Section 194J – A.Y.2007-08 & 2008-09 – Provisions of section 194J do not apply to sitting fees paid to directors. However, provisions of section 194J(1) (ba) w.e.f. 1st July, 2012 will apply to sitting fees paid to Directors.
Facts
The assesse had paid sitting fees to its resident directors on which no tax was deducted. The assessee had deducted tax from salary and commission paid to non-executive directors and contended that provisions of section 194J are not applicable to sitting fees paid to directors. The AO held that 194J would be applicable on such payments since director is also manager under the provisions of the Companies Act, 1956 and therefore, a technical personnel and thus sitting fees paid to him shall be liable to TDS.
Held
As per Explanation to section 194J, professional services mean services rendered by a person in the course of carrying legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession notified by the Board. Therefore, sitting fees paid to directors do not amount to fees paid for any professional services mentioned in explanation to section 194J. Further, section 194J(1)(ba), effective from 1st July, 2012 states that TDS should be deducted on any remuneration or fees or commission by whatever name called, other than those on which tax is deductible u/s. 192, paid to a director of a company. However, these provisions shall not apply to A.Y. 2007-08 & 2008-09. Thus, no tax is required to be deducted u/s. 194J out of such directors sitting fees for AY 2007-08 & 2008-09.
Tax on payments made by assessee towards testing and inspection charges will be covered u/s. 194C and will not be considered as professional services as per section 194J.
Facts
The assessee had incurred testing and inspection charges on which TDS was done u/s. 194C. The charges were paid for getting the jobs done like testing, inspection of materials, etc., and were in the nature of material and labour contract. However, according to AO, the assessee should have deducted TDS u/s. 194J since the services rendered by the said parties are in the nature of technical/professional service. The CIT(A) upheld the action of AO.
Held
It was held that the nature of expenditure made by the assessee cannot be considered as payment for technical consultancy. The Pune Bench of the Tribunal in the case of Glaxosmithkline Pharmaceuticals Ltd. vs. ITO [2011] 48 SOT 643/15 taxmann.com 163 has held that any payment for technical services in order to be covered u/s. 194J should be a consideration for acquiring or using technical know-how simpliciter provided or made available by human element. There should be direct and live link between the payment and receipt/use of technical services/information. If the conditions of 194J r.w.s. 9(1), Explanation 2 Clause (vii) are not fulfilled, the liability under this section is ruled out. Therefore, it was held that payment by the assessee towards testing and inspection charges cannot be considered as payments towards professional services as per provisions of section 194J and the assessee has rightly deducted tax u/s. 194C.
Payments made for the use of cranes (cranes provided along with driver/operator) is covered under 194C and not under 194-I.
Facts
The assessee had made payments for hire of cranes for loading and unloading of material at its factory. The cranes were provided by the parties along with driver/operator and all expenses were borne by the owners only. The assessee had deducted the tax under 194C. The assessee contended that the hire charges are paid in terms of a service contract and do not amount to rent contract. The AO argued that definition of rent u/s. 194I means ‘any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any machinery, plant, equipment, fittings whether or not any or all of the above are owned by the payee’. Thus, AO held that the assessee should have deducted tax u/s. 194I and not 194C. The same was upheld by the CIT(A).
Held
Section 194C of the Act makes provision for deduction of tax at source in respect of payments made to contractors whereas section 194I makes provision for deduction of tax at source in respect of income by way of rent.
The Tribunal, relying on the decisions of the Hon’ble Gujarat High Court in cases of CIT (TDS) vs. Swayam Shipping Services (P.) Ltd. [2011] 339 ITR 647/199 Taxman 249 and CIT vs. Shree Mahalaxmi Transport Co. [2011] 339 ITR 484/211 Taxman 232/ (Guj.), held that provisions of section 194C should be applicable and not section 194I.
Payment towards windmill operation and maintenance, being comprehensive contract, will attract TDS u/s. 194C of the Act and not u/s. 194J.
Facts
The assessee company had made payments towards maintenance of windmill, replacement of parts, implementing safety norms, conduct of training programmes, prevention of damage, etc. at windmill site. The contract was a comprehensive contract for material and labour services required. The AO held that the operation and maintenance of windmill requires technical skills and knowledge and is covered u/s. 194J. The CIT(A) held that the assessee had correctly deducted tax u/s.194C.
Held
The Tribunal upheld the order of CIT(A). Mere fact that technical skill and knowledge was required for rendering services, did not render the amount paid by the assessee company for a comprehensive contract as ‘fees for technical services’. The said payment was of the nature of payment for a comprehensive contract on which the appellant company had rightly deducted tax u/s. 194C and not section 194J. This view is also supported by the decision of Tribunal, Ahmedabad in Gujarat State Electricity Corpn. Ltd. vs. ITO [2004] 3 SOT 468 (Ahd.) wherein it was held that a composite contract for operation and maintenance would come within the ambit of 194C and not 194J.
Payments towards annual maintenance contract (AMC) for software maintenance attracts TDS u/s. 194C and not 194J.
Facts
The assessee had made TDS u/s. 194C on payments for annual maintenance contracts. The AO held that these payments were towards technical, managerial and professional services and hence TDS u/s. 194J will be applicable. The CIT(A) decided the issue in favour of the assessee.
Held
As per the CBDT Circular No. 715, dated 8th August, 1995 routine/normal maintenance contract including supply of spares covered u/s. 194C. Following the decision of Ahemdabad Tribunal in case of Nuclear Corpn. of India Ltd. vs. ITO [IT Appeal No. 3081 (Ahd.) of 2009, dated 30-09-2011] and CBDT circular, the Tribunal held that payments made for AMC cannot be considered as fees for technical services within the meaning of section 194J.
Also refer decision of the Hon’ble Madras High Court in case of Skycell Communications Ltd. vs. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad.)
Training and seminar expenses do not fall under definition of professional services and hence tax to be deducted u/s. 194C and not 194J.
Facts
The assessee had made payments towards training programmes and seminars organised by various entities including CII towards attending training and seminars by its employees. The assessee had deducted tax at source u/s. 194J. The AO held that the payments made on this account are covered u/s. 194J as the employees were getting training from experts in various fields having professional knowledge to give training and lectures to the employees for the benefit of the company. The CIT(A) held that training and seminar expenses do not fall under the definition of professional services and accordingly decided the issue in favour of of the assessee.
Held
It was held that the payments made to various organisations towards attending seminars by the
employees of the assessee company cannot be considered as towards rendering of professional services by those training institutes as per the provisions of section 194J. Thus the order of CIT(A) was upheld.
