M/S. FRIENDS SALT WORKS & ALIED INDUSTRIES,,GANDHIDHAM-KUTCH vs. THE DEPUTY COMMISSIONER OF INCOME TAX, TDS CIRCLE , RAJKOT

आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-

& 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 2 Friends Salt Works & Allied Industry vs. DCIT (TDS)

Assessment year 2014-15:

Grounds of Appeal Tax effect relating to each Ground of appeal (see note below)

1. On the facts and circumstances of the case and in law, the learned CIT-(A) has erred in law and on facts in confirming the order passed by the Learned AO U/s. Rs.4,33,287/- 201(1) r.w.s. 201 (1A) of the Act and in directing that tax is required to be deducted U/s. 194J of the Act and not U/s. 194C of the Act.

2. On the facts and in the circumstances of the case and in law the learned CIT (A) ought to have pass a speaking Rs.4,33,287/- order and ought to have follow the CBDT Circular, binding precedent of hon'ble Apex Court and of ITAT, Ahmedabad which is fully applicable to the issue under consideration.

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3 On the facts and in the circumstances of the case and in law, the learned CIT(A) ought not have confirmed the order passed by AO treating the appellant in default and Rs.4,33,287/- demanding the alleged differential tax with interest from the appellant by confirming the order passed U/s. 201(1) r.w.s. 201(1A) of the Act. 4 It is therefore prayed that the orders passed by lower Rs.4,33,287/- authorities may be quashed and set aside.

5 Your appellant craves leave to add, amend, alter or withdraw any ground of appeal at the Rs.4,33,287/- time of hearing.

Rs.4,33,287/- Total tax effect (see note below)

“6. Decision The appellant contended that the A.O. ought not to have treated the assessee in default and ought not to have passed the order u/s. 201(1) r.w.s. 201(1A) of the Act and created differential tax with interest from the assessee. The appellant therefore in support contended that the provisions of section 194C are applicable to the assessee on the annual maintenance charges paid to Suzlan Globe Services Ltd. for which the assessee relies on CBDT Circular No. 715and 720 explanation (a) to section 194J and explanation (2) to clause (vii) of subsection (1) of section 9 also the decisions of Hon'ble ITAT Ahmedabad Bench on similar facts and lower tax deduction certificate issued by the TDS wing of Income tax department in deductee sister concern and also relied on the decision of the Apex Court in the case of Hindustan Coco Cola Sewerages Pvt. Ltd., 293 ITR 226 even if there is a short deduction of tax as alleged the same cannot be recovered from the appellant. I have carefully considered the appellant's contentions above. The appellant has failed to substantiate the claim as required to follow the decision of the Apex Court in the case of Hindustan Coco Cola Sewerages Pvt. Ltd., 293 ITR 226 even if there is a short deduction of tax as alleged the same cannot be recovered from the appellant. However it is crystal clear from the invoices which & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 6 Friends Salt Works & Allied Industry vs. DCIT (TDS) are reproduced for ready reference as under clearly states that such charges were paid for technical services.

Invoice No. & Invoic Description Amou date e Sr. nt No.

SGSL/SER/14 1 Technical Services covering checking of 1,37,8 -15/ various technical, safety and operational 12.50 9405030204 parameters of the Equipment. dtd.01.04.14

SGSL/MNT/1 1 Towards preventive maintenance and upkeep of 5,51,2 4-15/ Renewable Energy Device/Wine Mills 50.00 9405032404 including labour and materials dtd.01.04.201 4

2 Towards Breakdown Repairs of Renewable 9,64,6 Energy Devices/ Wind Mills including labour 87.50 and materials

SGSL(0&M)/ 1 Towards preventive maintenance and upkeep of 5,51,2 MNT/1 3- Renewable Energy Device/Wind Mills 50.00 14/930503295 including labour and materials 9 dtd.01.01.201 4

2 "towards Breakdown Repairs of Renewable 9,64,6 Energy Devices/ Wind Mills including labour 87.50 and materials

SGSL(0&M)/ 1 Technical Services copying checking of various 3,30,7 SER/13-14/ technical, safety and operational Parameters of 50.00 9305030761 the Equipment. dtd.01.01.201 4

Total 35,00, 437/-

The appellant's claim is devoid of merit and it is accordingly held that the appellant had paid for technical services for Rs. 35,00,437/- therefore liable to & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 7 Friends Salt Works & Allied Industry vs. DCIT (TDS) deduct tax on such payment u/s 194J of the Ac. The assessee has as such deducted TDS @ 2% u/s 194C is not maintainable therefore I confirm the action of the assessing officer to levy short deduction of tax as required u/s 194J of the Act as under F.Y. 2013-14 Amount of AMC Charges Paid 35,00,437/- Tax deducted @ 2% u/s. 194C 70,008/- Tax deductible @ 10% u/s. 194J 3,50,044/- Short deduction 2,80,036/-

Accordingly the interest levied @ 1% on such lapse u/s 201(1A) for Rs.67,208/- of the Act is also confirm. In all the addition made for such default for total of Rs.3,47,244/- (2,80,036 + 67,208) is also confirmed. In view of section 201(1) r.w.s. 194J/194C and u/s 201(1 A) of the Act. The ground of appeal on this account is accordingly is dismissed.”

7.1 In response, the DR placed reliance upon the observations made by the AO and. Ld. CIT(Appeals) in their respective orders.

“2.1 Operation and Management Services SISL shall perform the following services in relation to the Equipment in accordance with the safety management plans and procedures as applicable and/or in accordance with accepted industry practices: Services involving Labour only I Routine Post operative and other operational Services Making available suitable manpower for operation and management of the Equipment and covers periodic preventive management, cleaning and upkeep of the Equipment including – a) Tower Torqning b) Blade Cleaning c) Nacelle Torquing and Cleaning 4) Transformer Oil Filtration e) Control Panel & LT Panel Maintenance i) Site and Transformer Yard Maintenance II Security Services As mentioned in Clause 5.5 & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 9 Friends Salt Works & Allied Industry vs. DCIT (TDS)

III Management Services a) Data logging in for power generation, grid availability, machine availability. b) Preparation and submission of monthly performance report, c) Taking monthly meter reading jointly with SEE, of power generated at Firm's Wind Farm and supplied to SEB Grid from the meter/s maintained by SEB for the purpose and co-ordinate to obtain necessary power credit report/ certificate, d) Submission of detailed report of the Periodic preventive maintenance carried out with details of consumables / parts used. e) Prompt information in case of accidental damage/ shutdown of more than 24 hours, f) Breakdown Analysis report g) Schedule of repairing / replacing components with schedule. h) Liaison with insurance Firm including furnishing required information and all actions required for settlement of the claim from insurance company. IV Technical Services a) Visual inspection of the WTG and all parts thereof, b) Technical Assistance including checking of various technical, safety and operational parameters of the Equipment, trouble shooting and relevant technical services.”

8.1 A perusal of the terms of contracts under the head “management services” includes preparation and submission of monthly performance report, taking monthly metre reading jointly with State Electricity Board, submission of detailed report of periodic preventive maintenance carried out with details of consumables, breakdown analysis report etc. Further, the services under the head “technical services” includes technical assistance, including checking of various technical, safety and operational parameters of the equipment, troubleshooting and relevant technical services. Further, the balance services under the Agreement includes blade cleaning, transformer oil filtration, site and transformer yard maintenance etc. Therefore, on a perusal of the terms of the contract, the services are primarily in the nature & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 10 Friends Salt Works & Allied Industry vs. DCIT (TDS) of contractual services towards operation and maintenance of windmills, even though the terminology used is “management services” and “technical services”.

8.2 On going through the second agreement, it would be useful to reproduce the terms of the contract for reference:

“2. SCOPE OF WORK 2.1 Maintenance SISL shall perform the following Maintenance and repairs involving materials in relation to the preventive and curative Maintenance of the WTG/s and /or the related equipment in accordance with the safety management plans and procedures as applicable and/or in accordance with accepted industry practices: Maintenance & Repair Work involving Labour & Material I Preventive Maintenance Work involving labour and materials This involves labour as well as use of materials and consumables such as lubricants and oils,, minor/ low value electrical and mechanical parts, etc. for preventive maintenance and upkeep of the Equipment including – a) HT Line and Electrical Maintenance b) Greasing of Rotor Bearings, Gear Box and Generator c) Topping up of Gear Box, Hydraulic and Transformer Oil II Curative maintenance/ Breakdown Repair Work involving labour and materials The Breakdown repair Work involve labour and use of components, spares and consumables in the event of any breakdown or suspected breakdown due to any reasons excluding natural calamities which shall be covered by insurance company, in the Equipment or any part thereof, The breakdown shall be attended as soon as practically possible to put the Equipment back into operation. The breakdown repairs will cover cost of labour, spares/ materials and other works, which includes, a) Spares repairs/replacement & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 11 Friends Salt Works & Allied Industry vs. DCIT (TDS) b) Major breakdown as mentioned below – •Rewinding/Repairs of Generator and Motors •Rewinding/Replacement of Gear Box • Rewinding/Repairs of Transformers • Repairs/replacement of VCB •Repairs/replacement of Blades • Repairs/replacement of Controller and Control Panel e) Crane charges for carrying out repairs/replacement. d) Total replacement of oil in Gear Boxes and Transformers e) Painting of Equipment”

8.3 A perusal of the terms of contract shows that the services are primarily in the nature of greasing of bearings, spares repairs/replacement, repairs of major breakdowns, painting of equipment etc. Therefore, on perusal of the terms of the contract, the services, in our considered view are primarily are in the nature of operation and maintenance of windmills and per se no technical services are rendered so as to necessitate deduction of tax under section 194C of the Act.

8.4 In the case of Bharat Forge Ltd. v Addl CIT 36 taxmann.com 574 (Pune - Trib.), the ITAT held that payment towards windmill operation and maintenance attracts provisions of section 194C of the Act. In the case of DCIT v. Asian Heart Institute & Research Centre (P.) Ltd82 taxmann.com 250 (Mumbai - Trib.), the ITAT held that payments in terms of the contract for annual maintenance of the medical equipment was liable to be subject to deduction of tax at source under section 194C of the Act. In the case of ITO v. Dr. Balabhai Nanavati Hospital86 taxmann.com 107 (Mumbai - Trib.), the ITAT held that payments for Annual Maintenance of & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 12 Friends Salt Works & Allied Industry vs. DCIT (TDS) medical equipment being made for routine and normal maintenance would be covered by section 194C; same was not in nature of professional for technical services. In the case of DHL Air Ltd. v. DCIT 86 taxmann.com 277 (Mumbai - Trib.), the ITAT held that payment made by assessee to its AE, for annual maintenance contracts would not fall under category of fee for technical services within meaning of provisions of section 194J but under works contract u/s 194C of the Act. In the case of Kandla Port Trust v. DCIT 16 taxmann.com 273 (Rajkot), the assessee was running a port and in order to carry out its operations, machineries such as heavy cranes, weigh bridge, elevator, EPBX systems were installed. The Assessee awarded some contracts for repairs and maintenance of these machineries. At time of making payments to contractors, assessee deducted tax at source under section 194C. The Revenue authorities took a view that annual maintenance contract was in nature of technical services and therefore fell under section 194J of the Act. The ITAT held that since aforesaid agreement merely related to annual maintenance of machineries and not in respect of managerial, or technical or consultancy services, section 194J was not applicable. Therefore, impugned order passed by revenue authorities was not sustainable. In the case of DDRC SRL Diagnostic (P.) Ltd. v. ITO 65 taxmann.com 146 (Mumbai - Trib.), the ITAT held that where assessee was running diagnostic laboratories and it paid routine maintenance charges to professionals for maintaining medical equipment and deducted tax at source under section 194C, it had not committed any default by deducting tax at source under section 194C of the Act. & 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 13 Friends Salt Works & Allied Industry vs. DCIT (TDS)

8.5 In view of the facts of the instant case of the assessee and the judicial the precedents on subject, we are of the considered view that payments are covered under section 194C of the Act, and not under section 194J of the Act.

Assessment year 2015-16

“1. On the facts and circumstances of the case and in law, the learned CIT-(A) has erred in law and on facts in confirming the order passed by the Learned AO U/s. 201(1) r.w.s. 201(1A) of the Act and in directing that tax is required to be deducted U/s. 194J of the Act and not U/s. 194C of the Act.

2. On the facts and in the circumstances of the case and in law the learned CIT (A) ought to have pass a speaking order and ought to have follow the CBDT Circular, binding precedent of hon'ble Apex Court and of ITAT, Ahmedabad which is fully applicable to the issue under consideration.

3. On the facts and in the circumstances of the case and in law, the learned CIT(A) ought not have confirmed the order passed by the A.O. treating the appellant in default and demanding the interest from the appellant by confirming the order passed u/s. 201(1) r.w.s. 201(1A) of the Act.

4. It is therefore prayed that the orders passed by lower authorities may be quashed and set aside.

5. Your appellant craves leaves to add, amend, alter or withdraw any ground of appeal at time of hearing. Total tax effect: Rs. 2,98,352/-”

& 50 /Rjt/2021 A.Y. 2014-15 & 2015-16 Page No 14 Friends Salt Works & Allied Industry vs. DCIT (TDS)

Order pronounced in the open court on 19-04-2023