By TIOL News Service

NEW DELHI, MAR 12, 2018: THE issue before the Bench is - Whether non-application of sec 194C towards a contractual payment will by itself provides for deemed application of sec 194J. And the ITAT verdict is NO.

Facts of the case

The Assessee-company, engaged in the business of generation of power. The Assessee was a special purpose vehicle (SPV) by the government of Uttar Pradesh for implementation of the power project. The Assessee had filed its return for the relevant AY. During the subject year, a TDS inspection was conducted u/s 133A on the Assessee, wherein the statement of the VP of the Assessee-company was recorded. Based on such statement, it was noted that the Assessee had entered into a contract with BHEL for the services of transportation, insurance, erection, installation, testing and commissioning. The Assessee had also deducted TDS u/s 194C towards the payment made for such services. The AO believed that services provided by the BHEL to the Assessee were in the nature of “fees for technical services (FTS)” on which TDS would be deducted u/s 194J and not u/s 194C. Therefore, the AO issued SCNs to the Assessee by asking it to give bifurcation of the expenditure with respect to the nature of the services. In reply, the Assessee stated that the said services were falling under the provisions of sec. 194C and hence, tax was not required to be deducted u/s 194J. In case of the erection and installation services, the Assessee stated that it was excluded from the definition of FTS u/s 9 as it involved construction, assembly, mining projects. After considering the Assessee's explanations, the AO held that the testing and commissioning were specialised technical work performed by the technically competent manpower and hence, to be treated as FTS u/s 194J on which 10% TDS required to be deducted. Further, the Assessee failed to submit valid justification with respect to the quantum of work and hence, the AO bifurcated the expenses based on the quantum of work and held that 40% of overall expenses were incurred towards erection, installation, insurance, testing and commission and balance 60% were for other works, services. Accordingly, the Assessee worked out the deduction of TDS and calculated 1% interest u/s 201(1A) and worked out the total demand under Ss 201(1) and 201(1A). On appeal, the CIT(A) confirmed the findings of the AO and held that tax was required to deduct by the Assessee on services of testing and commissioning @10% u/s 194J.

the Tribunal held that,

++ the issue involved is whether on the services availed by the Assessee of erection, installation, testing and commissioning charges are covered under the provisions of sec. 194C as per the version of the Assessee or u/s 194J as per the version of the AO. The identical issue has been decided by the Punjab and Haryana High Court in the case of Pr. CIT Vs. Bharat Heavy Electricals Ltd wherein, it was held that "... sec 194J is not a residuary clause. In other words, it is not that if a contract does not fall within the ambit of sec. 194C, it must be deemed to fall within the ambit of sec. 194J. Ss 194C and 194J are independent provisions. Therefore, the contract does not fall within sec. 194J, the dismissal of the appeal would follow in any event. The Revenue has not denied that the present case falls u/s 194C. Had the Revenue contended that sec. 194C is also not applicable, it would have been necessary to consider whether the contract falls within the ambit of sec. 194C ..." ;

++ the Counsel for the Revenue could not point out that how the services are different from the nature of services considered before the P&H High Court. No other contrary decision was also pointed out. In view of this respectfully following the decision of the Punjab and Haryana High Court, the finding of the lower authorities are reversed and canceled the order passed by the AO under Ss 201(1) and 201(1A) for AY 2013-14.

(See 2018-TIOL-373-ITAT-DEL)