The Hon’ble Sri Justice v. Ramasubramanianandthe Hon’ble Mrs Justice Anis

THE HON’BLE SRI JUSTICE V. RAMASUBRAMANIANANDTHE HON’BLE MRS JUSTICE ANIS I.T.T.A.No.160 of 2010 JUDGMENT:(Per Hon’ble Sri Justice V. Ramasubramanian) This appeal is by the Revenue under Section 260A of theIncome Tax Act, 1961. Heard Mr. K. Rajireddy, learned Senior Standing Counsel forthe Income Tax Department. The respondent/assessee, is engaged in the business ofgeneration and sale of power. During the assessment year 2007-08,the assessee debited its Profit & Loss Account with an amount ofRs.11,07,26,520/- towards operation and maintenance charges and asum of Rs.9,44,32,957/- towards repairs for maintenance of plant andmachinery. These payments were obviously made pursuant to anagreement that respondent/assessee had with APGENCO, dated25.03.2006, for operation and maintenance of power plants. The Assessing Officer treated the contract as one for providingtechnical and consultancy services, liable to be subjected to TaxDeductible at Source, under Section 194J instead of Section 194C.Therefore, a notice under Section 154 was issued. Thereafter, an orderwas passed under Section 201 and Section 201 (1A) on 31.03.2011. The said order became the subject matter of an appeal beforethe CIT (Appeals) in ITA No.0421/CIT(A)-8,Hyd/2011-12. TheCommissioner allowed the appeal by an order dated 24.03.2015. Thesame was confirmed by the Income Tax Appellate Tribunal by an orderdated 18.09.2015 passed in I.T.A.No.674/HYD/2015. It is against thesaid order that the Revenue has come up with the present appeal. Even as per the order passed under Section 201(1), the contractthat the respondent/assessee had with APGENCO was for theoperation and maintenance of the power plant. This contract was actually termed as a contract for work. But what the Assessing Officerheld, as seen from para-7 of his order dated 31.03.2011, was that theArticles of Agreement between the respondent/assessee andAPGENCO contain different obligations. Therefore, the AssessingOfficer proceeded on the footing that there are different types ofpayments, which are specific and distinctive from each other, under thesaid contract. Hence the Assessing Officer concluded that all thepayments made cannot be termed as a comprehensive contract forworks. The Assessing Officer also went on the basis of the fact that theservice tax was paid. Therefore, he concluded that Section 194J wasattracted. But unfortunately, the Assessing Officer failed to appreciate thefundamental distinction between Section 194C and Section 194J. Thecaption given to Section 194C itself is “Payment to Contractors”. Sub-section (1) of Section 194C indicates that whenever any personresponsible for making any sum to any resident for carrying out anywork (including supply of labour for carrying out any work) inpursuance of a contract, a sum stipulated thereunder shall bededucted towards income tax at source. The essential ingredients ofsub-section (1) of Section 194C are – 1) there must be an obligationupon the person to whom payment is liable to be made, to carryout anywork including supply of labour; and 2) the obligation should arise outof a contract between the contractor and the other person. Insofar as Section 194J is concerned, the same deals primarilywith fees paid or payable for professional services, fees for technicalservices, royalty or any sum referred to in Section 28 (va) and anyremuneration, fees or commission by whatever name called other thanthose on which tax is deductible under Section 192. The primary distinction between a payment made under Section 194C and a payment made under Section 194J is that theformer arises out of a contract for carrying out certain items of workwhile the latter arises out of services rendered. In the case on hand, Insofar as Section 194J is concerned, the same deals primarilywith fees paid or payable for professional services, fees for technicalservices, royalty or any sum referred to in Section 28 (va) and anyremuneration, fees or commission by whatever name called other thanthose on which tax is deductible under Section 192. The primary distinction between a payment made under Section 194C and a payment made under Section 194J is that theformer arises out of a contract for carrying out certain items of workwhile the latter arises out of services rendered. In the case on hand, even according to the Assessing Officer, the contract was for operationand maintenance of the power plant. This is why the Assessing Officerhad to concede that the payments made by the respondent/assesseecomprised of different categories and that only some of them related toservices rendered. In the light of such a finding, the AppellateCommissioner as well as the Tribunal were right in holding that thecase was one covered clearly by Section 194C and not Section 194J.Hence the appeal is devoid of merits and the same is accordinglydismissed. There shall be no order as to costs. __________________________ JUSTICE V. RAMASUBRAMANIAN 18[th] July, 2016Js. _____________JUSTICE ANIS LR. Copy to be marked