Assessee not liable to deduct tax at source from asset valuer’s fees paid by the lender bank and later recovered from the assessee

FACTS
In the course of assessment proceedings, the A.O. observed from Form No. 3CD that the assessee had paid a sum of Rs. 3 lakhs to Sigma Engineering (Rasayani Unit) from which tax had not been deducted at source. The A.O. disallowed the sum of Rs. 3,00,000 u/s 40(a)(ia).

Aggrieved, the assessee preferred an appeal to the CIT(A) and submitted that it had availed credit facilities from State Bank of India (SBI) by mortgaging assets. The SBI had appointed Sigma Engineering Consultant for submitting a valuation report of the assets to secure their advances. Sigma raised a bill of Rs. 3,30,900 which included service tax. SBI made payment of the said amount and debited the sum from the assessee’s account. The assessee submitted that since it was a payment made to a banking company, it was not liable to deduct TDS. The CIT(A) upheld the action of the A.O.

Still aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal observed that the services of the consultant were utilised for the purpose of SBI in order to secure the assets mortgaged to it. The consultant was appointed by SBI and after submission of the report, the bank settled the fee and recovered it from the assessee. Although the charges were ultimately collected from the assessee, but the services were provided exclusively for the purpose of securing mortgaged assets assigned to the bank. TDS provisions would be applicable only when the services are utilised and respective payments are made directly to the service provider. In this case the assessee neither appointed the consultant nor paid the consultancy charges but was only the observer and, therefore, the provisions of section 40(a)(ia) of the Act do not apply.