Composite plant supply and erection contracts indivisible; testing and commissioning fall under section 194C, not section 194J

HC held for the assessee: the contracts to set up the plant were composite and indivisible, so testing and commissioning formed part of the dominant works contract and did not attract TDS under section 194J. The court applied the principle that a composite contract cannot be artificially bifurcated to treat a component as professional/technical services for higher TDS. Revenue failed to prove any legal basis or facts permitting division of the contracts; therefore higher TDS under section 194J was not chargeable (matter falls within the scope of section 194C).

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Issues Involved:
1. Whether the Tribunal erred in annulling the assessment order and concluding that TDS was required under Section 194C and not under Section 194J.
2. Whether the Tribunal erroneously granted relief to the assessee in the absence of proper books to establish the exact expenditure incurred for technical services.

Summary:

Issue 1: Tribunal's Annulment of Assessment Order and TDS Requirement

The appeals were filed under Section 260A of the Income Tax Act, 1961, against the order dated 20th February 2018 by the Income Tax Appellate Tribunal, Delhi Bench "C" New Delhi. The primary issue was whether TDS should be deducted under Section 194C (2%) or Section 194J (10%) of the Act. The assessee, engaged in the business of power generation, had entered into contracts with BHEL and CIPL for setting up a thermal power plant. The contracts involved services like Transportation, Insurance, Erection, Installation, Testing, and Commissioning of BTG and BOP. The assessing authority had determined the assessee to be in default for deducting TDS at a lower rate under Section 194C instead of the higher rate under Section 194J. The Tribunal, however, annulled the assessment order, following the reasoning of the Punjab and Haryana High Court in a similar case, concluding that the contracts were indivisible and primarily for setting up the thermal power plant, not for technical services. The High Court agreed with the Tribunal, stating that the contracts were composite and could not be dissected to impose a higher TDS rate.

Issue 2: Absence of Proper Books and Erroneous Relief

The assessing authority argued that the assessee had not maintained separate accounts to establish the actual payments made for Testing and Commissioning of BTG and BOP, which should be classified as "fees for technical services" under Section 194J. The Tribunal, however, granted relief to the assessee, considering the contracts as indivisible. The High Court did not address this issue separately, as the first issue's resolution rendered it moot.

Conclusion:

The High Court dismissed the appeal, agreeing with the Tribunal's decision that the contracts were indivisible and primarily for setting up the thermal power plant, not for technical services. The first question of law was answered in favor of the assessee, and the second question was left unanswered. The appeal was dismissed with no order as to costs.

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