ITO,WARD-59(3), KOLKATA, KOLKATA vs. M/S. BAHUBALLI INTERNATIONAL LTD, KOLKATA

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ITA 1085/KOL/2012Status: DisposedITAT Kolkata07 October 2015AY 2010-115 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the payments made for the AMC of the computer system, which included repairs, maintenance, and troubleshooting, did not constitute technical services under Section 194J. Therefore, the assessee rightly deducted TDS under Section 194C.

What were the facts?

The assessee deducted TDS at 2% on payments made to Net 4 Communication Ltd. for Annual Maintenance Contract (AMC) of its computer system. The Assessing Officer (AO) held that these payments were fees for technical services and thus TDS should have been deducted at 10% under Section 194J.

What were the issues?

Whether payments made for Annual Maintenance Contract of a computer system qualify as fees for technical services under Section 194J, or as contractual payments under Section 194C.

Which sections of the Income-tax Act were involved?

Section 194J,Section 194C

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA

Before: Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM]

Hearing: 17.09.2015Pronounced: 07.10.2015

ORDER Per Shri Mahavir Singh, JM:

This appeal by revenue is arising out of order of CIT(A)-I, Kolkata in Appeal No.131/CIT(A)-I/59(3)/10-11 dated 30.04.2012. Assessment was framed by ITO (TDS), Ward-59(3), Kolkata u/s. 201(1)/201(1A) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2010-11 vide its order dated 30.09.2010.

2. The only issue in this appeal of revenue is against the order of CIT(A) in deleting the payments made by assessee to Net 4 Communication Ltd. as contractual payments as against held by the AO being fee for technical services covered u/s. 194J of the Act. For this, revenue has raised following three grounds: “1. That Ld. CIT(A) erred in law and in fact in allowing appeal of the assessee by holding that payment made by the assessee to M/s. Net 4 Communication Ltd, amounting to Rs.88,24,000/- is a contractual payment and tax is deductible @ 2% u/s.194C of the Act.

2.

That Ld. CIT(A) erred In law and in fact in deciding the issue in favour of the assessee by failing to appreciated and adjudicate on the meticulous finding of the A.O that the payment made by the assessee M/s. Net 4 Communication Ltd, was fees for providing technical services and is covered u/s.194J of the Act., and therefore, tax is deductible on such payment @ 10%.

3. That Ld. CIT(A) erred in law and in fact in ignoring the views commented by the A.O. in his remand report without any factual finding.”

3.

Briefly stated facts are that the AO while passing order u/s. 201(1)/201(1A) of the Act noted from the details that the assessee has made payments for technical services fee to one Net 4 Communication Ltd. (in Short NCL) but deducted the TDS @

2 Bahuballi International Ltd. AY 2010-11 2% instead of 10% as applicable on technical services fee u/s. 194J of the Act. He required the assessee to explain the reasons for not deducting TDS @ 10%. The assessee explained that the payments made to NCL was actually contractual payments and not technical services fee, which are on account of Annual Maintenance Contract (AMC) with that company for maintenance of its computer system and also produced the invoices for AMC. But the AO has not accepted the explanation of the assessee and treated the payments made on account of fee for technical services liable for TDS u/s. 194J of the Act @ 10% as against deduction made by assessee at 2% only on contractual payment. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition by observing as under: “After careful consideration of the assessment order and the written submission filed by the A/R, the remand report and counter comments of the A/R, it is noticed that the assessee company entered into a annual maintenance contract with M/s. NET 4 Communication Ltd. for maintenance of whole computer system on 1st April, 2009 and deducted TDS u/s. 194C on payment of Rs.88,24,000/-. The Assessing Officer held that section 194J is applicable. The Profit & Loss a/c and Balance Sheet of M/s. NET 4 Communication Ltd. was filed in the appellate proceeding. After carefully considering the agreement, assessee is covered by section 194C rather than 194J since the agreement relates to repair of computer and parts and removal of virus and renewal of software. Therefore, the ground no. 1 and 2 are allowed.”

Aggrieved, now revenue is in appeal before us.

4.

We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has given AMC to NCL for maintenance of its computer system. The nature of services provided by the assessee i.e. maintaining assessee’s whole computer system is as under: “(i) Back up restoring and mailing solution, (ii) Customization and integration of mails with control panel, (iii) Customization mail box & up-gradation Anti spam filters and (iv) Telchnical support for networking Equipment & services.”

Ld. Counsel for the assessee now before us filed sample bills to prove the work done by NCL in term of the AMC of the assessee. Before us, ld. Counsel for the assessee also filed copy of agreement between assessee and NCL wherein description of work is provided as under: “1. The annual maintenance work contract will consist of a) Attending the complaints to NET4 raised by SBIL & our various departments located at Kolkata & Durgapur on daily basis.

3 Bahuballi International Ltd. AY 2010-11 b) The maintenance contract will include necessary repairs to the installed systems, Computers full server systems of NSE, BSE & NSDL and replacement of defective/damaged parts, components and other accessories Free of Cost. c) The maintenance contract will also include repair, maintenance and troubleshooting of all LAN (including full cable) components with Networking, system administration & parts on free of cost except the switches to keep LAN fully operational. d) The maintenance contract will removal of virus to keep the system run properly.”

5.

We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee. We find in the instant case the Assessing Officer applying the provisions of section 194J of the Act on account of payments made to various entities for testing and inspection of material held that there is short deduction/lower deduction since the assessee has deducted the tax under the provisions of section 194C of the Act. According to the Assessing Officer the services provided by the parties are in the nature of technical or professional service, therefore, TDS should have been made u/s.194J instead of 194C of the Act. According to the CIT(A) the payments made by the assessee for testing and inspection of material cannot be described as technical consultancy and therefore provisions of section 194J of the Act are not attracted. We find from the explanation to section 194J(1) of the Act, which defines professional service and technical services, which means the service rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board. The nature of expenditure made by the assessee towards payments made to various persons as mentioned in the bills, in our opinion, cannot be considered as payment for technical consultancy. The Delhi Bench of the Tribunal in the case of DCIT Vs. Parasrampuria Synthetics Ltd. (2008) 20 SOT 248 (Del) has held that any payment for technical services in order to cover u/s.194J of the Act should be a consideration for acquiring or using technical know- how simplicitor provided or made available by human element. There should be direct and live link between the payment and receipt/use of technical services/information. If the conditions of section 194J r.w.s 9(1), explanation 2 clause (vii) are not fulfilled, the liability under this section is ruled out.

6.

In similar circumstances, Hon'ble Madras High Court in the case of Skycell Communications Ltd. Vs. DCIT (2001) 251 ITR 53 (Mad) has held as under:

“In the modern day world almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involve the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service." “When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicles and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus services rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for power consumed and remit the same to the revenue. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophistical technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as 'technical service' for the purpose of section 194J of the Act."

7.

We, therefore, hold that the payments made by the assessee in the instant case towards testing and inspection charges cannot be construed as payments towards professional service or technical services as per the provisions of section 194J of the Act and the assessee has rightly deducted the tax u/s.194C of the Act. In this view of the matter, we are of the view that this is merely a contract for repair or AMC, hence,

5 Bahuballi International Ltd. AY 2010-11 we uphold the order of the CIT(A) and hold that there is no short deduction of tax. The grounds raised by the revenue on this issue are accordingly dismissed.

8. In the result, the appeal of revenue is dismissed.

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