ACIT, CIR-3(TDS), KOLKATA, KOLKATA vs. HALDIA DEVELOPMENT AUTHORITTY, PURBA MEDINIPUR

The assessee in the present case is a development authority which entered into an agreement on 18.07.2008 with Haldia Water Management Ltd. (HWML) for operation of its water treatment plant. As per the said agreement, HWML started the operation and maintenance of the water treatment plant of the assessee from 2 to 722/Kol/2016 Assessment Years: 2010-11, 2011-12 & 2012-13 Haldia Development Authority November, 2008 and collected water charges from the consumers on behalf of the assessee. For the services rendered by HWML, charges at certain percentage of the revenue collection were paid by the assessee while making the said payments to HWML, no deduction of tax at source was made by the assessee on the ground that the work done by HWML was of such a nature that it was not covered by the definition of ‘professional services’ as given in Explanation to section 194J. This stand of the assessee was not found acceptable by the A.O. According to him, the amount paid by the assessee to HWML was for the managerial services rendered by the said party and the assessee, therefore, was required to deduct tax at source from the said payment as per section 194J of the Act. He accordingly treated the assessee as in default for its failure to deduct tax at source from the payments made to HWML for all the 3 years under consideration by the orders passed under section 201(1) Act and also levied the interest under section 201(1A). He also imposed penalties under section 271C of the Act for the said defaults on the part of the assessee vide three separate orders passed by all the three years under consideration.

The penalties imposed by the A.O. under section 271C for all the three years under consideration were challenged by the assessee in the appeals filed before the Ld. CIT(A). Meanwhile, the appeals filed by the assessee against the orders passed by the A.O. under section 201(1)/201(1A) of the Act came to be disposed of by the Ld. CIT(A) vide a common appellate order dated 19.01.2016 whereby he cancelled the demands raised by the A.O. against the assessee for all the three years under consideration vide orders passed under section 201(1)/201(1A) by holding that the assessee was not liable for 3 to 722/Kol/2016 Assessment Years: 2010-11, 2011-12 & 2012-13 Haldia Development Authority deduction of tax at source under section 194J from the payments made to HWML. Keeping in view the said order dated 19.01.2016, the Ld. CIT(A) vide his impugned order cancelled the penalties imposed by the A.O. under section 271C for all the three years under consideration giving consequential relief to the assessee. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred these appeals before the Tribunal.

We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned counsel for the assessee, the appellate order passed by the Ld. CIT(A) dated 19.01.2016 cancelling the demand raised by the A.O. against the assessee for all the three years under consideration vide orders dated 201(1)/201(1A) has already been upheld by the Tribunal vide its common order dated November 30, 2017 passed in ITA No. 709 to 711/Kol/2016. A copy of the said order is placed on record by him and perusal of the same shows that the assessee is held to be not liable for deduction of tax at source under section 194J of the Act from the payments made to HWML by the Tribunal for the following reasons given in paragraph no 9 and 10 of its order: “9. From the above it is clear that the assessee did not engage HWML to render any service. Under the said agreement, dated 18th July, 2008, the assessee transferred to HWML for an agreed consideration and for a specified period, its right to supply water to consumers in Haldia and conferred the right to HWML to charge and collect the charge thereto directly from the consumers. The terms & conditions of such transfer is that HWML shall operate and maintain the existing facilities and establish, operate and maintain the new facilities at its cost. The assessee was to share 50 percent of the cost of rehabilitation/replacement of the existing facility subject to an upper limit of Rs. 5 crores. The assessee was also to share the increase in the power cost over the base power tariff, equally with HWML. During the currency of the agreement, the assessee 4 to 722/Kol/2016 Assessment Years: 2010-11, 2011-12 & 2012-13 Haldia Development Authority was to receive only license fee and an agreed share in additional revenue from HWML. The revenue from water bills raised belonged to HWML. Thus there is no payment of any amount of any kind for any service by the assessee to HWML.

Under these circumstances, the conclusion of the Assessing Officer that Sections 194J of the Act, applies is bad in law.

The Tribunal thus has upheld the appellate order passed by the Ld. CIT(A) cancelling the demand raised by the A.O. against the assessee under section 201(1)/201(1A) of the Act for all the three years under and consequently the penalties imposed for the said three years under section 271C are liable to be cancelled as agreed given by the learned DR at the time of hearing. We, therefore, uphold the impugned order of the Ld. CIT(A) cancelling the penalties imposed by the A.O. under section 271C of the Act for all the three years under consideration and dismiss these appeals of the revenue.

In the result, the appeals of the are dismissed. Order Pronounced in the Open Court on 13th December, 2017. Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M. Jagtap) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 13/12/2017 Biswajit, Sr. PS Copy of order forwarded to: