[2012] 22 taxmann.com 149 (Amritsar - Trib.)
IN THE ITAT AMRITSAR BENCH
Income-tax Officer (TDS), Jammu
v.
Accounts Officer, Govt. Medical College, Jammu*
H.S. Sidhu, Judicial Member
And B.P. Jain, Accountant Member
IT Appeal NoS. 112 and 113 (Asr.) OF 2011
[Assessment years 2008-09 and 2009-10]
May 7, 2012
Section 194J, read with section 9, of the Income-tax
Act, 1961 - Deduction of tax at source -
Fees for professional or technical services - Assessment years 2008-09
and 2009-10 - Assessee,
a medical College, entered into contracts with various parties to
maintain
operation theatre and surgical equipments, RO system, CT scan machine,
MRI
machine, medical equipments lift sterlisation and as well as to provide
services
of anti-termite treatment - Whether all these
services cannot be provided in routine and normal manner, but require
technical
expertise or professional skills and therefore, provisions of section
194J, would be attracted to these contracts - Held, yes [In favour of
revenue]
Section 194C of the Income-tax
Act, 1961 - Deduction of tax at source - Contractors/sub-contractors,
payments to - Assessment years 2008-09 and 2009-10 -
Whether contracts for supply of bread and butter and supply of security
personnel
would be covered under provisions of section 194C - Held, yes [In favour
of assessee]
Circulars, Notifications and Instructions : Circular No. 715, dated 8-8-1995; Instruction No. 3 of 2011, dated 9-2-2011
FACTS
The assessee, a Medical College, had entered into
contracts/agreements with various parties to maintain operation threatre
and surgical equipments, RO system, CT scan machine, MRI machine, lift,
sterlisation and medical equipments along with anti-termite treatment
and also there were contracts for supply of bread and butter and supply
of security and personnel. The assessee made payments to the contractors
and deducted the tax at source under section 194C. The Assessing
Officer held that the assessee had made payments to the contractors for
technical services covered under section
194J and, therefore, it had made a short deduction of tax at source. He,
therefore, treated the assessee as an assessee in default under section
201(1) and raised tax demand upon it. He also levied interest under
section 201(1A) upon the assessee.
On appeal, the Commissioner(Appeals) held that the
contracts under discussion were covered under work or service contracts
and the CBDT Circular No. 715, dated 8-8-1995 was clearly applicable to
the instant case. Hence, there was no short deduction of tax at source.
On second appeal :
HELD
As regards supply of bread and butter and supply of
security and personnel is concerned, there is no technical part or
technical services as per facts available on record. As regards other
services, whether the same is contract under section 194C or technical
service under section 194J has to be perused. The assessee has claimed
the contracts under section 194C. [Para 6.2]
As per Explanation 2 to section 9(1)(vii)
the fees for technical services means any consideration for the
rendering of any managerial, technical or consultancy services including
the provision of services of technical or other personnel, and fees
paid for that shall be considered for the purpose of section 194J. As
per conditions mentioned in the agreement with regard to theatre and
surgical operation, the services of a technical qualified person are to
be made available to the assessee to maintain equipments. Therefore, the
said technical services as per CBDT Circular No. 715, dated 8-8-1995
cannot be services of routine and normal maintenance. The operation
theatre and surgical are highly technical equipments for the operation
of the persons. Therefore, they cannot be maintained in a routine or
normal manner, but a technical person is required for maintenance of
such equipments. Similar is the case with RO system, CT scan machine,
MRI machine, lift and sterlisation and medical equipments. Therefore,
these contracts cannot be the contracts in a routine or normal manner
but for which technical service has been rendered and provisions of
section 194J, read with Explanation 2 to section 9(1)(vii) are attracted. [Para 6.4]
The anti-termite treatment though does not require
technical expertise, but it requires professional skill for the reason
that the spray of the anti-termite chemicals in the premises or the
machine requires a highly and professionalized skill. In the absence of
which there can be a loss to the life of the human being living therein,
especially in the Medical College. If spray is made by a person who is
not professional or without any professional skill then consequences can
be otherwise. Therefore, this service has to be treated as professional
service to be included for the purpose of section 194J, read with Explanation 2 to section 9(1)(vii).
In the facts and circumstances of the case, except for the supply of
bread and butter and supply of security and personnel, the findings of
the Assessing Officer deserved to be upheld. [Para 6.5]
EDITOR'S NOTE
The revenue filed second appeals for two different
assessment years 2008-09 and 2009-10. Tax effect in the appeal relating
to assessment year 2008-09 was below Rs. 3 lakhs. The Tribunal rejecting
the objection raised by the assessee held that since identical issue
was involved in appeals of two different years and by a composite order
of the Commissioner(Appeals), the composite tax demand against the
assessee was more than Rs. 3 lakhs, as per CBDT instruction No. 3 of
2011, dated 9-2-2011, appeal of revenue relating to the assessment year
2008-09 was maintainable before it.
Laxman Singh for the Appellant. Joginder Singh for the Respondent.
ORDER
1. These two appeals of the Revenue arise from the
consolidated order of the CIT(A, Jammu, dated 27.01.2011 for the
assessment years 2008-09 & 2009-10 respectively.
2. The Revenue in both the appeals has raised following common grounds of appeals, which are as under:
"1. That the ld. CIT(A)
has erred in holding the payment treated as payments for technical
services by the AO u/s 194J as payments for Annual Maintenance Contract
covered u/s 194C.
2. That the Ld. CIT(A) has erred in allowing the
relief on the basis of Circular No.715 as Annual Maintenance Contractors
in the case are entirely for technical services.
3. That the ld. CIT(A) has erred in allowing the
relief by relying on the case of M/s. Eastern Typewriters Services vs.
State of A.P.(42 STC 18) which involve Annual Maintenance Contract of
Typewriters whereas the present case the contract is for sophisticated
machines like ST SCAN R.O. System etc. which can not be compared with
the typewriter.
4. That the appellant craves the leave to add,
amend, modify, delete any of the grounds of appeal before or at the time
of hearing."
3. The brief facts for the assessment year 2008-09
are that the assessee is a Govt. Medical College at Jammu. The assessee
had entered into contracts with a number of parties for maintenance of
various equipments and made payments to them and deducted tax u/s 194C
of the Act. In two of the parties tax was deducted u/s 194J of the Act .
In other cases, the assessee had deducted tax u/s 194C of the Act,
whereas the AO under section 201(1) & 201(1A) had observed that the
assessee had made payments for technical services and therefore, had
made a short deduction and late payment of tax and total demand was Rs.
2,64,390/- for the financial year 2007-08 and Rs. 7,73,570/- for the
financial year 2008-09 was raised. The Ld. CIT(A) in his order at pages 5
& 6 observed as under:
"In respect of all the other contracts they are found
on different footing as they all are for routine maintenance. In those
cases no technical services were required to run the plants and
equipment as they were handled by the employees of the assessee on day
to day basis but maintenance including the supply of spares was to be
done by most of the agencies. The contract for past control also cannot
be said to involve any technical services as such. Though generally
speaking almost all the services or work contracts may involve certain
amount of technical expertise yet it cannot be said that these are for
providing 'technical services' which is defined in explanation 2 to
clause (i) of sub section 1 of section 9 of the I. tax Act as under:
"Fee for technical services" means any consideration
(including lump sum consideration) for the rendering of any managerial,
technical or consultancy services (including the provision of services
of technical or other personnel) but does not include consideration of
any construction, assembly, minning or like project undertaken by the
recipient or consideration which would be income of the recipient
chargeable under the head salary."
In these contracts as above no 'technical services'
were to be supplied by the second parties though the contracts were for
services to be rendered primarily. The case law relied by the assessee
in its written submissions of M/s. Eastern Typewriters Services vs.
State of A.P. 42 STC 18 where it was held that when an assessee entered
into a contract with the government department for repairing and serving
typewriter and other equipments at periodical intervals and at certain
specified rates, the same was work contract'.
In all the contracts mentioned in question here the
equipment were run by assessee but the repairs and maintenance, were
done by contractors which though required a certain expertise yet the
contract cannot be termed as a contract for providing 'technical
services'. The limited 'technical' expertise, which is required in
almost all types of work was merely used to facilitate the routine
maintenance work and not for providing 'technical services' as such.
In view of the above, I hold that the contracts under
discussion were covered under work or service contracts and the circular
715 was clearly applicable, hence there was no short deduction of taxes
and the demand so created in respect of them (expect two contracts of
running the equipment as discussed above) was not at all enforceable and
assessee is not to be treated in default."
4. The Ld. CIT (DR) Sh. Laxman Singh argued and
invited our attention to the various provisions contained in the
contracts submitted and various paras of the order u/s 201(1) &
201(1A) that only services are technical services, which required a
special skill and the same cannot be done otherwise than by a technical
or a professional person. For the meaning assigned to the term 'fees'
for technical services, the Explanation (2) to section 9(1)(vii) has to
be taken into consideration. Mr. Laxman Singh, the Ld. DR further
invited our attention to the agreement with M/s. Thermtronics Krilsoker
Pvt. Ltd; for maintenance of theatre and surgical for which specialist
is required who will visit and carry out the maintenance service and
also emergency break down calls. Similarly, findings of the AO were
shown to the Bench with regard to the RO system maintenance by M/s.
Ridham Marketing Services, CT Scan system by M/s. Wipro GE Medical
System and MRI machine by M/s. Siemens Ltd; and Lift maintenance by M/s.
Otis Elevator as well as sterlisation and medical equipment by M/s.
Xpert Technical Services and Anti Termite Treatment by M/s. Global Pest
Control Organization etc. However, the Ld. DR remained silent about the
supply of Bread & Butter by Mr. Rakesh Kumar Malhotra and supply of
security and personnel by M/s. Dogra Placement Services. The Ld. DR
prayed to restore the order of the AO and reverse the order of the
CIT(A).
5. On the other hand, the ld. Counsel for the
assessee, Sh. Joginder Singh argued that there are four limbs of the
work contract. The assessee had fulfilled all the four limbs. Therefore,
the said contracts are work contract. If every contract is taken as a
technical contract then there will be no work contract in the world. The
contract is for repair and services only and running machine. He
invited our attention to various pages of contract in this regard that
these are only for the maintenance and service and not for technical
services. Our attention was also invited to Circular No.715 dated
08.08.1995 of CBDT by making specific reference to question No.29 with
regard to the contract to be covered under section 194C & 194J of
the Act and the CBDT had answered that - routine, normal maintenance
contracts which includes supply of spares will be covered u/s 194C of
the Act. However, where technical services are rendered, the provision
of section 194J will apply in regard to tax deduction at source.
Therefore, the Ld. Counsel for the assessee relied upon the submissions
made before the Ld. CIT(A), Circular of the Board and the agreements
placed on record, relied upon the decision of the CIT(A) and prayed to
confirm the order of the ld. CIT(A).
6. We have heard the rival contentions and perused
the facts of the case. As regards the appeal of the assessee in ITA
No.112(Asr)/2011, the ld. Counsel for the assessee invited our
attention, at the outset, that the demand in the financial year 2007-08
relating to assessment year 2008-09 is Rs.2,64,390/- only and therefore,
in view of Instruction No.3 of 2011 [ F.No.279/MISC.142/2007-ITJ] dated
9th Feb.,2011, the department is prohibited to file the appeal having
tax effect which does not exceed Rs.3,00,000/- before the Tribunal. This
was objected by the Ld. DR and relied upon the same Instruction of CBDT
on which the ld. Counsel for the assessee relied upon. The Ld. DR
invited our attention to para 5 of the said Instruction, where the tax
effect in the composite order of any High Court or appellate authority
has to be taken into consideration even if the tax effect is less than
the prescribed monetary limits in respect of one assessee.
6.1 After considering the said Instruction of the
CBDT, before us, identical issue is involved in appeals for two
different years by a composite order of the Ld. CIT(A) dated 27.01.2011
for the assessment years 2008-09 & 2009-10 respectively, where the
composite tax demanded is more than Rs. 3,00,000/- and, therefore, as
per the said Instruction No.3 of 2011 of CBDT (supra)the appeal of the revenue is maintainable. Therefore, the preliminary objection of Ld. AR is rejected.
6.2 As regards the appeal on merits, as argued by
both the parties and facts available on record, we are of the view that
whole issue is with regard to the contracts entered into by the
assessee, which is a Govt. Medical College at Jammu, has entered into
agreements with various parties to maintain operation theatre and
surgical equipments, RO system, CT Scan Machine, MRI machine, Lift,
Sterlisation and Medical equipments along with Anti-termite treatment
and also there were contracts for supply of Bread and Butter and supply
of security and personnel. As regards supply of Bread and Butter and
supply of security and personnel, we do not see any technical part or
technical services as per facts available on record. As regards other
services, whether the same is contract u/s 194C of the Act or technical
service u/s 194J of the Act, has to be perused. The assessee has claimed
a contract u/s 194C of the Act. Therefore, we have to peruse whether
the professional or technical services u/s 194J of the Act, which
provides 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,
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
percent of such sum as income-tax on income comprised therein. This 10%
has been inserted by the Finance Act w.e.f. 01.06.2007 in place of 5%.
As per
Explanation of section 194J, professional services and fees for technical services has been defined as under:
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 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;
6.3 As per section 9(1)(vii) - Explanation (2) - the technical services have been defined as under:
Explanation [2] - For the purposes of this
clause, "fees for technical services" means any consideration (including
any lump sum consideration) for the rendering of any managerial,
technical or consultancy services (including the provision of services
of technical or other personnel) but does not include consideration for
any construction, assembly, mining or like project undertaken by the
recipient or consideration which would be income of the recipient
chargeable under the head "Salaries".
6.4 As per said Explanation in section 9(1),
the fees for technical services means any consideration for the
rendering of any managerial, technical or consultancy services including
the provision of services of technical or other personnel, is a part of
technical services and fees paid for that shall be considered for the
purpose of section 194J of the Act. In the present case, on perusal of
the various agreements placed on record by the assessee that firstly
with regard to Theatre and Surgical operation with M/s. Thermtronics
Krilosker Pvt. Ltd. As per conditions mentioned in the agreement in
clauses (i) to (vi), the services of a technical qualified person are to
be made available to the assessee to maintain equipments and therefore,
the said technical services as per CBDT Circular 715 dated 8.8.1995
cannot be services of routine and normal maintenance. The operation
Theatre and Surgical are highly technical equipments for the operations
of the persons. Therefore, they cannot be maintained in a routine or
normal manner, but a technical person is required for maintenance of
such equipments.. Similar is the case with RO system, CT Scan Machine,
MRI Machine, Lift and sterlisation & medical equipments for the
agreements made between M/s. Ridham Marketing Services, M/s. Wipro GE
Medical System, M/s. Siemens Ltd; M/s. OTIS Elevator and M/s. Xpert
Technical Service respectively. Therefore, we are of the view that these
contracts cannot be the contracts in a routine or normal manner but for
which technical service has been rendered and provisions of section
194J read with section 9(1) of Explanation-2 are attracted, read with
section 201(1) and 201(1A), which the AO has rightly applied. We find no
infirmity in the order of the Assessing Officer in this regard.
6.5 As regards anti-termite treatment for which the
agreement was made with M/s. Global Pest Control Organization. This
treatment though does not require technical expertise but it requires
professional skill for the reason the spray of the anti termite
chemicals in the premises or the machine, requires a highly and
professionalized skill, in the absence of which there can be a loss to
the life of the human being living therein, especially in the Medical
College where the patients are admitted who visit the hospital for their
treatment, have to be taken care. If spray is made by a person who is
not professional or without any professional skill then consequences can
be otherwise. Therefore, in the facts and circumstances of the case, we
are of the view that this service has to be treated as professional
service to be included for the purpose of section 194J read with section
9(1)(vii) Explanation (2). In the facts and circumstances of the case,
except for the supply of Bread & Butter by Mr. Rakesh Kumar Malhotra
and supply of security & personnel by M/s. Dogra Placement
Services, we uphold the findings of the AO and reverse the findings of
the ld. CIT(A). Accordingly, the appeal of the Revenue is partly
allowed.
6.6 The issue in the Revenue's appeal in ITA
No.113(Asr)/2011 is identical to the facts discussed and adjudicated in
ITA No.112(Asr)/2011 (supra) and our order in ITA No.112(Asr)/2011 shall
be followed in ITA No.113(Asr)/2011 and accordingly, the appeal of the
Revenue is partly allowed.
7. In the result both the appeal of the Revenue are partly allowed.
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