2017 (10) TMI 1441

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....ayments made to the sub-contractor. 3. That the Ld. AG erred in law and facts In considering the sub-contractor as company of professionals where as the sub-contractor company is doing civil construction work and payment for that is covered u/s 194C of the act only. 3 1 That the Ld. erred in law and facts in considering the services of professionals to be taken by the sub-contractor as and when required by him. has been taken to have been engaged by the appellant." 2. The brief facts of the case is that appellant is a contractor engaged in execution of thermal power plant has taken a services of a sub-contractor M/S. IOT Engineering Project Ltd and on payments made to it Tax was deducted at source u/s 194C Income Tax Act. However, the Id Assessing Officer ITO (TDS). Rohtak was of the opinion that tax should have been deducted u/s 194J of the Income Tax Act. Therefore, the total payment of Rs. 12.46 crores was subjected to deduction u/s 194J @ 10% and after granting due credit, short deduction was worked out at Rs. 9973942/- u/'s 201 (l) of the Act. Interest thereon was also charged for short deduction of tax u/s 201(l A) of Rs. 3042052/- and thereafter, rai....

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....tor within the meaning of section 194C. Further, Non of the vendors are professional as per the definition in section 194J. The amount paid to the vendors are either for erection, installation, fabrication and commissioning of some parts of the Power Plant and hence cannot be claimed as technical services as per the definition of "Technical Services". The definition of "Technical Services" has specifically kept the following activities out of the purview of technical services: (i) Construction (ii) Assembly (iii) Mining (iv) Other similar project In the instant case, the appellant is executing a works contract (Thermal Power Plant) for its customer. This involves men, machinery, material and other tangible and intangible in goods. For the construction of a Thermal Power Plant, the services of technical personnel including engineers is inevitable. The scope of the sub-contract was actual execution of work involving the services of technical personnel as well as non-technical personnel. However. what the appellant intended to get from its subcontractor was a physical output, a tangible structure and not merely the services of its qualified....

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....ult only when (i) he does not deduct tax at source as required under the Act from the payments made to the assessee; and (ii) the assessee has also failed to pay such tax directly. In the instant case, the subcontractor M/S IOT Engineering Project Ltd. has directly paid the tax to the Department. In view of the above, the appellant cannot be deemed as an assessee in default and the disputed short deduction of tax cannot be demanded from the appellant as per the case law of Hon'ble Supreme Court in Hindustan Coca Cola Beverage (P) Ltd. V. CIT [2007] 163 Taxman 355. 5. I have carefully considered the issue and the submissions made by the AR. Section 194J mandates deduction of tax at 10% in respect of payments made towards "fee for technical services". Technical services has been defined in Explanation 2 to clause (vii) of sub-section (l) of section 9 as under:- Explanation 2 for the purpose of the clause, fees for technical services means any consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration fo....

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....ible in goods. For the construction of a Thermal Power Plant, the services of technical personnel including engineers is inevitable. The scope of the sub-contract was actual execution of work involving the services of technical personnel as well as non-technical personnel. However, what the appellant intended to get from its subcontractor was a physical output, a tangible structure and not merely the services of its qualified, professional engineers/staff. The contract between the two parties is for work which clearly satisfies the provisions of section 194C and does not by any stretch of imagination attract the provisions of section 194J and the appellant's case is squarely covered by the decision of Hontble ITAT Ahmedabad Bench in Gujrat State Electricity Corporation Ltd. Vs ITO (supra) where in it was held as under: "12. The scope and effect of section 9(l)(vii), as originally enacted had been elaborated in Departmental Circular No. 202, dated 5th July, 1976. Para 16.3 of the said Circular is published at pp. 624 and 625 of Income-tax Law By Chaturvedi & Pithisaria, Vol-I, is reproduced below: " 16.3 The expression "fees for technical services" has been def....

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....w to entrust the entire responsibilities of carrying out important part of business activities of power project, viz. to carry on the business activities of operation and maintenance of plants. A separate agreement has also been executed between the appellant-company and GEB on 22nd Jan., 1997, in relation to sale/distribution of electricity produced by the appellant-company as per the terrr s of power project agreement. On a careful reading of the entire agreement dated 14th Oct., 1998, we are of the view the payment made by the appellant-company to GEB was a payment made for carrying out the mega project of entire operation and maintenance of power plants undertaken by the GEB. Such payment would came within the limb of exclusionary part, viz., "consideration for like project" excluded in the definition of "fees for technical services" given in Explanation 2 to section 9(l)(vii) of the Act. Such payment cannot also be treated as payment of fees for professional services as contemplated in section 194J. It may now be relevant to reproduce main part of section 194C of the " 194C. ( l ) Any person responsible for paying any sum to any resident (hereafter in this se....

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....demand for alleged short-deduction of tax at source by invoking the provisions of 5.3 The basis of the AO to conclude that the scope of the contract comes under the provisions of section 194J since grounding, erection, testing& inspection etc. cannot be handed by labourers but only be done by qualified engineers etc. is misplaced and misconceived as  what is executed by the subcontractors is erection/installation, commissioning, testing & inspection etc. which involves procurement of materials including equipments by the subcontractors, fabrication etc. and thereafter installation, testing 85 trial operation which is clearly in the scope of "work" as defined in section 194C of the Act. Any work of this nature involves utilization of material and manpower. Manpower includes skilled professionals like engineers, technicians etc. and unskilled labour etc. Merely because professionals 85 skilled personnel were employed in the execution of the subcontract does not mean. by any stretch of imagination, that the appellant got only technical services and not a physical output, as per the terms of the contract. What the appellant got from the sub-contractors was a phys....