2020 (2) TMI 782 - AT - Income Tax

ITAT Indore directs deletion of demands for non-TDS on internet charges & non-TCS on scrap sale

The ITAT Indore allowed the appeal of the assessee, directing the Assessing Officer to delete the demands related to non-deduction of TDS on internet ... TDS u/s 194J - payment made to M/s. BSNL and M/s. Bharti Airtel Ltd. towards internet charges - HELD THAT:- Issue decided in favour of assessee as relying on M/S. SHRIRAM INSIGHT SHARE BROKERS VERSUS JCIT, RANGE-59 (TDS) , KOLKATA [2018 (2) TMI 744 - ITAT KOLKATA] wherein as held no TDS is required to be made on payments made towards internet and communication charges. - Decided in favour of assessee. Non-collection of TCS and interest thereon - applicability of section 206C - HELD THAT:- As submitted by the assessee before ld. CIT(A) that the assessee being a Hotel is not capable of generating waste and scrap from the manufacturer or mechanical working of materials. The scraps generated by the assessee are products purchased by it and which are no longer usable either on account of breakage or on account of being obsolete. However, since the assessee does not have any manufacturing or mechanical working processes, the scrap as defined in the said section cannot be generated. Therefore, the assessee is not covered by Section 206C. We find that in case of Navine Fluorine International Ltd. [2011 (2) TMI 1110 - ITAT, AHMEDABAD] has held that section 206C will apply only to those sellers who are engaged in the business of manufacturing or mechanical working of materials. Thus, on consideration of these facts, we direct the Assessing Officer to delete the demand made on account of non-collection of TCS and interest thereon. Accordingly ground No. 2 is also allowed. Issues Involved:1. Non-deduction of TDS on internet charges.2. Non-collection of TCS on sale of scrap.Issue 1: Non-deduction of TDS on internet chargesThe appeal was against the order of the Ld. CIT(A) confirming the Assessing Officer's decision that tax should have been deducted under section 194J on payments made for internet services. The Assessing Officer raised a demand for non-deduction of TDS on internet and lease line services. The CIT(A) upheld the demand, stating that the payment for internet charges fell within the definition of fees for technical services, requiring TDS deduction. However, a similar issue was decided in favor of the assessee by the ITAT Kolkata in a different case. The ITAT Kolkata held that no TDS was required on payments for internet and communication charges, citing the judgment of the Hon'ble Supreme Court in CIT Vs. Kotak Securities Ltd. The ITAT Indore directed the Assessing Officer to delete the demand of Rs. 67,271, allowing the appeal on this ground.Issue 2: Non-collection of TCS on sale of scrapThe second ground of appeal was related to the non-collection of TCS on the sale of scrap, leading to a demand of Rs. 27,472. The CIT(A) confirmed the demand, stating that the appellant failed to prove why they were not liable to collect TCS. However, the assessee argued that as a hotel, they did not generate scrap through manufacturing or mechanical working, as required by Section 206C. Citing a precedent from the Ahmedabad ITAT, it was held that Section 206C applies only to sellers engaged in manufacturing or mechanical working of materials. Therefore, the ITAT Indore directed the Assessing Officer to delete the demand of Rs. 27,472 on account of non-collection of TCS and interest thereon, allowing the appeal on this ground.In conclusion, the ITAT Indore allowed the appeal of the assessee in both issues, directing the Assessing Officer to delete the demands related to non-deduction of TDS on internet charges and non-collection of TCS on the sale of scrap.