SNOWTEMP COMMERCIAL PRIVATE LTD.,KOLKATA vs. INCOME TAX OFFICER-WARD-12(2), KOLKATA, KOLKATA

The only issue to be decided in this appeal is as to whether the ld CIT(A) is justified in upholding the disallowance made u/s 40(a)(ia) of the Act in the facts and circumstances of the case.

The brief facts of this issue is that the assessee is a closely held company engaged in the business of soft coke and other by-products of coal and also steel products. The assessee company had two divisions viz C.F.R.I. division and S.S.F. division. Whereas business activity of S.S.F. division during the relevant period was limited to manufacturing and selling of coke only, C.F.R.I. division had some trading activities of coal and some supervision activities apart from manufacturing and trading of manufactured coke. The assessee claimed expenses on account of Supervision charges of Rs. 2,00,000/- and Rs.1,72,000/- for C.F.R.I division and S.S.F. division respectively. The assessee filed the details of the said expenditure and explained that the Supervision charges are required for arranging and getting the coal loaded on to the trucks at colliery end in order to avoid pilferage in the quantity of coal. The ld AO concluded that the said payments were made

The ld CIT(A) held that the amount has been incurred on account of supervision charges paid to some parties and there was no contractual agreement whatsoever for the same with such parties and therefore the assessee need not deduct tax on this amount. He observed that the work carried out in the nature of supervision charges does not fall under the ambit of the term ‘contract’ as covered in section 194C of the Act. He observed that the provisions of section 194C of the Act were wrongly invoked by the ld AO. However, the ld CIT(A) observed that the work of supervision can only be done by the expert / professional persons and hence it falls under the ambit of section 194J of the Act warranting deduction of tax at source and he concluded that the payments were made for professional services rendered by those parties. Accordingly he upheld the disallowance made u/s 40(a)(ia) of the Act. Aggrieved, the assessee is in appeal before us on the following grounds:- “1. For that on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in law in confirming the disallowance of Rs.3,72,000/- made by the Assessing Officer purportedly u/s. 40(a)(ia) of the Act for alleged failure to deduct Tax u/s. 194C. 2. For that on the facts and in the circumstances of the case, the CIT(A) erred in law in confirming the above said disallowance for alleged failure to deduct tax u/s. 194J of the Act instead of S. 194C of the Act as done by the AO. 3. For that the disallowance is unsustainable in either case of alleged failure u/s. 194C or S. 194J of the Act as no liability was thereon the appellant to deduct tax on the subject amount of expenditure.”

The ld AR argued that it is not in dispute that the work carried out were in the nature of supervisory job. He argued that for carrying out this job, no special expertise warranting the presence of professional skills are required. It is more of a job rendered by a watchman for safe loading of coal to the trucks from the colliery in order to avoid pilferage. For doing this job what is required is only persons of highest integrity and smartness and such persons need to be only vigilant and have a strong eye to avoid pilferage in the quantity of coal. Hence, the persons rendering those services need not possess any special professional skills and hence their services cannot be categorized as professional services within the meaning of section 194J of the Act. The term ‘professional services’ is defined in section 194J of the

We have heard the rival submissions and perused the materials available on record including the details filed in the paper book of the assessee comprising of pages 1 to 108. It is not in dispute that the payments were made only for supervision charges. We agree with the arguments of the ld AR that the said payments were made only to supervise the movement of coal from colliery in order to avoid pilferage while loading the same into the trucks. It is quite usual that certain persons would have to be employed for carrying out this supervision job which is more of a watchman job as rightly pointed out by the ld AR. This admittedly does not warrant any possession of any professional skill so as to fall within the ambit of section 194J of the Act. As rightly pointed out by the ld AR that though the addition has been made for violation of section 194C of the Act, the ld CIT(A) had shifted the same to section 194J of the Act, against which , the revenue is not in appeal before us. Hence we refrain to give our opinion on the applicability of section 194C of the Act in the present case. We hold that the payments were made towards simple supervision charges , which do not fall under the category of professional services as defined in section 194J of the Act and hence we hold that there is no obligation to deduct tax at source. Accordingly, no disallowance u/s 40(a)(ia) of the Act would operate. Hence the grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.