2024 (2) TMI 47 - AT - Income Tax

ITAT remands TDS default case for fresh adjudication after CIT(A) failed to consider payee's tax compliance under section 201(1)

The ITAT Delhi remanded the case to the AO for fresh adjudication regarding TDS default u/s 201(1) on payments for X-Ray and CVC machine maintenance. The ... TDS u/s 194J or u/s 194C - payments made towards maintenance of X-Ray machine and CVC machine - assessee in default u/s 201(1) - HELD THAT:- We observe that the contentions and the case laws relied on by the assessee was not considered by the CIT(A) in proper perspective. We also noticed that in the course of appellate proceedings assessee submitted that the assessee furnished return of income filed by the payee to show that the income has been accounted for in their returns and paid the tax dues on income declared by them and assessee is in the process of furnishing of certificate to this effect from an Accountant in Form No. 26A, however, the Ld.CIT(A) has not considered the submissions of the assessee. In the grounds of appeal the assessee also contended that the AO failed to consider the amount already deposited by the assessee even before passing the order u/s 201(1) and 201(1A) of the Act. We observe that as per the mandate of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd [2007 (8) TMI 12 - SUPREME COURT] if the payee has taken into consideration the amounts received by payer in their return of income and paid taxes on such amounts the assessee cannot be treated as an assessee in default u/s 201(1) of the Act. CIT(A) appears to have not considered all these submissions of the assessee and the evidences placed before him. In the absence of any evidence furnished before us to show that the payees have already considered these amounts in their returns, in the interest of justice, we restore this matter to the file of AO for fresh adjudication in accordance with law. The assessee is at liberty to file all the evidences to support their contentions before the AO. All the issues in the appeal are left open for fresh adjudication in accordance with law after providing adequate opportunity of being heard to the assessee. Appeals of the assessee are allowed for statistical purpose. ISSUES PRESENTED AND CONSIDERED 1. Whether payments for maintenance/AMC of X-Ray and CVC machines constitute 'fees for professional or technical services' chargeable to tax deduction at source under section 194J or are payments for contractual work/maintenance covered by section 194C. 2. Whether the deductor can be held an 'assessee in default' under section 201(1) where the payees have declared the receipts in their returns and discharged tax liability (application of controlling Supreme Court authority on satisfaction of assessing officer regarding tax paid by deductee). 3. Whether interest under section 201(1A) is leviable where TDS was deducted late (audit fees) and whether proviso to section 201(1A) has been complied with. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification of payments: section 194J (professional/technical fees) v. section 194C (contractual/maintenance) Legal framework: Section 194J mandates TDS on fees for professional or technical services (higher rate). Section 194C applies to payments made under a contract for carrying out any work, including routine maintenance/AMC (lower rate). Precedent Treatment: Administrative guidance (CBDT circular) distinguishes routine maintenance contracts (covered by section 194C) from situations where technical services are rendered (section 194J). Tribunal and High Court authorities have adopted both positions on facts - some treating AMC of medical equipment as contractual (194C), others treating specialized maintenance requiring technical expertise as 194J. Interpretation and reasoning: The Tribunal reviewed record and found conflicting material: certain ledger entries and payments characterized by the deductor as contractual/AMC (arguing applicability of 194C), while the tax authorities relied on inspection findings and nature of services (technical/specialized maintenance) to treat payments as fees for professional/technical services under 194J. The appellate authority had sustained AO's view without fully reckoning with the assessee's case law and submissions. The CBDT Q&A was applied to show that routine maintenance including supply of spares falls under 194C, while technical services fall under 194J. The Tribunal observed that the appellate authority did not properly weigh those submissions and evidence about the exact nature of work, terms of contract, and technical competence of payees. Ratio vs. Obiter: Ratio - classification depends on factual determination of nature of service (routine maintenance v. technical/professional services); administrative circular guidance is an authoritative interpretive aid. Obiter - general statements about sister concerns or presumptions of technical nature without record support. Conclusions: The Court did not make a final substantive determination of whether the impugned payments attract section 194J or section 194C. Instead, because material and submissions (including case law relied on by the deductor and documentary evidence) were not adequately considered by the lower authority, the matter was remitted for fresh adjudication to enable proper fact-finding and application of the CBDT guidance and relevant authorities. The deductor is permitted to furnish all evidences to support classification before the assessing officer. Issue 2 - Deductor's default where payee has declared receipts and paid tax Legal framework: Section 201(1) treats a person required to deduct tax as an assessee in default if tax is not deducted; first proviso and judicial guidance permit relief where the deductee has paid the tax and the assessing officer is satisfied that tax due from the deductee has been paid. Precedent Treatment: Supreme Court authority has held that if the payee has shown the receipts in its return of income and paid taxes thereon, a deductor should not be treated as an assessee in default, subject to satisfaction of the assessing officer. Interpretation and reasoning: The Tribunal noted that the deductor produced returns of the payees and claimed forthcoming Form 26A certificates evidencing tax payment by deductees. The appellate authority failed to consider these submissions and did not reach a satisfaction on whether correct tax had been paid by the payees. The Tribunal emphasized that satisfaction of the AO is a necessary step before treating the deductor as in default; absent AO's satisfaction and without Form 26A uploaded/verified, default could not be conclusively determined by the appellate authority. Ratio vs. Obiter: Ratio - the deductor's liability under section 201(1) cannot be finally fixed without the AO's satisfaction that the payee has properly included the receipts and paid the requisite tax; evidentiary proof (e.g., Form 26A/certificates) must be considered. Obiter - procedural observations about non-uploading on the portal and related documentary shortcomings. Conclusions: The matter is remitted to permit the AO to examine and satisfy himself regarding the payees' tax compliance; the deductor may produce Form 26A and other evidence to avoid being treated as an assessee in default. The appellate finding of default is set aside for fresh adjudication on this aspect. Issue 3 - Levy of interest under section 201(1A) for late deduction of TDS (audit fees and other small payments) Legal framework: Section 201(1A) prescribes interest for default in deducting TDS; proviso conditions and timing are relevant to computation and applicability. Precedent Treatment: Established that interest is leviable for delayed deduction/late payment of TDS unless proviso conditions or specific facts negate it. Interpretation and reasoning: The appellate authority found that TDS on audit fees was deducted late (delay of several months) and therefore interest under section 201(1A) was leviable. For minor ledger payments expressly identified as AMC/contractual, the appellate authority treated them as liable for TDS at 2% under section 194C and noted default for non-deduction. Ratio vs. Obiter: Ratio - where TDS is deducted after applicable time, interest under section 201(1A) is chargeable unless conditions of proviso are satisfied; factual determination of timing and whether proviso applies is requisite. Obiter - comments on specific delays where evidence may later justify relief. Conclusions: Tribunal did not disturb the conclusion that interest may be leviable for late deduction but remitted the matter so AO can re-examine timing, applicability of proviso to section 201(1A), and evidence supporting or negating interest liability. Remedial and procedural directions The Tribunal restored the appeals to the file of the assessing officer for fresh adjudication on all open issues, directing that the deductor be given adequate opportunity of being heard and be permitted to file all evidences (including payees' returns, Form 26A certificates, terms of contract, nature of services, and technical competence of service providers). All substantive issues, including classification under sections 194C/194J, satisfaction under proviso to section 201(1), and interest under section 201(1A), remain open for fresh determination in accordance with law.