By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi
Chartered Accountants
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Sections 9(1), 194C, 194J — Security services are not technical or professional services. Hence, payment made in lieu of such services is not covered u/s.194J but u/s.194C.
Facts:
The assessee, engaged in manufacturing of medicines was subjected to survey action u/s.1333A of the Act on 21-11-2007 by the ITO (TDS) (AO). The AO noticed that in respect of payments made by the assessee towards security charges, the assessee was deducting tax at source @ 2.26% u/s.194C. The AO was of the view that the payments for security charges are covered u/s.194J. He passed an order u/s.201 and 201(1A) r.w.s. 194J and demanded payment of TDS and interest on TDS for the 4 assessment years 2005-06 to 2008-09.
Aggrieved the assessee preferred an appeal to the CIT(A) who held that security personnel were rendering skilled services to the assessee and can be categorised as professional or technical services as per the Explanation to section 194J of the Act. He upheld the order passed by the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal having considered the answer of the CBDT to Q No. 28 of Circular No. 715, dated 8-8-1995 held that an electrician is also a skilled person and if the services of an electrician provided by a contractor are treated by the CBDT under the provisions of section 194C vis-àvis section 194J, then it gives strength to the argument that security services provided by a contractor will also come under the provisions of section 194C, because the security guards are also skilled persons as an electrician. The services provided by security personnel under a contract with the agency cannot be categorised as technical service unless the provisions of clause (vi) to Explanation 2 to section 9(1) are fulfilled. In order to rope in any service provider within the net of section 194J, it is of paramount importance to check the true nature of service provided on the touchstone of the mandate of this provision alone. Clause (vii) to Explanation 2 to section 9(1) defines fees for technical services, as consideration for rendering of any ‘managerial, technical or consultancy services’, the word ‘technical’ is preceded by the word ‘managerial’ and is succeeded by the word ‘consultancy’. Following the view of the decision of the Mumbai Bench in the case of ACIT v. Merchant Shipping Service (P) Ltd. and Others, (135 TTJ 589) (Mum.) it held that as both managerial and consultancy services are possible with human endeavour, the word ‘technical’ should also be seen in the same light. To be more precise, any payment for technical services in order to be covered u/s.194J, 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 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. The payments made by the assessee for security services are covered u/s.194C.
The Tribunal allowed the appeal filed by the assessee.
