TMI Blog2008 (6) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... d entered into an agreement as franchisee with NIIT Ltd., Delhi, vide licence agreement dt. 10th Feb., 1995 for imparting computer education at large. The licensor M/s NIIT, Delhi, in pursuance to the agreement agreed to equip the licensee (assessee) with technical know-how and all other material manual co-ordinator guide and training courseware and the licensee in turn was to part with the amount of fees collected from the students for providing technical educational facilities. The AO was of the view that in view of the agreement with M/s NIIT the payments made to it represented payments towards technical/professional services and were covered by the provisions of s. 194J. He further found that the assessee had made payments to M/s NIIT Ltd., Delhi, as per Part-A and Part-B of the Table in para 1 above without any deduction of tax at source @ 5 per cent and thereafter issued show-cause notice for the same for non-deduction of tax. The assessee admitted that no deduction of tax at source was made but at the same time it was contended by the assessee before the AO that the IT Act does not require the deduction of tax at source because the payments were not made for technical and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO therefore, wrongly took the aforesaid payment of royalty as payment for professional/technical services and held the assessee liable for short deduction of tax whereas s. 194J of the Act was not applicable at all for such payments. It was further submitted that for likewise courseware consumption, technical aids and technical know-how were also not covered under s. 194J as the payments for these mostly related to purchases made by the assessee from NIIT Ltd., New Delhi. The AO has considered the payments of Rs. 2,85,824 and Rs. 7,15,612 for both the financial years for technical aid for the purpose of s. 194J. It was submitted that out of payment of Rs. 2,85,824 for the financial year 1996-97 only Rs. 98,985 was paid to NIIT for softwares and floppies and the balance amount of Rs. 1,86,839 to various parties for software, computer maintenance, freight and cartridge, floppies and computer stationeries. Likewise, out of Rs. 7,15,612 pertaining to the financial year 1997-98 Rs. 5,62,000 was paid to NIIT and the balance amount of Rs. 1,53,612 was paid to other parties for purchase of softwares. The payments made to NIIT Rs. 98,985 and Rs. 5,62,000 were made for purchases and so were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of carrying on engineering profession where tax is deductible at source. 8. The learned Departmental Representative referred to various pages of the agreement in question and submitted that on termination of the agreement the assessee was liable to return the material and that all material is to be supplied by the licensor i.e., M/s NIIT, New Delhi, and that the assessee cannot alter the terms of the agreement, material, schedule of fees, course duration and other criteria prescribed by NIIT, New Delhi. The learned Departmental Representative submitted that as per the definition of royalty in the agreement NIIT, New Delhi was entitled to 20 per cent of the course fees and that the learned CIT(A) has not given any specific finding with regard to item No. 3. The learned Departmental Representative therefore, submitted that the order of the learned CIT(A) cannot be sustained in law and as such the same may be reversed. 9. On the other hand, the learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that on the issue of royalty, technical aid and courseware consumption the assessee purchased material from NIIT, New Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars in question. In the alternate contention the assessee has raised ground Nos. 3 and 4 challenging the order of the learned CIT(A) in confirming the levy of interest under s. 201(1A) of the Act on the reasons that the learned CIT(A) ought to have taken into consideration that the total tax liability was paid and deposited by the payee on the fees and technical know-how received by them. 12. The learned CIT(A) considering the submissions of the assessee on these issues confirmed the order of the AO and dismissed the appeals of the assessee. The findings of the learned CIT(A) on this issue in paras 5.16 to 5.26 are reproduced below: "5.16 There is however scope for debate in respect of payment for technical know-how which has been explained in s. 1.1 of the license agreement and extracted as under: Technical know-how meant processes, practices, techniques, procedures relating to site selection and evaluation, architectural plans and drawings, equipment specifications, assistance in selection of marketing and technical staff, support during the launch of operation, scheduling and administering education and methods and procedures of examining the standards attained by students ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.19 Explanation (b) to s. 194J stated that the fees for technical services shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9 and the same means- - any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) But not to include- - Consideration for any construction, assembly, mining or like project undertaken by the recipient or - Consideration which would be income of the recipient chargeable under the head 'Salaries'. 5.20 The appellant had paid technical know-how fee of Rs. 2,74,000 and Rs. 4,50,980 in the financial years 1996-97 and 1997-98 respectively apparently in accordance with s. 5.1 of the license agreement dt. 10th Feb., 1995 dealing with services with the licensor. According to me these two amounts represented fees for technical services and to show that they came within any of the limbs of the exclusionary part was to be established by the appellant [Orissa Synthetics Ltd. vs. ITO (1993) 115 CTR (Ori) 419 : (1993) 203 ITR 34 (Ori) may be referred in this regard). As such provisions of s. 194J we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to decide the extent of compliance that it will make with regard to the obligation imposed by the statutory provision. 5.26 I therefore, hold that appellant contravened the provision of s. 194J while making payment of technical know-how fee of Rs. 2,74,000 and Rs. 4,50,980 for the financial years 1996-97 and 1997-98 respectively by not deducting tax @ 5 per cent of the same. The AO therefore, rightly held the assessee in default under s. 201 and raised the corresponding demand under ss. 201(1) and 201(1A) for the payments made as technical know-how fee for the financial years 1996-97 and 1997-98 while giving effect to this order." 13. The learned counsel for the assessee reiterated the submissions made before the authorities below and also filed a written synopsis submitting therein that the assessee is not liable to deduct TDS under s. 194J on the payment of technical know-how because the same are not covered under the fees for technical services. He has further submitted that payments of technical know-how fees were payment to NIIT, New Delhi which are having more than 2,000 franchisees all over the country and on which no tax was deducted of any of the franchisees from NIIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Hon'ble Supreme Court in the case of CBDT vs. Oberoi Hotels (India) (P) Ltd. (1998) 146 CTR (SC) 222 : (1998) 231 ITR 148 (SC). 15. We have considered the rival submissions and the material available on record. The learned CIT(A) in the impugned order has reproduced the definition of technical know-how as contained in the license agreement executed between the assessee and NIIT, New Delhi. It is stated in the agreement that NIIT, New Delhi is the proprietor of trademark 'NIIT' and is engaged amongst other activities in the business of computer education, namely, offering education to the members of the public for becoming proficient either in the use of computer or to occupy professional positions relating to the use of computers as per norms and methodologies developed by the licensor and owns or has access to various copyrighted material, proprietory information and a substantial body of technical know-how relating to the location, design and operation of education centres. The licensor agreed with the assessee to license to use the said trade names, copyrighted and technical know-how in connection with setting up of an education centre. It would therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of the tax together with the amount of simple interest thereon referred to in sub-s. (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-s. (1)." "1941. Fees for professional or technical services.-(1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, (or) [(c) royalty, or (d) any sum referred to in cl. (va) of s. 28.] shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to (ten) per cent of such sum as income-tax on income comprised therein: Provided that no deduction shall be made under this section- (A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding any lump sum consideration) for the rendering of any managerial/technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'. 17. The learned Departmental Representative relied upon the clarification given by the CBDT on s. 194J of the Act with regard to management services in the clarification issued on Budget 2007 in which question No. 8 the question was asked "are management services in the nature of technical services"? Answer-8, Yes-Courts have held that rendering of any professional services including management or technical services is in the nature of technical services, running of hotel is one such example. 18. The learned Departmental Representative relied upon the decision of the Hon'ble Supreme Court in the case of Oberoi Hotels (India) (P) Ltd. which is referred to by the CBDT in the above question No. 8 in which the Hon'ble Supreme Court held: "Held, dismissing the appeal, that running a well equipped mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical know-how services were provided by NIIT, New Delhi, to the assessee. Thus, the case of the assessee would squarely fall within the definition of Expln. 2 to cl. (vii) of sub-s. (1) of s. 9 of the IT Act which is applicable to s. 194J of the Act. The learned CIT(A) therefore, correctly dismissed the appeal of the assessee because the assessee did not deduct TDS on the payment made to the licensor in the name of technical know-how fees. We therefore, do not find any infirmity in the order of the learned CIT(A). His finding to that extent are confirmed and the appeal of the assessee to that extent is dismissed. 20. Now we take up the alternate contention of the assessee that the licensor NIIT, New Delhi, paid the taxes. The learned CIT(A) specifically noted that no evidence about completion of assessment in the case of NIIT, New Delhi, for the assessment year under appeal and any supporting documents indicating that no demand was payable was filed before him. At the appellate stage before us, the learned counsel for the assessee filed application for admission of additional evidence in the form of assessment orders for the asst. yrs. 1997-98 and 1998-99 in the case of NIIT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective of any reasonable cause because the concept of reasonable cause is not applicable to the proceedings under s. 201 (1A) of the Act however the taxes cannot be recovered from the assessee if the same have been duly paid by MI s NIIT India Ltd., New Delhi on the income earned from the assessee. The assessment orders filed in the case of M/s NIIT India Ltd., New Delhi and ITCC certificate prima facie prove that the income received from the assessee has been offered for tax upon which there is no demand left against M/s NIIT India Ltd., New Delhi. Therefore, no demand could be recovered from the assessee on account of non-deduction of TDS. However these evidences were not filed before the authorities below and the same requires verification with regard to taxes paid by M/s NIIT India Ltd., New Delhi. It would therefore, be appropriate to restore the matter with regard to verification of taxes paid in the case of M/s NIIT India Ltd., New Delhi to the file of the AO. Considering the above discussion, the orders of the authorities below to that extent are set aside, and the matter in issue is restored to the file of the AO with the direction to verify if the entire taxes on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the total payment of rent was Rs. 1,49,725 from September to March and also a sum of Rs. 4,693 by way of lease rent to Nazul Department which was the liability of the tenant. Similarly, it included Rs. 3,600 as cleaning charges of sweeper. Therefore, net rent was Rs. 1,41,432 and the AO wrongly calculated TDS on the gross amount of rent. 28. The learned CIT(A) considering the submissions of the assessee dismissed the appeal of the assessee because TDS is to be made on the gross payment of rent and that liability arises if the rent exceeds Rs. 1,20,000. The learned CIT(A) also noted that as per terms of the agreement there may be slight decrease in the rent and accordingly directed the AO to modify the demand. 29. The learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that due to reasonable cause TDS could not be deducted properly because the assessee remained under the impression that since rent is below Rs. 10,000 therefore, no tax is liable to be deducted. He has further submitted that landlord has paid all the taxes and even claimed the refund on the total income declared through the return of income. A copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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