TDS on AMC payments: classification as works contract subjects payments to TDS as contract receipts, with relief granted to payer

Payments for Annual Maintenance Contracts for installed equipment were characterised as payments for execution of maintenance 'work' and therefore subject to TDS as contract payments; such AMC services do not constitute managerial, professional or fees for technical services even if performed by technically qualified personnel, and thus are not taxable as technical/consultancy fees. Consequentially, the assessment treating the payer as an assessee in default was set aside and the addition was directed to be deleted.

---

---

Issues: Whether payments made under Annual Maintenance Contracts (AMCs) for maintenance of equipment are payments for "works" attracting TDS under Section 194C of the Income-tax Act, 1961 and not "fees for professional or technical services" under Section 194J, and whether the assessee is an assessee in default under Sections 201(1)/201(1A) for deducting TDS under Section 194C at 2% instead of 10% under Section 194J.

Analysis: The statutory definitions distinguish "works" and contracts from "fees for professional or technical services" and Explanation 2 to section 9(1)(vii) limits "fees for technical services" to managerial, technical or consultancy services excluding consideration for construction, assembly or like projects. The payments here were for periodic day-to-day maintenance and repair of installed equipment under annual contracts (AMCs), where service providers perform maintenance work as and when required rather than rendering managerial, technical consultancy or advisory services. The factual character of the transactions aligns with the scope of "work" under Section 194C and falls outside the ambit of "fees for technical services" or "professional services" under Section 194J.

Conclusion: The payments for AMCs qualify as payments for carrying out "work" and attract TDS under Section 194C; they do not constitute fees for professional or technical services under Section 194J. Consequently, the assessee is not an assessee in default under Sections 201(1)/201(1A) and the appeal is allowed in favour of the assessee.

---