DEPUTY COMMISSIONER OF INCOME-TAX, BANGALORE vs. COMMISSIONER FOR COLLEGIATE EDUCATION, BANGALORE

The revenue raised the following grounds of appeal:

Being aggrieved by the above order, an appeal was preferred before the CIT(A) who, vide impugned order, following the order of the ITAT in the case of Director, Technical Education, in to 1127/Bang/2015 dated 20/05/2016 held that the payments are not in the nature of contract payments but in the nature of fees for professional and technical services. Accordingly, the matter was set aside to the AO(TDS) to re-compute the tax liability u/s 194C of the Act.

Being aggrieved, the revenue is in appeal before us. During the course of hearing, the learned AR of the assessee submitted that the issue in the appeals is covered in favour of the assessee by the co- ordinate bench of Tribunal in the case of Director, Technical Education (supra) wherein it was held as follows: “6. Coming to the issue as to whether the amounts paid to KHB and RITES for each of the year under appeal are payments in the nature of contract income of the recipient payees, liable to deduction of tax u/s 194C, it is clear from the terms of agreement entered by the appellant with KHB and RITES that they are not contractors for the execution of actual work of construction of college buildings for the appellant. Although the fact that tax was deducted by them while making payments to contractors would not help the appellant's case, it is pertinent to examine the terms of engagement of the appellant with KHB and RITES, which shows that they are not contractors as envisaged in Section 194C, but rendering technical and managerial services for the appellant and also acting as agents vis-a-vis the contractors actually executing the construction work of buildings for the appellant. They are more of technical consultants and project managers who are required to carry our survey, soil testing, design of building, invite tenders to identify contractors for to 2291/Bang/2016 Page 4 of 5 construction, supervise the construction for quality and design and also certify the bills for payment to contractors executing the construction of college buildings. The agreement also specifies the remuneration for services rendered by KHB and RITES (10% of the built up cost) with regard to and a percentage of the project cost, and the provision for payment on actual basis in the nature of re- imbursement. I concur with the argument of Ld. AR that the issue is squarely covered by the Hon'ble ITAT- Lucknow Bench decision in the case of U.P. State Industrial Development Corpn. Ltd. v. ITO reported in 81 ITD 173. The payees in the present case are not contractors within the meaning of section 194C of the Income Tax Act. The entire payment made by the appellant to KHB and Rites are not in the nature of income of the payees, and such entire amounts could not be said to be liable for deduction of tax u/s 194C. In fact, the payment to the extent of remuneration payable to KHB and RITES as percentage of the project cost is in the nature of income of professional/technical and managerial nature liable to deduction of tax u/s 194J. The Assessing Officer is therefore directed to compute the amounts out of payments made by the appellant to KHB and RITES which are remuneration or income in the hands of the payees, and work out the tax deductible u/s 194J. The question is answered accordingly. The ground of the appellant on the issue is artly allowed for AY 2011- 12, 2012-13, and 2013-14.”

In the result, the appeals filed by the revenue are dismissed.