M/S SPEARSEARCH SOLUTIONS,NEW DELHI vs. INCOME TAX OFFICER, NEW DELHI

The Assessee was served with an order u/s 201(1)/ (1A) dated 28.02.2021, declaring the Assessee prima- facie, the Assessee in default and also raised the demand of Rs. 3,00,000/-/s 201(1) on account of TDS deductible u/s 194] 10% and Rs. 3,49,771/ on account of Interest u/s 201(1A) of the IT Act, 1961@ 1% per month (from October 2013 to February, 2021) as per the Learned AO's best judgment is erred in law.

The Assessee, M/s Spearsearch Solutions (PAN- ABOFS7069). TAN: DELS389078). is a partnership firm having its office at F-4 & 5, 1ª Floor, Street No. 3 Vikas Marg, Laxmi Nagar, New Delhi-110092. Mr. Asmendra Kumar Singh and Mr. Vinay Kumar are the partners in the said firm. The Firm is engaged in the business of providing manpower services through IT portal like naukri.com and monster.com. The Companies or Parties in need of manpower resource contacts the Firm and in return pays amount as per contractual terms and experience of the person hired through it.” 3 | P a g e

The Assessee, entered into a sub contractual agreement with M/s Best Infosystems Ltd. to provide for infrastructure facilities such as furniture, fixtures, computer telephonic systems, internet facilities etc. and entry level persons (10%, 12th & undergraduates) like trainee, computer operators, tele callers, clerks, support and maintenance for doing basic clerical and repetitive work till the validity of the contract to meet the requirement of its clients. A consideration of Rs. 30, 00,000 (Rs. 5,00,000 per month) for the period of j October, 2013 to 31-March, 2014 was paid to M/s Best Infosystems Ltd after deducting TIG 1940 (Work Contracts) @ 2% for FY 2013-14. Provisions of TDS u/s 194] Payment to Contractors, under Income Tax Act, 1961

However, as per the information from New Delhi ITO ward 58(2), the Assessee was served with a notice u/s 201(1) and 201(1A) as per the TDS provisions the Income tax act, 1961 that the Assessee has not deducted TDS u/s 194) (Professionals) on the aforementioned payment of Rs. 30, 00, 000/- to M/s Best Infosystems Ltd., made during the F.Y. 2013-14. Final show cause notice dated 07.01.2020 was also served upon via email and speed post.

Consequently, the Assessee was served with an order u/s 201(1)/ (1A) dated 28.02.2021, declaring the Assessee prima facie, the Assessee in default and also raised the demand of Rs. 3,00,000/- u/s 201(1) on account of TDS deductible u/s 1941 @10% and Rs. 3,49,771/-on account of Interest u/s 201(1A) of the IT Act, 196160 1% per month (from October 2013 to February, 2021) as per the Learned AU's best judgment. In the light of the aforementioned provisions of TDS, under Income Tax Act, 1961, the Assessee is able to deduct TDS u/s 194C (Work Contracts) against the payment made under the sub contract with M/s Best Infosystems Ltd. not u/s 194) (Professional Fees) as the sub contract was to entry level persons (10,12th & undergraduates) like trainee, computer operators, tele callers, clerks, support and maintenance for doing basic clerical and repetitive work which do not constitute any professional or technical service.

As per order 275/201/95-IT (B) dated 29-01-1997 issued by CBDT, where in it is stated that no demand visualized under section 201(1)/201(1A) of the Income tax Act 1961 should be enforced after the tax deductor has satisfied the officer in charge of TDS that tases due have been paid by deductee-assessee. In the given case the deductee, M/s Best Infosytems Ltd. has already offered the said income in its income tax return and paid all the statutory liability of income tax. Therefore, the Learned AO has erred in appreciating this very fact. (Copy Enclosed M/s Best Infosytems Ltd. Income Tax Return with Computation for AY-2014-15, Balance Sheet, Statement of Profit & Loss for AY-2014-15).

With reference to above said appeal there are various case laws which refences may be takes during the assessment proceedings. The case laws are appended below:

A perusal of the said order of the Hon'ble Supreme Court in Hindustan Coca Cola Beverage case would show that the assessee therein was held as assessee in default" under Section 20111) of the Act and also levied interest under Section 201(1-4) The assessee therein contended that the recipient therein has been assessed on their income and the tax due has been recovered from them by the Department and therefore no further tax could have been collected from the assessee therein The sand contention was accepted by the Tribunal. It was held that though the assessee therein was held to be as assessee in default, there could be no recovery of the tax alleged to be in default once again from the assessee therein considering the fact that the recipient had already paid the tax on the amount received from the assessee. The said order of the Tribunal was challenged before the High Court which in turn interfered with the sum. Further appeal came up before the Hon'ble Supreme Court. In the said appeal, the Apex Court found that the Tribunal came to the right conclusion that the tax once again could not be recovered from the appellant therein since the tax has already been paid by the recipient of the income. The Apex Court also relied on the circular issued by the Central Board of Direct Taxes in Circular No. 275/201/95-IT (B) dated 29.1.1997 wherein it is declared that no demand visualized under Section 201(1) of the Income Tax Act should be enforced after the tux deductor has satisfied the Revenue that taxes due have paid by the deductee-assessee. While holding so, the Apex Court however pointed 6 | P a g e out that such position will not alter the liability to charge interest under Section 201(1A) till the date of payment of taxes by the deductee assessee

Hon'ble Income Tax Appellate Tribunal Chandigarh in the case of H. P State Electricity Board, (ITA No. 42 to 45/Chd/2012, Case law enclosed, refer serial No. 5 & 10 of case law)

Survey under section 133A of the Income Tax Act was conducted at the business premises of the assessee on 11.2.2009. During the course of survey, it was noted that the assessee had made the payments of transmission charges to M/s PGCIL. but no tax was deducted at source under the provision of the Income Tax Act. During the proceedings before the ITO(TDS), the assessee was held not to be in default under section 201 (1) of the Act as the taxes had been paid by the payee. Further the issue considered by the Assessing Officer was whether the assessee was liable to pay interest under section 201(14) of the Act. The Assessing Officer taking note of the ratio laid down by the Hon'ble Supreme Court in Hindustan Coca Cola Beverages P. Ltd. Vs. CIT (293 ITR 226 (SC)] held that the assessee was liable to pay interest under section 201(1A) of the Act. The said interest under section 201(1A) of the Act was charged up to the date of fling of the return of income by M/s PGCIL. The computation of Interest chargeables under section 201(1A) of the Act in incorporated at pages 5 to 7 of the order passed by the Assessing Officer. The plea of the assessee before the CIT (Appeals) was that the interest is payable only on the ground of tor remaining payable in the hands of the payee and or in the present case the tax had been depended on regular basis by the payee, no interest is payable by the assessee. The CIT (Appeals) held the assessee to be liable to pay interest under section 201(1A) of the Act both as per the provision of the Act and also as per the judgment of the hon’ble Apex Court in Hindustan Coca Cola Beverages P. Ltd Vs. CIT (Supra). The interest charged under section 201(1A) of the Act for all the four-assessment years was upheld by the CIT (Appeals).

Ax per the above-sand circular the liability to charge interest under section 201 (1A) of the Act is till the date of payment of taxes by the payee. We find from the perusal of the assessment order that vide paras 9 the Assessing Officer had noted the information supplied by the assessee in respect of the advance tax paid by the deductee M/s No.275/201/95-IT(B) dated 29.1.1997 interest under section 201(14) of the Act is chargeable up to the date of payment of taxes by the 7 | P a g e deductee/payee. However, in the present case the Assessing Officer has charged the said interest under section 201(1A) of the Act till the date of filing the return of income by the deductee/payee in the respective assessment years. Accordingly, we direct the Assessing Officer to recompute the interest under section 201(1A) of the Act in line with the instructions of CBDT till the date of payment of taxes by the deductee/ payee in the respective assessment years. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee in this regard and recompute the interest chargeable under section 201(1A) of the Act. The ground of appeal raised by the assessee in all the years is thus allowed for statistical purposes.

Challan and Acknowledgement of appeal filed: Duly Annexed.

Copy of Financials of M/s Best Infosystems Ltd.: Duly Annexed.

Other documentary evidences related to the case: Duly Annexed.

We make it clear that there is no dispute on facts that the assessee inter alia is a company providing man-power services to various entities who had deducted TDS @ 1% under section 194C 8 | P a g e of the Act thereby treating the payments of Rs.30 lakhs made to M/s. Best Infosystems Ltd. as consideration in nature, which, in turn, are sought to be assessed as fee for technical services attracting 10% TDS deduction under section 194J of the Act. This being the clinching factual position, learned counsel invites our attention to the assessee’s paper-book at pages 18 to 22 wherein it agreed to provide man-power only than the staff having specific qualifications so to render such professional, managerial or technical services; as per the Revenue’s stand all along. We further wish to reiterate that the above agreement executed between the assessee and its payee does not reveal even the qualification(s) of the man-power to be provided so as to bring it out from the rigor of TDS deduction under section 194C of the Act. We accordingly are of the considered view in this factual backdrop that both the learned lower authorities have erred in law and on facts in treating the assessee’s man-power supply agreement as attracting TDS deduction to be in the nature of fee for technical services. The assessee’s succeeds in its instant sole substantive ground in very terms therefore.

This assessee’s appeal is allowed. Order pronounced in the open court on 25th September, 2025 (S. RIFAUR RAHMAN) JUDICIAL MEMBER