IN THE ITAT AGRA BENCH
Radheyshyam Bhakar & Co.
Income-tax Officer (TDS), Gwalior
IT APPEAL NO. 287 (AGRA) OF 2011
[ASSESSMENT YEAR 2008-09]
JUNE 22, 2012
Bhavnesh Saini, Judicial Member
This appeal by the assessee is directed against the order of the ld. CIT(A), Gwalior dated 30.06.2011 for the assessment year 2008-09 on the following grounds :-
“1. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in law and on facts in upholding & confirming Assessing Officer’s order that payment made for normal and routine supervision of works assigned was covered u/s. 194J as not u/s. 194C of the Income Tax Act, 1961 and consequently upholding Assessing Officer’s order u/s. 201(1)/201(1A) of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming Assessing Officer’s Order u/s. 201(1)/201(1A) ignoring the material on record and the facts that the payee deductee has already paid the tax on his income element comprised in the payment made to him by the appellant deductor and thereby no demand for short deduction of TDS could be raised against the deductor.”
2. Briefly, the facts of the case are that the assessee challenged the order of the AO u/s. 201(1)/201(1A) of the IT Act before the ld. CIT(A) whereby the assessee has been treated as assessee in default for short deduction and late payment of tax along with interest chargeable thereon under the above provisions. The dispute is with regard to the short deduction of tax in respect of payment of Rs. 5,00,000/-made to one Shri Tanuj Agarwal. On the above payment of Rs. 5,00,000/- to Shri Tanuj Agarwal, the assessee has deducted taxes @ 2.06% as per section 194C of the IT Act treating it as supervision charges. However, as per the AO, the same is covered by section 194J of the IT Act. Since the assessee has paid the said amount on account of supervision for his construction work in a professional manner, therefore, TDS was to be made @ 10.3%. Accordingly, the AO has worked out short deduction of Rs. 41,200/- and interest thereon at Rs. 15,450/- and raised a demand against the assessee. It was submitted before the ld. CIT(A) that aforesaid amount was paid to Mr. Tanuj Agarwal for construction supervision charges for work of Narmada River Bridge at Nandner Dhana, Naseerabad Road & Tawa River Bridge at Bandradhan, Hosangabad Road, Hosangabad (M.P.). In the original E-TDS return, it was wrongly shown u/s. 194J, which was revised later on and payment was shown u/s. 194C of the Act. The AO in his comments, however, reiterated the stand that the amount paid to Mr. Tanuj Agarwal for the work of bridge is covered by section 194J of the IT Act. It was also explained that such payment is in the nature of fees for technical services within the meaning of Explanation 2 to section 9(1)(vii), which clarifies that any consideration including any lump sum consideration for the rendering of any management services. The assessee in his rejoinder reiterated that the payment in question is covered by section 194C. Therefore, the demand may be deleted. The ld. CIT(A), considering the submissions of the assessee and the report of the AO confirmed the addition and dismissed the appeal of the assessee. The finding of the ld. CIT(A) in para 6 & 7 of the appellate order are reproduced as under :
“6. Appellant’s submissions along with AO’s order & reports have been considered carefully. Records of the AO have also been perused. There is no dispute regarding payment of Rs. 5,00,000/- made to Shri Tanuj Agarwal. The same has been paid for construction supervision charges for work of Narmada River Bridge at Nandner Dhana, Naseerabad Road & Tawa River Bridge at Bandradhan, Hosangabad Road, Hosangabad (M.P.). The same has also been shown by Shri Agrawal as supervision charges as per his Income & Expenditure A/c enclosed with his return filed on 25.09.2008 on which net surplus of Rs. 2,92,000/- has been declared. As per his P&L A/c, the appellant deductor has claimed it under the head supervision charges of Head office whereas consultancy expenditure of Rs. 1,81,732/- has also been debited. However, before a person can be called a contractor to be covered u/s. 194C, his status must have nexus in its characteristics as carrying out work for another person as a contractor in the ordinary sense and not merely carrying on activities of his business or profession in the ordinary course by charging fees or remuneration. This view has been held by Hon’ble Gujrat High Court in the case of Allgvjrj Federation of Tax Consultant v. CBDT  214 ITR 270 (Guj.). Also the expression “any work” occurring in Sec. 194C cannot include a contract for rendering of services which is the fact found in case of the appellant as Shri Tanuj Agarwal has rendered managerial services by way of supervision of construction work of the appellant deductor. Thus, payment made to Shri Tanuj Agarwal is not found covered under the provisions of sec. 194C & instead TDS rates, as applicable for payments made u/s. 194J, apply to the payment of Rs. 5,00,000/- made to Shri Tanuj Agarwal, which incidentally the appellant himself has also shown as such in its original TDS return.
In view of facts & circumstances of the case & after perusal of records, order of the AO working out short deduction of Rs.41,200/-u/s. 201(1) along with interest thereon u/s. 201(1A) at Rs.15,450/- is, hereby, confirmed.
7. In the result, the appeal is dismissed.”
3. The ld. counsel for the assessee reiterated the submissions made before the authorities below and submitted that the payment was made to Mr. Tanuj Agarwal for supervision work of a routine and normal nature, not involving use of special skill/expertise. Therefore, the provisions of section 194C would apply in the case of the assessee instead of provisions of section 194J applied by the authorities below. He has further submitted that the ld. CIT(A) has erred in ignoring the material on record and the fact that the payee deductee has already paid tax on the same payment/income and as such, no demand for short deduction of TDS can be raised against the assessee. On the other hand, the ld. DR relied upon the orders of the authorities below and submitted that the assessee originally declared payment in question as per section 194J of the IT Act. Therefore, the orders of the authorities below may be confirmed.
4. We have considered the rival submissions and perused the orders of the authorities below. It is not in dispute that the payment in question is made to Shri Tanuj Agarwal for construction supervision charges for work of Narmada River Bridge at Nandner Dhana, Naseerabad Road & Tawa River Bridge at Bandradhan, Hosangabad Road, Hosangabad (M.P.). The same amount was also shown by Mr. Tanuj Agarwal as supervision charges in his return of income filed with the Revenue Authorities. Therefore, the ld. CIT(A) rightly applied the decision of Hon’ble Gujarat High Court in the case of All Gujarat Federation of Tax Consultants v. CBDT  214 ITR 276 (wrongly noted page No. 270 by the ld. CIT(A), in which it was held that engagement for professional service or services simpliciter which do not involve contract for carrying out any work itself, or a contract for labour for carrying out such services, are not within the purview of section 194C of the Act as it exists. Therefore, contention of the assessee was rightly rejected that the provisions of section 194C would apply in the case of the assessee because Shri Tanuj Agarwal acted as contractor and merely provided service simpliciter for supervising work of the assessee. To that extent, the order of the ld. CIT(A) is confirmed. However, the ld. CIT(A) has not given any finding as to how the provisions of section 194J would also apply in the case of the assessee. The ld. CIT(A) merely confirmed the order of the AO because the assessee himself has shown the same payment u/s. 194J in the original return of income. Such an approach of the ld. CIT(A) is not warranted under law because merely applying a wrong provision of law would not be sufficient to fasten a liability upon the assessee. The AO in the remand report stated that in fact such payment is in the nature of fees for technical services as is specified in Explanation 2 to section 9(1)(vii) of the IT Act. However, it is not explained as to how the supervision charges simpliciter would be covered by the definition of fees for technical services. Similarly, it is not a case of providing professional services. For clarification, we reproduce section 194J of the IT Act as under :
“Fees for professional or technical services.
194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of-
(a) fees for professional services, or
(b) fees for technical services or
(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company; or (c) royalty, or
(d) any sum referred to in clause (va) of section 28,
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein :
Provided that no deduction shall be made under this section-
(A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or
(B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed-
(i) thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or
(ii) thirty thousand rupees, in the case of fees for technical services referred to in clause (b), or
(iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or
(iv) thirty thousand rupees, in the case of sum referred to in clause (d) :
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :
Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.
Explanation.-For the purposes of this section,-
(a) “professional services” means services 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 5 by the Board for the purposes of section 44AA or of this section;
(b) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(ba) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;
(c) where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.”
4.1 Prima facie, the case of the assessee may not fall within the definition of professional services or technical services as per the definition and we find that the authorities below have not considered the case of the assessee as per section 194J(1)(d) of the IT Act. Section 28(va) provides for the sum received or receivable for provisions for services and definition of service has been provided in its Explanation (ii) that the service means “service of any description which is made available to potential users and includes the provisions of service in connection with business of any……………… “construction”………………..”
However, the ld. CIT(A) has not given any finding in the appellate order as to which of the clauses of section 194J would apply in the case of assessee. Therefore, in our view, the matter requires reconsideration at the level of ld. CIT(A) because he has to specify in the appellate order as to which of the clauses of section 194J would apply in the case of assessee and he has to give reasons for the same in the appellate order. Merely because the assessee originally mentioned section 194J in the TDS return by itself is not sufficient to put the assessee in default for short deduction and late payments of taxes with interest. Further, the ld. counsel for the assessee argued that the assessee has produced material before the ld. CIT(A) to show that payee deducted, i.e., Shri Tanuj Agarwal has also paid taxes on the same payment / income in his return of income. Therefore, the assessee cannot be said to be in default. The ld. counsel for the assessee also submitted that the ld. CIT(A) has not given any finding on the same and dismissed the appeal of the assessee despite specific material was produced before him in support of the above contention. We find force in the submissions of the ld. counsel for the assessee that if Mr. Tanuj Agarwal has paid tax on the same payment to the Revenue Department, the same tax could not be recovered once again from the assessee, although charging of interest is mandatory in nature for delay. We rely upon the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT  293 ITR 226 in which it was held-
“Held, (i) that since the Department did not challenge the order of the Tribunal recalling its earlier order, that order attained finality and the High Court could not interfere with the final order;
(ii) without deciding the question whether the Appellate Tribunal could have reopened the appeal for rectifying an error apparent on the record that in view of Circular No.275/201/95-IT(B) dated January 29, 1997, and since the assessee had paid the interest under section 201(1A) and there was no dispute that the tax due had been paid by the deductee (Pradeep Oil), the Appellate Tribunal came to the right conclusion that the tax could not be recovered once again from the assessee.”
4.2 Since the ld. CIT(A) has also not given any finding on the same, therefore, on ground No. 2 also, the matter requires reconsideration at the level of the ld. CIT(A). In view of the above discussion, we set aside the order of the ld. CIT(A) to the extent of confirming applicability of section 194J and Ld. CIT(A) shall decide as to which of the clauses of section 194J would apply in the case of assessee and whether the deductee has paid tax on the same income/payment and its effect thereon. The ld. CIT(A) shall decide both the points afresh by giving reasonable sufficient opportunity of being heard to the assessee. He may also call for the remand report from the AO for finalization of matter in issue.
5. In the result, the appeal of the assessee is partly allowed for statistical purposes as indicated above.