Payments to contractors.
194C. (1) Any person responsible for paying any sum to any
resident (hereafter in this section referred to as the contractor) for carrying
out any work(including supply of labour for carrying out any work) in pursuance
of a contract between the contractor and a specified person shall, at the time
of credit of such sum to the account of the contractor 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—
(i) one per cent where the payment is being
made or credit is being given to an individual or a Hindu undivided family;
(ii) two per cent where the payment is being made or
credit is being given to a person other than an individual or a Hindu undivided
family,
of
such sum as income-tax on income comprised therein.
(2)
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 income, such crediting shall be
deemed to be credit of such income to the account of the payee and the
provisions of this section shall apply accordingly.
(3)
Where any sum is paid or credited for carrying out any work mentioned in
sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—
(i) on the invoice value excluding the value of
material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value
of material is not mentioned separately in the invoice.
(4)
No individual or Hindu undivided family shall be liable to deduct income-tax on
the sum credited or paid to the account of the contractor where such sum is
credited or paid exclusively for personal purposes of such individual or any
member of Hindu undivided family.
(5)
No deduction shall be made from the amount of any sum credited or paid or
likely to be credited or paid to the account of, or to, the contractor, if such
sum does not exceed [thirty]
thousand rupees :
Provided that where the aggregate of the amounts of such
sums credited or paid or likely to be credited or paid during the financial
year exceeds [seventy-five]
thousand rupees, the person responsible for paying such sums referred to in
sub-section (1) shall be liable to deduct income-tax under this section.
(6)
No deduction shall be made from any sum credited or paid or likely to be
credited or paid during the previous year to the account of a contractor during
the course of business of plying, hiring or leasing goods carriages, on
furnishing of his Permanent Account Number, to the person paying or crediting
such sum.
(7)
The person responsible for paying or crediting any sum to the person referred
to in sub-section (6) shall furnish, to the prescribed income-tax authority or
the person authorised by it, such particulars, in such form and within such
time as may be prescribed.
Explanation.—For the
purposes of this section,—
(i) "specified person" shall mean,—
(a) the Central Government or any State Government;
or
(b) any local authority; or
(c) any corporation established by or under a
Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India by or under
any law, engaged either for the purpose of dealing with and satisfying the need
for housing accommodation or for the purpose of planning, development or
improvement of cities, towns and villages, or for both; or
(g) any society registered under the Societies
Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act
in force in any part of India; or
(h) any trust; or
(i) any university established or incorporated
by or under a Central, State or Provincial Act and an institution declared to
be a university under section 3 of the University Grants Commission Act, 1956
(3 of 1956); or
(j) any Government of a foreign State or a
foreign enterprise or any association or body established outside India; or
(k) any firm; or
(l) any person, being an individual or a Hindu
undivided family or an association of persons or a body of individuals, if such
person,—
(A) does not fall under any of the preceding
sub-clauses; and
(B) is liable to audit of accounts under clause (a)
or clause (b) of section
44AB during the financial
year immediately preceding the financial year in which such sum is credited or
paid to the account of the contractor;
(ii) "goods carriage" shall have the
meaning assigned to it in the Explanation to sub-section (7) of section
44AE;
(iii) "contract" shall include sub-contract;
(iv) "work" shall include—
(a) advertising;
(b) broadcasting and telecasting including production
of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of
transport other than by railways;
(d) catering;
(e) manufacturing or supplying a product according to
the requirement or specification of a customer by using material purchased from
such customer,
but
does not include manufacturing or supplying a product according to the
requirement or specification of a customer by using material purchased from a
person, other than such customer.]
Answer The Pune Bench of Income Tax Appellate Tribunal (ITAT) in
the case of Bharat Forge Ltd. v. Addl.
CIT [2013] 36 taxmann.com 574 considered this issue on an assessee's
appeal. In this case the CIT(A) had concluded the case against the assessee by
treating testing and inspection of material as technical consultancy and the
consequent applicability of section 194J. Although it was not denied by the
counsel of the assessee that during the course of testing and inspection,
technical expertise might have been used, at the same time it was claimed that
the charges incurred for the same could not be construed to be fees for
professional or technical service so as to bring the same within the purview of
section 194J. In addition, it was argued that in order to cover a technical
service under section 194J, it is necessary that there must either be
acquisition or use of a technical know-how which is provided by a human
element. Further, the counsel for the assessee tried to substantiate his claim
by relying on the judgment in the case ofGlaxosmithkline Pharmaceuticals
Ltd. v. ITO [2011] 48 SOT 643/15 taxmann.com 163 by the Pune Bench of the Tribunal in
which it was held that for covering any payment as technical services under
section 194J, it should be a consideration for acquiring or using technical
know-how simpliciter provided or made available by a human element and that if
the conditions of section 194J, read with section 9(1), Explanation 2 to clause (vii) which provides
for the meaning of "fee for technical services", are not fulfilled,
the liability under this section shall not arise.
Hence, in the case of Bharat Forge Ltd. (supra), the appeal
of the assessee with regard to the tax deduction under section 194C (instead
under section 194J) on payment towards the testing and inspection charges was
allowed.
Siemens Ltd. v. CIT(Appeals) [2013] 142 ITD 1/30
taxmann.com 200 (Mum.) in which it was concluded that if any
person delivers any technical skills or services or makes available any such
services through aid of any machine, equipment or any kind of technology, then
such rendering of services can be inferred as "technical services".
Furthermore, involvement of human interface with constant human endeavour was
insisted upon for the treatment of a service as a technical service. One step
ahead, it was also made clear in the said judgment that just because of the
fact that certificates were provided by human beings after a test was carried
out by automatic machines, the same could not be treated at par with a case
where constant human endeavour was there, meaning thereby that the constant
involvement of human being was necessary to consider a service as a technical
service.
Therefore, it would be appropriate to include testing and
inspection charges within the purview of section 194C instead of under section 194J, depending upon the involvement
of the human endeavour. In other words, it should not be claimed
unconditionally that testing and inspection charges fall under section 194C only, as there may be testing or inspection of a material,
etc., which requires the constant involvement of human beings and comparatively
lesser usage of machines for providing the service, in which case it will be
more appropriate to apply the provisions of section 194J rather than those of
section 194C.
Q . Whether hiring of cranes with
driver/operator for loading and unloading of material is liable for tax
deduction under section194C or section
194-I(TDS on Rent) ?
Answer : Gujarat High Court in the case of CIT (TDS) v. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman
249/11 taxmann.com 137, wherein the assessee had carried out freight and
transportation work contracts with transporters who transported the goods
belonging to the assessee and its clients to various places through their
vehicles. It is worth mentioning that the assessee had not taken the
cranes/trailers on hire/rental basis from those transporters. In other words,
the assessee had given sub-contract to the transporters for the transportation
of goods from one place to another which was clear from the fact that the
possession and control of the vehicles was with the transporters only. In view
of these facts, the same conclusion was drawn in the absence of anything to
show that the assessee had taken the cranes/trailers on rent and contract was
not for the transportation of goods.
Hon'ble Gauhati High Court in the case of Assam
General Sales Tax Act, 1993 observed as under :
"54 Thus, when the contract agreement is
read clause-by-clause, it becomes abundantly clear that there is no transfer of
the right to use the vehicle involved in the contract agreement and that the
contract agreement is merely for carriage of the petroleum and petroleum
products and nothing more."
The same issue arose in the case of CIT v. Shree Mahalaxmi Transport Co. [2011] 339 ITR
484/211 Taxman 232/19 taxmann.com 144 before the Hon'ble Gujarat High Court. It
was observed that the assessee had not taken the dumpers on rent but had given
contracts to the parties for the transportation of goods. Thus, it was
justified on the part of the CIT(A) to form an opinion that the said contracts
could be termed as work contracts so as to attract the provisions of section 194C of the Act instead of its coverage under
section 194-I. In view of this the order passed by the Tribunal regarding the
applicability of section 194C as against
section 194-I, was upheld by the Gujarat High Court.
Conclusion :
It is very clear that whenever
an agreement or contract is made between the parties, it is always better to
read the same clause by clause to find out the true nature of the transaction
and, accordingly, concluding the applicable provision of tax deduction. In a
way assessees are advised to have a contract with clear terms so as to justify
that it is a contract for transportation and that no rental is being paid so as
to bring the same within the territory of section 194C without any doubt to avoid litigation.
Q Whether
payment towards Annual Maintenance Charges (AMC) for software maintenance is
chargeable under section 194C or section 194J(TDS on Technical or
Professional Services)?
The CBDT vide Circular No. 715, dated 8th Aug., 1995
[(1995) 127 CTR (St.) 13] made it clear that routine/normal maintenance
contract including supply of spares is covered under section 194C. Moreover, the decision of the
Madras High Court in the case of Skycell
Communications Ltd [2001] 119 TAXMAN 496 (MAD.). is self-explanatory to distinguish
between a technical and non-technical service. The Ahmedabad Bench of the
Tribunal in the case of Nuclear
Corpn. of India Ltd. v. ITO [IT Appeal No. 3081 (Ahd.) of 2009,
dated 30-9-2011] referring to its own decision in the case of Ahmedabad Urban Development
Authority v. Asstt. CIT [2010] 10 taxmann.com 233 (Ahd.) (in which it was held that the
definition of "rent" under section 194-I does not provide any item
for vehicle hire charges) as well as the findings of the Delhi Bench of the
Tribunal in the case of Dy.
CIT v. Parasrampuria Synthetics
Ltd. [2008] 20 SOT 248 relied
on the judgment given in Skycell
Communications Ltd. and held
that the annual maintenance charges are liable for tax deduction under section 194C.
Conclusion - It can be safely concluded
that the annual maintenance charges are covered under section 194C and not
under section 194-I.
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