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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
arising out of the order u/s 201(1)/201(1A) dated 26.03.2015, 20.04.2015 & 01.07.2015 respectively framed by DCIT CPC-TDS, Indore.
Dhar Automotives P. Ltd to 103/Ind/18 2. Assessee has raised following grounds of appeal in ITA No.101/Ind/2018 Assessment Year 2013-14
1. The Ld. CIT(A-I erred in dismissed grounds of appeal
No.1 of CIT appeal for applying rate of deduction of TDS u/s 201(1) & 201(1A) by applying incorrect rate of deduction of TDS & correct head of deduction. The correct Head of deduction is 194C in which rate of deduction was 2% while the Ld. Officer considered incorrect head u/s 194J in which rate of deduction taken @10% & sustained the order of DCIT(TDS) Indore which is bad in law unjustified and unwarranted should be deleted.
2. The Ld. CIT(A)-I erred in dismissed grounds of appeal No.2 of CIT appeal for the correct head of section is 194C for deduction of TDS under contractual arrangements for operation & maintenance of machines while CIT(A)-I fails to accept the correct provision of the Income Tax Act, 1961 & applied incorrect head of deduction of TDS for payment of professional & Technical services u/s 194J & sustained the order of DCIT (TDS) Indore which is wrong and justified.
3. The Ld. CIT(A)-I erred in dismissed grounds of appeal No.3 of CIT appeal for computing the correct TDS u/s 206C on sale of scrap of Rs.21,36,296/- of all the four quarters for F.Y. 2012-13 on which correct TCS collected & deposited in time and the rate of collection of TCS was @1% of Rs.21,36,296/- & wrong demand created u/s 206C(6A) & 206C(7) & sustained the order of DCIT(TDS) Indore which is wrong and unjustified.
4. The Ld. CIT(A)-I erred in dismissed grounds of appeal No.3 of CIT for overlooking the facts and submissions with all supporting documents dated. 15.07.2014 & also the assessee is not in default for deduction and collection of TDS/TCS & correct rate of deduction applied as per contractual arrangements. It is submitted that on the facts and in the circumstances of the case the deduction & collection was correctly made & deposited and the same may very kindly be accepted/be now allowed and the said order dated. 26.03.2015 DCIT-TDS may kindly be quashed.
5. That the appellant further, leave toad, to alter and/or amend or make any additional grounds of appeal as and when necessary. for Assessment Year 2014-15
1. The Ld. CIT(A-I erred in dismissed grounds of appeal
No.1 of CIT appeal for applying rate of deduction of TDS u/s 201(1) & 201(1A) by applying incorrect rate of deduction of TDS & correct head of deduction. The correct Head of deduction is 194C in which rate of deduction was 2% while the Ld. Officer considered incorrect head u/s 194J in which rate of deduction taken @10% & sustained the order of DCIT(TDS) Indore which is bad in law unjustified and unwarranted should be deleted.
2. The Ld. CIT(A)-I erred in dismissed grounds of appeal No.2 of CIT appeal for the correct head of section is 194C for deduction of TDS under contractual arrangements for operation & maintenance of machines while 2 Dhar Automotives P. Ltd to 103/Ind/18 CIT(A)-I fails to accept the correct provision of the Income Tax Act, 1961 & applied incorrect head of deduction of TDS for payment of professional & Technical services u/s 194J & sustained the order of DCIT (TDS) Indore which is wrong and justified. 3. The Ld. CIT(A)-I erred in dismissed grounds of appeal
No.3 of CIT appeal for overlooking the facts and submissions with all supporting documents dated. 15.07.2014 & also the assessee is not in default for deduction and collection of TDS/TCS & correct rate of deduction applied as per contractual arrangements. It is submitted that on the facts and in the circumstances of the case the deduction & collection was correctly made & deposited and the same may very kindly be accepted/be now allowed and the said order dated. 26.03.2015 DCIT-TDS may kindly be quashed.
4. That the appellant further, leave toad, to alter and/or amend or make any additional grounds of appeal as and when necessary. for Assessment Year 2015-16
The Ld. CIT(A-I erred in dismissed grounds of appeal
No.1 of CIT appeal for applying rate of deduction of TDS u/s 201(1) & 201(1A) by applying incorrect rate of deduction of TDS & correct head of deduction. The correct Head of deduction is 194C in which rate of deduction was 2% while the Ld. Officer considered incorrect head u/s 194J in which rate of deduction taken @10% & sustained the order of DCIT(TDS) Indore which is bad in law unjustified and unwarranted should be deleted.
2. The Ld. CIT(A)-I erred in dismissed grounds of appeal No.2 of CIT appeal for the correct head of section is 194C for deduction of TDS under contractual arrangements for operation & maintenance of machines while CIT(A)-I fails to accept the correct provision of the Income Tax Act, 1961 & applied incorrect head of deduction of TDS for payment of professional & Technical services u/s 194J & sustained the order of DCIT (TDS) Indore which is wrong and justified.
3. The Ld. CIT(A)-I erred in dismissed grounds of appeal No.3 of CIT appeal for overlooking the facts and submissions with all supporting documents dated. 15.07.2014 & also the assessee is not in default for deduction and collection of TDS/TCS & correct rate of deduction applied as per contractual arrangements. It is submitted that on the facts and in the circumstances of the case the deduction & collection was correctly made & deposited and the same may very kindly be accepted/be now allowed and the said order dated. 26.03.2015 DCIT-TDS may kindly be quashed.
4. That the appellant further, leave toad, to alter and/or amend or make any additional grounds of appeal as and when necessary.
3. As the issues raised in these appeals are common these were heard together and therefore are being disposed off by this common order for sake of convenience and brevity. 3 Dhar Automotives P. Ltd to 103/Ind/18 4. From perusal of the grounds we observe that first common issue relates to the difference of rate of deduction of TDS & u/s 201(1) & 201 (1A) of the Act on the amounts paid by the assessee towards operation & maintenance of windmill machines. This issue is common for ITANos. 101, 102 & 103/Ind/2018.
Second issue only pertains to A.Y. 2013-14 in ITANo.101/Ind/2018 for lower deduction of tax collected at source.
Apropos to first common issue relating to rate of deduction of tax as to whether the assessee has rightly deducted the tax at source u/s 194C of the Act or whether the Ld. AO was justified in applying the rate of 10% provided u/s 194J of the Act for payment of Professional & Technical Services.
Briefly stated facts as culled out from the records are that the assessee owns four wind turbine generation plants. A TDS survey u/s 133A of the Act was conducted on 26.05.2014 to verify the TCS/TCS compliances of the assessee. It entered into contract for Operation and maintenance of the plants with M/s RRB Energy Limited, M/s.
Enercon (India) Limited & M/s Kelvin Energy Solution. The assessee applied section 194C of the Act and deducted tax @ 2% on the payments made. However, Ld. AO took a view that the plant have a Dhar Automotives P. Ltd to 103/Ind/18 large investment and specialize technical knowledge is required to carrying out such operation and maintenance work and therefore, tax was required to deduct @ 10% u/s 194J of the Act.
Against the finding of Ld. Assessing Officer (AO) applying u/s 194J of the Act on the alleged transactions of payment of Operation and Maintenance charged to the respective companies, the assessee filed an appeal before the ld. CIT(A) but could not succeed.
Now the assessee is in appeal raising common issue for A.Y. 2013- 14 to A.Y. 2015-16. Ld. counsel for the assessee took us through the provisions of u/s 194C & 194J of the Act and also made distinction between both sections with regard to the nature of payment, role of payee and final outcome. He further submitted that the task of operation and maintenance of windmill is carried out by employing skilled labours. The assessee i.e. customer has not seeked any technical service or advice from alleged four payees. Referring to the decision of Ahmedabad Tribunal in the case of Gujarat State Electricity Corpn. Ltd. vs. ITO (2004) 3 SOT 468 (Ahd.), it was contended that when there is a composite contract for operation and maintenance, it would come within the ambit of under section 194C of the Act and not u/s 194J of the Act. Reliance was also placed on the decision of I.T.A.T., Pune Bench in the case of Bharat Forge Ltd. vs. Additional Dhar Automotives P. Ltd to 103/Ind/18 Commissioner of Income Tax (2013) 36 taxmann.com 574 (Pune-Trib) and the Decision of Delhi Tribunal the case of DCIT Vs. Parasrampuria Synthetics Ltd. 20 SOT 248. Placing reliance on the above judgment, it was submitted that the payment for ‘Operation & Maintenance charges” cannot be considered as “fees for payment of technical services” as they are specifically excluded from the definition of fees for technical services and are being specifically covered by the provisions of section 194C of the Act.
10. Per contra, Ld. DR vehemently argued supporting the orders of both the lower authorities.
We have heard rival contentions and perused the record placed before us and carefully gone through written submissions filed by the Ld. counsel for the assessee and the judgments/decisions referred and relied therein. The deductor company i.e. the assessee is engaged in the business of foregoing of steel for automobile components and wind power generation plant. The two plants are located at Maharashtra (250 KWA & 500 KWA), one at Madhya Pradesh (230 KWA) and another on at Tamilnadu (600 KWA) for the operation & maintenance. it entered into written contract with M/s. RRB Energy Limited., M/s Enercon (India) Limited, Suzlon Energy Ltd., M/s Kelvin Energy Solution & Ujaas Energy Ltd. for carrying out the contract for Dhar Automotives P. Ltd to 103/Ind/18 “Operation & maintenance”. Copies of all the agreements are placed in the paper book. From perusal of respective clause in these agreement we find that the contract have been entered for “operation & maintenance work”. The alleged payments to these 5 companies were subject to deduction of tax at source. The assessee deducted 2% TDS as per the provisions of section 194C of the Act assuming it to be works contracts whereas the assessing officer treated as payment for fee for technical services which subject to 10% TDS u/s 194J of the Act. There is no dispute in the fact that the respective contracts are composite contract for ‘Operation and Maintenance work’ of the wind turbine which is regularly acquired to be carried out. There is no mention about supply of any technical services to the assessee company. In the respective agreements “contract work is used at all the places for the “operations and Maintenances work.”
12. We find that the Ahmedabad, Tribunal in the case of Gujarat State Electricity Cooperation Ltd. (supra) held that a composite contract for operation and maintenance would come within ambit of u/s 194C and not u/s 194J of the Act. For arriving at this conclusion the Tribunal observed as follows:
We have carefully considered the submissions made by the learned representatives of the parties and have gone through the orders of the learned Departmental Authorities. We have also gone through all the judgments cited by the learned representatives. 7 Dhar Automotives P. Ltd to 103/Ind/18 11. The operation and maintenance agreement executed between GSECL (appellant-company) and GEB on 14th Oct., 1998, relates to operation and maintenance of 200MW, Gandhinagar unit-5. The said agreement has been executed for a period of 30 years commencing on the effective date. The operating periods covered by the said agreement have been classified as Period I which commenced from the date of start of trial operation upto the start of commercial operation. The period II shall commence from the date of the start of the commercial operation of the plant and shall terminate on the expiry of the term of 30 years of this agreement, The period I commenced from 17th March, 1998, and continued till 10th Oct., 1998. The period II commenced from 10th Oct., 1998, and will remain in force for the entire term of 30 years from the effective date of this agreement. GEB has been described as "The operator" in the said agreement the assessee has been described as "The owner". The preamble of the said agreement is reproduced below :
"Whereas the owner is setting up a power project of 210 MW Gandhinagar Thermal Power Station, Unit-5, And whereas the owner will sell all of the net electricity produced by the Plant as per the terms of the Power Purchase Agreement (PPA) executed between Gujarat State Electricity Corporation Ltd. and Gujarat Electricity Board dt. 22nd Jan., 1997. And whereas throughout the commercial operation of the Plant, the owner requires a qualified, competent and experienced operator to perform the operation & maintenance of the plant. And whereas the operator has long-standing experience in operation and maintenance of power plants of similar capacity. And whereas the operator is willing to provide the services on the terms and conditions setforth hereinafter. And whereas both the owner and the operator have agreed to follow the PPA between Gujarat State Electricity Corporation Ltd. and Gujarat Electricity Board dt. 22nd Jan., 1997, without violating any requirement/provision of the said PPA. Now, therefore, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged the Parties hereto, intending to be legally bound, hereby agree as follows : .............." The activities required to be carried out by GEB in relation to period II, which is applicable for the year under consideration have been enumerated in para 4.3.2 of the said agreement, which is reproduced below : "4.3.2 During Period 2 : The operator shall operate and maintain the facility including such offsite facilities in accordance with prudent engineering and operating practices, and procedures and in accordance with the terms of the PPA. The operator's service in Period 2 shall include, but not limited to, the following required for safe and healthy running of the facility : (i) Operate and maintain the plant/facility in accordance with the terms of the PPA overriding and standard of prudent utility practices. (ii) carry out all performance tests from time to time as required under the provisions of the PPA.
Dhar Automotives P. Ltd to 103/Ind/18 (iii) provide technical advice and support to the owner, regarding operation and maintenance issues. (iv) maintain record of quantity and quality of fuel received from the fuel supplier. (v) maintain record of quantity and quality of water received from Gujarat Electricity Board. (vi) advise the owner on taking appropriate insurance policies and make arrangement for the same. (vii) maintain record and data required to be maintained under the PPA. (viii) maintain the premises and the facility in good condition, except for reasonable wear and tear which does not adversely affect the efficient or proper utilisation thereof, including paining, or cleaning the exterior of the facility and make all authorised repairs and replacement. (ix) maintain all fire protection and safety equipment, (x) anti-erosion measures, maintain landscaping in good condition. (xi) hire, train, administer, supervise the workforce necessary to perform operation, maintenance and inspection work. (xii) keep the owner apprised of the operator's negotiations with the unions representing the operator's work force. (xiii) provide all personnel, services, vendor contracts, tools, equipment and materials, under approval of the owner, to make such repairs or replacements as may be necessary to operate and maintain all portions of the facility. (xiv) perform periodic routine and annual overhaul of equipment related to the facility. (xv) perform routine inspections and maintenance of the facility. (xvi) perform periodic operational checks, and testing of equipment relating to the facility. (xvii) maintain records of maintenance inspections, operational checks and financial transactions relating to the facility. (xviii) perform calibration of all instruments and loop checking on a regular basis. (xix) prepare paper work for any insurance claim on behalf of the owner." The provisions of Section 194J provide that any person, not being an individual or a HUF, who is responsible for paying to a resident any sum by way of : (a) fees for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein. The expression "professional services" and "fees for technical services" have been defined in Explanation to Section 194J which is being reproduced in earlier part of this order. It is not the case of the AO that the payment made to GEB represents payment of fees for professional services. The AO has invoked the provisions of Section 194J by treating the payment made to GEB as payment made by way of "fees for technical services". It will, therefore, be relevant here to reproduce the definition of "fees for technical services" given in Expln. 2 to Section 9(1)(vii) of the Act : "Explanation 2 : For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the 9 Dhar Automotives P. Ltd to 103/Ind/18 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"."
The scope and effect of Section 9(1)(vii)i as originally enacted had been elaborated in Departmental Circular No. 202, dt. 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 defined to mean any consideration (including any lump sum consideration) for the rendering of managerial, technical or consultancy services, including the provision of services of technical or other personnel. It, however, does not include fees of the following types, namely : (i) Any consideration received for any construction, assembly, mining or like project undertaken by the recipient. Such consideration has been excluded from the definition on the ground that such activities virtually amount to carrying on business in India for which considerable expenditure will have to be incurred by a non-resident and accordingly it will not be fair to tax such consideration in the hands of a foreign company on gross basis or to restrict the expenditure incurred for earning the same to 20 per cent of the gross amount as provided in new Section 44AD of the IT Act. Consideration for any construction, assembly, mining or like project will, therefore, be chargeable to tax on net basis, i.e., after allowing deduction in respect of costs and expenditure incurred for earning the same and charged to tax at the rates applicable to the ordinary income of the non-resident as specified in the relevant Finance Act. (ii) Consideration which will be chargeable to tax in the hands of the recipient under the head "Salaries"."
It is clear from the aforesaid circular that the expression 'fees for technical services' does not include consideration for any construction, assembly, mining or like project undertaken by the recipient. Such consideration has been excluded from the definition on the ground that such activities virtually amount to carrying on business for which considerable expenditure Will have to be incurred by the recipient. A perusal of the operation and maintenance agreement executed between GSECL (appellant-company) and GEB clearly shows that the agreement was not only for providing of skilled and technical services relating to operation and maintenance of power plants but the entire business activities of operation and maintenance of power plants were entrusted to GEB, who had long-standing experience in the field of operation and maintenance of power plants of similar capacity. The aforesaid contract requires GEB to carry out all or any of the activities required for operation and maintenance of power plants. Such agreement has been executed with a view 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 terms of power project agreement. On a careful reading of the entire 10 Dhar Automotives P. Ltd to 103/Ind/18 agreement dt. 14th Oct., 1998, we are of the view that 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 Expln. 2 to Section 9(1)(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 Act; "194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out of a contract between the contractor and : (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central', State or Provincial Act; or (d) any company; or.......... shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to : (i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income tax on income comprised therein." The Hon'ble apex Court has explained the meaning and scope of Section 194C in the case of Associated Cement Co. Ltd. v. CIT (supra) as under, at p. 440 : "We see no reason to curtail or to cut down the meaning of the plain words used in the section. "Any work" means any work and not a "works contract", which has a special connotation in the tax law. Indeed, in the sub-section, the "work" referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the legislature that the "work" in the sub- section is not intended to be confined to or restricted to "works contract". "Work" envisaged in the sub-section, therefore, has a wide import and covers "any work" which one or the other of the organisations specified in the sub- section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisations supply of labour under a contract with a contractor for carrying out its work which have fallen outside the "work", but for its specific inclusion in the sub-section." The agreement executed between appellant-company and GEB is not an agreement simpliciter for acquiring technical services or professional services from them but it is an agreement requiring GEB to execute the work contract of operating and maintaining the mega power project. Such a contract will come within the ambit and scope of Section 194C of the Act in view of the aforesaid judgment of Hon'ble apex Court. The assessee had, therefore, rightly deducted tax at source as per Section 194C of the Act.
Dhar Automotives P. Ltd to 103/Ind/18 13. The above decision of the Ahmedabad Tribunal was followed by the Pune Bench in the case of Bharat Forge Ltd. (supra) holding that the payment made to M/s Enercon was for a comprehensive contract covering all these functions on which the appellant company has rightly deducted tax u/s 194C of the Act.
14. Further the Delhi Tribunal in the case of DCIT vs. Parasrampuria Synthetics Ltd. (supra) has elaborated the concept of “Fees for technical services” observing as follows:
"In certain cases, it is seen that there may be use of services of technically qualified persons to render the services but that itself do not bring the amount paid as 'fees for technical services' within the meaning of Expln. 2 to s. 9(1)(vii). In the present case, the amounts paid are towards annual maintenance contract of certain machinery or for converting POY into textured/twisted yarn. The technology or the technical knowledge of the persons is not made available to the assessee but only by using such technical knowledge services are rendered to the assessee. In such a case, i t can not b e said t hat the amount is paid as 'fees for technical services'. Rendering services by using technical knowledge or skill is different than charging fees for technical services. In a latter case, the technical services are made available due to which the assessee acquired certain right which can be further used. In the present case, it is not so. The persons rendering certain services has only maintained machinery or converted yarn but that knowledge is not now vested with the assessee by which itself it can do research work. In the circumstances, the amount paid cannot be considered as fees for technical services within the meaning of s. 194J of the Act".
From going through the facts of the instant case, in the light of the above decisions as well as the provisions of law is provided u/s 194C & 194J of the Act, we are of the considered view that the alleged payment made for “operation & maintenance” of the wind mills paid by the 12 Dhar Automotives P. Ltd to 103/Ind/18 assessee company to various payees was under a composite contract and the deduction of tax on such payment was required to be made u/s 194C of the Act @ 2%. The revenue authorities have failed to refer to any of the specific clause of the agreement which could show that the amount has been paid towards taking the technical services through which the assessee has acquired certain rights which could be used in the future. Therefore, there remains no dispute that the alleged payment is a payment for contractual payment of labour for “operations and maintenance work” liable for deduction of tax at source u/s 194C of the Act and not 194J of the Act. Accordingly, this common issue for A.Y. 2013-14 to 2015-16 is allowed in favour of the assessee.
Apropos to the second issue which pertains to A.Y. 2013-14 only, brief facts are that the assessee was required to collect tax at source on the sale of scrap. The Ld. AO observed that there was a short deduction of TCS at Rs.9,596/- and after addition interest of Rs.2,303/-, demand of Rs.11,899/- has been raised against the assessee. Assessee could not get relief before the Ld. CIT(A).
Now the assessee is in appeal before us.
At the outset, Ld. counsel for the assessee submitted that the calculation of TCS at the end of the revenue authorities is incorrect, Dhar Automotives P. Ltd to 103/Ind/18 since the assessee has already depositing the entire tax collected at source of Rs.21,363/- for all the four quarters and The evidence of payment seems to have been overlooked by the revenue authorities.
Per contra, Ld. DR supported the orders of the lower authorities.
20. We have heard rival contentions and perused the record placed before us. The assessee has challenged the demand of Rs.9596/- being default in collection of TCS alleged by the Ld. AO. Before us the Ld. counsel for the assessee submitted that the entire TCS of Rs.21,363/- calculated @ 1% of the Rs.21,36,296/- stands already deposited. We find that the figure of sale of scrap of Rs.21,36,296/- is not undisputed. The Assessing Officer has computed the non collection of TCS on the amount of sale of scrap of Rs.9,59,608/- which is the difference between the total sale of scrap of Rs.21,36,296 less Rs.11,76,688) on which TCS has been collected. The ld. AO has not doubted on the collection of TCS of Rs.11,76,688/- paid by the assessee for sale of scrap but failed to give credit for the TCS claimed to have been deposited of Rs.9596/-.
In our view this issue needs to restored back to the file of Ld. AO so that the assessee can prove the payment of tax deducted at source at Rs.21,363/- which inter alia includes the TCS payment of Rs.9596/-.
If the Ld. AO is satisfied with the necessary supporting evidence, the Dhar Automotives P. Ltd to 103/Ind/18 alleged demand of Rs.9596/- and the interest charged thereon may be deleted after giving reasonable opportunity of being heard to the assessee.
In the result, the second issue for lower/non-deduction of TCS raised by the assessee in ground no.3 of the assessee’s appeal for A.Y. 2013-14 is allowed for statistical purposes.
In the result, assessee’s appeal for A.Y. 2013-14 is partly allowed for statistical purposes and that for A.Y. 2014-15 & A.Y. 2015-16 are allowed.
The order pronounced in the open Court on 13.09.2019.