IN THE ITAT AGRA BENCH
Radheyshyam Bhakar & Co.
v.
Income-tax Officer (TDS), Gwalior
IT APPEAL NO. 287 (AGRA) OF 2011
[ASSESSMENT YEAR 2008-09]
JUNE 22, 2012
ORDER
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 [1995] 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 [1995] 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.
