annual maintainance contract and Section 194J

[Guest]

i would like to know whether annual maintainance contract for airconditioners attract incometax under section 194J of Income Tax Act as the work involves maintainance of technical items.

[B L Bhojwani]

It is, nowadays, seen that the Income Tax Department tries to apply section 194J for the purpose of TDS, even in cases in which section 194C is applicable.  

"Professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.  "Fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries".

In CIRCULAR NO. 715, DT. 8-8-1995 (EXPL.) [F.A. 1995], the CBDT has clarified as under :

"Question 28 : Whether the services of a regular electrician on contract basis will fall in the ambit of technical services to attract the provisions of section 194J of the Act ? In case the service of the electrician is provided by a contractor, whether the provision of section 194C or 194J would be applicable ?

Answer : The payments made to an electrician or to a contractor who provides the service of an electrician will be in the nature of payment made in pursuance of a contract for carrying out any work. Accordingly, provisions of section 194C will apply in such cases.

Question 29 : Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act ?

Answer : Routine, normal maintenance contracts which include supply of spares will be covered under section 194C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source."

The above replies of the Board are not clear and have to be considered in relation to the facts of a particular case.

If a maintenance contract is covered under section 194C, it is difficult to accept that such contract would attract section 194J, simply because the payee holds some technical qualification. In fact, maintenance contract involves generally technical services of an electrician, plumber, mason, carpenter, painter, etc., or of a contractor rendering such maintenance under contract. Such contracts should be covered under section 194C and not under section 194J. Therefore, the annual maintenance contract for air-conditioners shall fall under section 194C.

In CIRCULAR NO. 720, DT. 30-8-1995 (CLARI.), the CBDT has clarified that each section, regarding TDS under Chapter XVII, deals with a particular kind of payment to the exclusion of all other sections in this chapter. Thus, payment of any sum shall be liable for deduction of tax only under one section. Therefore, a payment is liable for tax deduction only under one section.

AI Summary

TDS classification: annual maintenance contracts for equipment treated as contract payments, not as fees for technical services. Routine annual maintenance contracts for air conditioners, including supply of spares, are to be treated as contract payments rather than fees for technical services; CBDT guidance distinguishes routine maintenance (covered by contract payment provisions) from genuinely technical or consultancy services, and provides that any payment is subject to deduction under only one applicable TDS provision.