2011 (9) TMI 103 - AT - Income Tax

Tribunal rules on TDS classifications and perquisites, upholds interest imposition.

The Tribunal ruled in favor of the Assessee in part, determining that TDS for vehicle hire charges should fall under Section 194C, not Section 194I, and ... TDS on Vehicles charged covered u/s 194I or 194C - Reimbursement of Food Expense part of Salary or not - TDS on Maintenance of telephone charges, AMC for IT services, facility management and AMC for Power Line Carrier Communication ('PLCC') System u/s 194J or 194C - There are following issues in Appeal - Held that:- the definition of rent under section 194-I does not provide any item for vehicle hire charges therefore assessee is required to deduct TDS in respect of vehicle hire charges u/s 194C and not u/s 194-I. Decided in favour of Assessee.Reimbursement of food expenses to employees - TDS u/s 192 - Held that:- In the instant case, no free food is provided instead of, employees are paid in cash - assessee is not covered by exemption mentioned in Rule 3 as well as provisions of section 17(2)(vi) of the I.T. Act, 1961. Decided against Assessee.TDS on AMC and other expenses - TDS u/s 194C or 194J - use of services of technical qualified persons - Held that:- 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(1)(vii). Therefore, the amount paid towards annual maintenance contract of Telephone Exchange and Computers by the assessee could not be considered as fee for technical services u/s 194J. Decided in favour of Assessee. Issues Involved:1. Applicability of Section 194I vs. Section 194C for vehicle charges.2. Taxability of reimbursement of food expenses as a perquisite under Section 192.3. Applicability of Section 194J vs. Section 194C for certain expenses.4. Treatment of the assessee as 'assessee in default' and liability for interest under Section 201(1A).Detailed Analysis:1. Applicability of Section 194I vs. Section 194C for Vehicle Charges:The main contention was whether the payments made for vehicle charges to travel agencies should be subjected to TDS under Section 194I (rent) or Section 194C (contract). The Assessee argued that TDS should be deducted under Section 194C, citing similar cases where the tax department had issued certificates under Section 197 for payments to another travel agent. The Revenue contended that the payments were for leasing vehicles, thus falling under Section 194I.The Tribunal, after considering various precedents, held that the definition of rent under Section 194I does not include vehicle hire charges. Therefore, it was concluded that TDS should be deducted under Section 194C, not Section 194I. Consequently, the demand raised under Section 201(1) for vehicle hire charges was deleted, and no interest under Section 201(1A) was payable.2. Taxability of Reimbursement of Food Expenses as a Perquisite:The Assessee reimbursed food expenses to its employees, which was contended to be non-taxable under Section 17(2) read with Rule 3. The Revenue argued that since the reimbursement was in cash and not in the form of free meals or prepaid vouchers, it should be considered a taxable perquisite.The Tribunal upheld the view of the CIT(A) that the reimbursement in cash does not qualify for exemption under Rule 3 or Section 17(2)(vi). The Assessee was required to deduct TDS as per the income slab of each employee. The Tribunal also upheld the levy of interest under Section 201(1A) as mandatory, following the Supreme Court's decision in Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT.3. Applicability of Section 194J vs. Section 194C for Certain Expenses:The dispute involved whether payments for maintenance of telephone exchange, AMC for various systems, and other technical services should be subjected to TDS under Section 194J (fees for technical services) or Section 194C (contract).The CIT(A) had partially upheld the AO's view, categorizing some payments under Section 194J based on the nature of services rendered. The Tribunal, however, referred to the Madras High Court's decision in Skycell Communications Ltd. v. DCIT, which distinguished between technical services and routine maintenance services. It concluded that the payments for maintenance contracts did not amount to fees for technical services under Section 194J but were covered under Section 194C.4. Treatment of the Assessee as 'Assessee in Default' and Liability for Interest under Section 201(1A):The Assessee argued that it should not be treated as an 'assessee in default' due to a bona fide belief regarding the applicable sections for TDS deduction. The Tribunal, however, upheld the mandatory nature of interest under Section 201(1A) for the period of shortfall in TDS deduction, emphasizing that it is compensatory and not penal.Conclusion:The Tribunal allowed the Assessee's appeals partly, holding that TDS for vehicle hire charges should be under Section 194C and not Section 194I, and that certain maintenance contracts do not constitute technical services under Section 194J. However, it upheld the taxability of food expense reimbursements as perquisites and the mandatory nature of interest under Section 201(1A). The Revenue's appeal was dismissed.