the said equipment in accordance with and subject to the terms and conditions of the contract. It was further noted that the labour, employees, tools and tackles are not supplied under the contract, but for the purpose of executing the contract as per the contractual stipulations.
After analyzing the conditions of the contract in detail, the bench observed, “These are usual clauses in such contracts. The testing, pre-commissioning, commissioning and post-commissioning are required to be carried out by a contractor to satisfy the customer that the work has been executed in a proper manner; that the equipment has been installed as required and that its performance meets the parameters specified in the contract. The personnel that are required to test and commission the plant and equipment perform their functions not under a contract for the supply of technical services to the customer, but to satisfy the customer on behalf of the contractor that the plant and equipment has been duly supplied as per the contractual specifications. Indeed, this entire exercise would require the deployment of technical personnel, but what is important to note is that the technical personnel are deployed not for and on behalf of the customer, but for and on behalf of the contractor itself with a view to ensuring that the contractor has supplied the equipment as per the contractual specifications. Everything done in this regard is to this end and not to supply technical services to the customer.”
Accordingly, it was held that the contract entered into between the respondent-assessee and ach of the contractors, therefore, did not involve the supply of professional or technical services at least within the meaning of Section 194J. The consideration paid under the contracts was not for the professional or technical services rendered by the contractors to the assessee.
“Section 194J is not a residuary clause. In other words, it is not that if a contract does not fall within the ambit of Section 194C, it must be deemed to fall within the ambit of Section 194J. Sections 194C and 194J are independent provisions. In view of our finding that the contract does not fall within Section 194J, the dismissal of the appeal would follow in any event. The respondent has not denied that the present case falls under Section 194C. Had the respondent contended that Section 194C is also not applicable, it would have been necessary to consider whether the contract falls within the ambit of Section 194C. As the respondent has accepted that it falls within Section 194C and has complied with its obligations thereunder, we refrain from deciding the issue as to whether it falls within Section 194C.” the Court said.
Read the full text of the Judgment below.
