The Commissioner Of Income Tax (Tds)-Ii, Chandigarh v. M/S Shandong Tiejun Electric Power Engineering Co. Ltd., Jhajjar

ITA-162-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-162-2018 (O&M) Date of Decision: 22.1.2019 The Commissioner of Income Tax (TDS)-II, Chandigarh Versus ....Appellant. M/s Shandong Tiejun Electric Power Engineering Co. Ltd., Jhajjar ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. *** AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section 260Aof the Income Tax Act, 1961 (in short “the Act”) against the order dated26.10.2017 (Annexure A-3) passed by the Income Tax Appellate Tribunal,Delhi Bench, 'G', New Delhi (hereinafter referred to as “the Tribunal”) inITA No. 3091/Del/2014, for the assessment year 2011-12, claiming thefollowing substantial questions of law:- a)Whether in the facts and circumstances of the case,the learned ITAT has erred in law in holding thatthe amount paid to sub-contractor M/s IOTEngineering Project Ltd. are beyond the scope ofTechnical services as defined in Section 194J r.w.the learned ITAT has erred in law in holding thatthe amount paid to sub-contractor M/s IOTEngineering Project Ltd. are beyond the scope ofTechnical services as defined in Section 194J r.w. Section 9 of the Income Tax Act, 1961, ignoringthe fact that the work entrusted upon the sub-contractor can be executed only by the qualifiedengineers including Civil Engineer, TestingEngineer & Safety Engineer and highly skilledtechnical staff as per the instructions and technicalspecifications given by the assessee? b) Whether in the facts and circumstances of the case,the learned ITAT has erred in law in comparing theconstruction of sophisticated thermal power plantwith construction of a mere building?the learned ITAT has erred in law in comparing theconstruction of sophisticated thermal power plantwith construction of a mere building? c)Whether in the facts and circumstances of the case,the learned ITAT has erred in law in relying uponthe decision of Hon'ble Supreme Court in the caseof Hindustan Coca Cola Beverages Pvt. Ltd. v/sCIT reported as (2007) 293 ITR 226 that payee hadincluded the receipts from assessee in its return ofincome and the assessee company could not betreated as assessee in default in view of insertionof proviso under Section 201(1) w.e.f. 01.07.2012?2.Briefly stated, the facts necessary for adjudication of the instantappeal as narrated therein may be noticed. The assessee is a contractorengaged in constructing Thermal Power Plant for Jhajjar Power Limited.On 2.2.2012, a TDS inspection was conducted under Section 133A of theAct and it was found that the assessee had made payments amounting to` 12,46,74,283/- to sub-contractor, namely, M/s IOT Engineering Project ITA-162-2018 -3- ITA-162-2018 -3- Limited during the financial year 2011-12 relevant to the assessment year2011-12 and deducted tax at source of ` 24,93,486/- under Section 194C ofthe Act. During scrutiny, it was found that the sub-contractor had providedservices within the ambit of 'Professional and Technical Services' asenvisaged under Section 194J read with Explanation 2 to Section 9(1)(vii)of the Act. Accordingly, a show cause notice was issued to the assessee toexplain as to why the tax at source was deducted under Section 194Cinstead of Section 194J of the Act on the payments made to the sub-contractor. In response thereto, the assessee submitted its reply by pleadingthat the scope of work given to the sub-contractor was construction work forgrounding including straightening, cutting, unloading in the site,transporting to pre-assembly/erection site, alignment, welding, text andinspection, illumination and communication work etc. and that none of thevendors were professionals and covered within the definition of Section194J read with Explanation 2 to Section 9(1)(vii) of the Act. The issue wasexamined by the Assessing Officer, who opined that the assessee was todeduct tax at source from the payments made to the sub-contractor underSection 194J of the Act. The Assessing Officer vide order dated 11.3.2013(Annexure A-1) passed under Sections 201(1) and 201(1A) of the Actdemanded tax and interest amounting to ` 1,30,15,994/- from the assesseeon account of short deduction of tax at source under Section 194J of theAct. Feeling aggrieved by the order, Annexure A-1, the assessee filed anappeal before the Commissioner of Income Tax (Appeals), Rohtak [forbrevity “the CIT(A)”]. The CIT(A) vide order dated 10.3.2014 (AnnexureA-2) allowed the appeal and deleted the demand of tax and interest leviedGURBACHAN SINGHby the Assessing Officer under Sections 201(1) and 201(1A) of the Act.2019.03.25 14:11I attest to the accuracy andintegrity of this document ITA-162-2018 Against the order, Annexure A-2, the revenue filed an appeal before theTribunal. The Tribunal vide order dated 26.10.2017 (Annexure A-3)dismissed the said appeal. Hence, the present appeal by the revenue. 3.After hearing learned counsel for the appellant, we do not findany merit in the appeal. 4.It would be advantageous to reproduce Section 194C of the Actwhich is as under:- “194C. (1) Any person responsible for paying any sum toany resident (hereafter in this section referred to as thecontractor1) for carrying out any work (including supplyof labour for carrying out any work) in pursuance of acontract between the contractor and a specified personshall, at the time of credit of such sum to the account ofthe contractor or at the time of payment thereof in cash orby 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 orcredit is being given to an individual or a Hinduundivided family; (ii) two per cent where the payment is being made orcredit is being given to a person other than an individualor a Hindu undivided family, of such sum as income-taxon income comprised therein. Explanation:- For the purposes of this section,— (iv) "work" shall include— (e) manufacturing or supplying a product according tothe requirement or specification of a customer by usingmaterial purchased from such customer, but does notinclude manufacturing or supplying a product accordingto the requirement or specification of a customer byusing material purchased from a person, other than suchcustomer.” (i) one per cent where the payment is being made orcredit is being given to an individual or a Hinduundivided family; (ii) two per cent where the payment is being made orcredit is being given to a person other than an individualor a Hindu undivided family, of such sum as income-taxon income comprised therein. Explanation:- For the purposes of this section,— (iv) "work" shall include— (e) manufacturing or supplying a product according tothe requirement or specification of a customer by usingmaterial purchased from such customer, but does notinclude manufacturing or supplying a product accordingto the requirement or specification of a customer byusing material purchased from a person, other than suchcustomer.” 5.As per Section 194C of the Act, any person responsible forpaying any sum to any resident for carrying out any work, in pursuance to acontract between the contractor and a specified person shall deduct anddeposit TDS at the specified rates and sum. As per Clause (iv)(e) ofExplanation to Section 194C, 'work' shall include manufacturing orsupplying a product according to the requirement or specification of acustomer by using material purchased from such customer but does notinclude manufacturing or supplying a product according to the requirementor specification of a customer by using material purchased from a person,other than such customer. 6.The contention of the revenue was that the amount which waspaid to the sub-contractor M/s IOT Engineering Project Ltd. was forprofessional and technical services within the ambit of provisions of Section194J of the Act read with Explanation 2 to Section 9(1)(vii) of the Act forwhich tax was to be deducted at the rate of 10% of the payments made. 7.It would, thus, be expedient to refer to these provisions foreffective adjudication of the appeal. Section 194J of the Act mandates ITA-162-2018 deduction of tax at source at the rate of 10% in respect of payments madetowards fees for technical services. The relevant portion thereof effectivefor the assessment year 2011-12 reads thus:- “194J. Fees for professional or technical services.- (1)Any person, not being an individual or a Hinduundivided family, who is responsible for paying to aresident any sum by way of- (a)fees for profession services, or (b)fees for technical services, or (c)royalty, or (d)any sum referred to in clause (va) of section 28, shall,at the time of credit of such sum to the account ofthe payee or at the time of payment thereof in cash or byissue of cheque or draft or by any other mode, whicheveris earlier, deduct an amount equal to ten per cent of suchsum as income-tax on income comprised therein: Provided that no deduction shall be made underthis section. XXXXXX Explanation.- For the purposes of this section,- (a)XXXXXX (b)“fees for technical services” shall have the samemeaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9.”meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9.” 8.Explanation 2 to Section 9(1)(vii) assigns meaning to the expression 'fees for technical services' in the following term:- “9.Income deemed to accrue or arise in India.-(1) Explanation 2.- For the purposes of this clause, “fees for technical services” means any consideration (includingany lump sum consideration) for the rendering of anymanagerial, technical or consultancy services (includingthe provision of services of technical or other personnel)but does not include consideration for any construction,assembly, mining or like project undertaken by therecipient or consideration which would be income of therecipient chargeable under the head “Salaries”. 8.Explanation 2 to Section 9(1)(vii) assigns meaning to the expression 'fees for technical services' in the following term:- “9.Income deemed to accrue or arise in India.-(1) Explanation 2.- For the purposes of this clause, “fees for technical services” means any consideration (includingany lump sum consideration) for the rendering of anymanagerial, technical or consultancy services (includingthe provision of services of technical or other personnel)but does not include consideration for any construction,assembly, mining or like project undertaken by therecipient or consideration which would be income of therecipient chargeable under the head “Salaries”. 9.Explanation 2 to section 9(1)(vii) provides that for the purposeof clause (vii), '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 oftechnical or other personnel) but does not include consideration for anyconstruction, assembly, mining or like project undertaken by the recipient orconsideration which would be income of the recipient chargeable under thehead 'salaries'. The aforesaid provision defines 'fee for technical services'. ITA-162-2018 However, it contains an exclusion part which is not termed 'fees fortechnical services'. The question whether the payment would come withinthe exclusion part of Explanation 2 or not would have to be established bythe person who claims the exclusion which would depend upon the natureof the work performed. 11.Having analysed the legal provisions, we proceed to examinethe factual matrix herein. The assessee was executing a works contract(Thermal Power Plant) for its customer. It included men, machinery,material, other tangible and intangible goods. For the said project, theservices of technical personnel including engineers were inevitable. Thescope of work given to the sub-contractor was construction work forgrounding including straightening, cutting etc. material receipt fromcontractors stores or unloading in the site, transporting to pre-assembly/erection site, erection, alignment, welding, test and inspection etc.,illumination and communication work. The assessee was getting a physicaloutput, a tangible structure and not merely the services of its qualified,professional engineers/staff from the sub-contractor. The said activitieswere undertaken with the help of men and machines which were beyond thescope of technical services. The said contract between the assessee and thesub-contractor satisfied the provisions of Section 194C of the Act and didnot attract the provisions of Section 194J of the Act. The Tribunal had, thus,rightly concluded that the case of the assessee fell under Section 194C ofthe Act and not under Section 194J of the Act. 12.Further, the Tribunal had noticed that the sub-contractor hadalready offered the payments received from the assessee to tax and, thus,there was no justification in creating additional demand on account of short ITA-162-2018 deduction of tax. Since, there was no short deduction of tax at source underSection 201(1) of the Act, therefore, there would be no liability of anyinterest under Section 201(1A) of the Act upon the assessee. 13.In view of the above, no error could be pointed out by learnedcounsel for the revenue in the findings recorded by the CIT(A) and affirmedby the Tribunal warranting interference by this Court. No question of law,much less, substantial question of law arise in the appeal. 14.Consequently, finding no merit in the appeal, the same ishereby dismissed. (AJAY KUMAR MITTAL) JUDGE January 22, 2019gbs (MANJARI NEHRU KAUL)JUDGE Whether Speaking/ReasonedYesWhether ReportableYes