2013 (8) TMI 12 - HC - Income Tax

Interpretation of Income Tax Circulars on TDS for Service Tax in Project Funding

Commissioner of Income Tax (TDS) Versus M/s. Rajasthan Urban Infrastructure

The High Court interpreted Circulars dated 28.04.2008 and 30.06.2008 concerning Sections 194-I and 194J of the Income Tax Act. It determined that TDS was ... TDS u/s 194J - whether TDS is to be deducted on the amount payable on account of service tax or not - ITAT set aside the demand - Held that:- The words, “any sum paid”, used in Section 194J of the Act, relate to fees for professional services, or fees for technical services. As per the terms of agreement, the amount of service tax was to be paid separately and was not included in the fees for professional services or fees for technical services - The service tax was to be paid separately or not, is purely a question of fact and as per the agreement entered in the present case, it was to be paid separately and there is a finding of fact in this regard, recorded by the Appellate Authority as well as the Appellate Tribunal also - Decided against Revenue. Issues Involved:1. Interpretation of Circulars dated 28.04.2008 and 30.06.2008 in relation to Sections 194-I and 194J of the Income Tax Act.2. Whether TDS is required to be deducted on the amount payable for service tax.3. Applicability of Circular dated 28.04.2008 in the context of the case.4. Compliance with the provisions of Section 194J of the Income Tax Act.5. Determination of substantial questions of law for maintaining an Income Tax Appeal before the High Court.Analysis:1. The judgment involved the interpretation of Circulars dated 28.04.2008 and 30.06.2008 in connection with Sections 194-I and 194J of the Income Tax Act. The Appellant argued that the Circular dated 28.04.2008, pertaining to Section 194-I, was incorrectly applied by the Appellate Authority and the Income Tax Appellate Tribunal as the dispute concerned TDS under Section 194J. The Appellant contended that a subsequent Circular dated 30.06.2008 clarified the earlier Circular but was not considered. The High Court examined the Circulars, Sections 194-I and 194J, and other provisions of the Income Tax Act to determine the correctness of the lower authorities' decisions.2. The primary issue revolved around whether TDS should be deducted on the amount payable for service tax. The case involved a project financially assisted by the Asian Development Bank, where the main consultants charged service tax separately. The Tribunal found that as per the contract terms, the service tax amount was distinct and not subject to TDS. The Appellate Authority based its decision on a previous order related to the same assessee. The High Court analyzed the agreement terms and upheld the lower authorities' decisions, emphasizing that the service tax was to be paid separately as per the contract terms, thus not attracting TDS.3. Regarding the applicability of the Circular dated 28.04.2008, the High Court considered the distinction between Sections 194-I and 194J of the Income Tax Act. Despite the Circular's initial relevance to rent, the Court concluded that the orders passed were in line with Section 194J, which pertains to fees for professional or technical services. The Court emphasized that the service tax payment terms, as per the agreement, were crucial in determining TDS applicability, and factual findings supported the lower authorities' decisions.4. The judgment focused on ensuring compliance with the provisions of Section 194J of the Income Tax Act. It highlighted that the service tax payment arrangement, specified in the agreement, played a pivotal role in deciding TDS obligations. The Court emphasized that the determination of whether service tax should be paid separately was a factual inquiry, and the findings supported the conclusion that TDS was not applicable based on the contract terms.5. Lastly, the High Court addressed the requirement of substantial questions of law for maintaining an Income Tax Appeal before the High Court. It reiterated that such appeals must involve substantial legal issues, which were found to be absent in the present case. Consequently, the Court dismissed the appeals, concluding that the lower authorities' decisions were in accordance with the provisions of the Income Tax Act, considering the specific circumstances and factual findings of the case.