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2016 (6) TMI 90 - ITAT VISAKHAPATNAM

2016 (6) TMI 90 - ITAT VISAKHAPATNAM - TMI - TDS u/s 194J OR 194C - service provided by the contractor as technical services - assessee in default u/s 201(1)- whether the contract entered into by the assessee with M/s. Divine Establishment, is one for supply of manpower for execution of works contract attracting TDS provisions of section 194C or is the contract for providing technical services attracting the provisions of section 194J? - Held that:- whether the contract entered into by the asses .....

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of the circular issued by the CBDT vide circular no.275/201/95/IT(b) on 29.1.1997.

This position has further strengthened by the decision of Hon’ble Supreme Court, in the case of Hindustan Coca-Cola Beverages Pvt. Ltd. (2007 (8) TMI 12 - SUPREME COURT OF INDIA ) wherein held that no demand can be visualized, once the assessee proved to the satisfaction of the officer incharge of TDS that the recipient has considered the payment and discharged the tax liability. In the present case on .....

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/s 201(1) of the Act. Therefore, we are of the view that on both counts, the demand raised by the A.O. cannot sustain in the eyes of law. - Decided in favour of assessee - I.T.A.Nos.454&455/Vizag/2013 - Dated:- 29-4-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER and SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri M. Narayana Rao, DR For The Respondent : Shri R.M. Mehta, AR ORDER PER G. MANJUNATHA, Accountant Member: These appeals filed by the revenue are directed against the common ord .....

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iness premises of the assessee on 15.2.2010. During the course of survey, it was noticed that the assessee had engaged the services of M/s. Divine Establishment, Chennai for the purpose of mining of lime stone to be used for manufacture of cement from the mines owned by the assessee. It was further observed that as per the invoices raised by the contractor M/s. Divine Establishment, Chennai, the contractor has issued invoice with a description that the contract for providing technical services a .....

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e and asked to explain why the assessee shall not be treated as assessee in default u/s 201(1) of the Act. In response to show-cause notice, the assessee has filed a written submission dated 14.7.2010 and contended that the services provided by the contractor M/s. Divine Establishment, Chennai is a mere contract for extraction of lime stone from the mines owned by the company. The company had entered into an agreement with the contractor and also issued a service order, as per the terms and cond .....

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ices. To support its arguments, furnished copies of agreement entered into with the contractor along with copies of invoices issued by the contractor. 3. The A.O. after considering the submissions of the assessee held that the services provided by the contractor M/s. Divine Establishment, Chennai is not a mere contract for supply of labour for execution of works contract. The A.O. further observed that the contractor himself has raised invoice for the services provided in relation to provision o .....

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cannot be simply termed as supply of manpower for the purpose of execution of works contract. It was further held that extraction of lime stone requires technical expertise and a normal labour cannot operate heavy earth moving equipments and extract lime stone. The contractor being expert in the mining activity, therefore, the company has hired the services of a contractor. Therefore, the service provided by the contractor is coming under the definition of technical services and accordingly, th .....

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mere contract for supply of labour for execution of works contract. It was further argued that the assessee has entered into agreement with the contractor and issued a service order. The terms and conditions of service order shows that the contractors needs to deploy as many as required number of labourers to extract the lime stone from the mines owned by the company. The company provides the required machinery for extraction of lime stone. The contractor is not deploying his own machinery to e .....

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O. himself has admitted that the predominant object of the contract for which the assessee engaged the services of M/s. Divine Establishment, is to carry out mining and make the required quantity of lime stone available to the assessee within a specified time. This being the position, the A.O. ought not to have held that this was a contract for technical services in as much as section 194J of the Act defined the fees for technical services as having the same meaning assigned to it in explanation .....

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tion, assembling, mining and like project undertaken by the recipient or consideration which would be income of the respondent chargeable under the head salaries. Therefore, assuming for a moment that the services provided by the contractor is coming within the meaning of fees for technical services, any services provided in relation to mining activity is kept outside the purview of the provisions of section 194J of the Act. Therefore, the A.O. was not correct in holding the assessee as an asses .....

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sualized u/s 201(1) of the Act should be enforced after the deductor has specified the officer in charge of TDS that taxes due have been paid by the deductee assessee. The assessee further submitted that it has furnished the income tax return copies of the contractor and also obtained a certificate from the contractor, wherein the contractor specifically stated that he had paid the taxes on the consideration received from the company. Therefore, the A.O. was not correct in holding that the asses .....

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imit by deploying its trained man power as per the requirement of the assessee. On perusal of the agreement copy, it was undisputedly clear that the services provided by the contractor is a mere contract for supply of labour for execution of works contract, which is coming under the definition of works contract and accordingly, the assessee has rightly deducted the TDS u/s 194C of the Act. The CIT(A) further held that the company had provided the heavy earth moving machinery owned by it to the c .....

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chinery was provided by the contractor to the company and in such circumstances wrongly concluded that the provisions of section 194J and 194I of the Act were applicable. The fact being that providing men to run the machinery, in the mines owned by the assessee to extract lime stone and the payments on hourly basis is nothing but a simple contract for work. With these observations, the CIT(A), directed the A.O. to delete the additions. Aggrieved by the CIT(A) order, the revenue is in appeal befo .....

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e, the CIT(A) was grossly erred in holding that the payments are covered u/s 194C of the Act. The D.R. further argued that mining activity involves a technical expertise. A normal labour cannot extract the lime stone from the mines. Extraction of lime stone requires operation of heavy earth moving machineries and operation of earth moving machineries requires expertise. The contractor M/s. Divine Establishment, Chennai is an expert in mining activity, therefore, the assessee has entrusted the wo .....

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is a mere contract for supply of man power for execution of works contract and not a contract for provision of providing technical services. The Ld. A.R. further submitted that the assessee has entered into an agreement with the contractor. The terms and conditions of the contract clearly shows that it is a contract for extraction of lime stone. It was further argued that the contractor needs to deploy as much as required number of labourers to operate the HEMM and also extract required quantity .....

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ection 194J of the Act, any services rendered in relation to the activity of mining is kept outside the purview of the provisions of section 194J of the Act. The Ld. A.R. further submitted that section 194J of the Act has defined the term fees for technical services. Explanation (b) provided to section 194J(1) of the Act, defined the term fees for technical services and assigned the same meaning as in explanation 2 to clause (vii) of sub section (1) of section 9 of the Act. As per clause (vii) o .....

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kept outside the purview of provisions of section 194J of the Act. Therefore, the A.O. was not correct in invoking the provisions of section 194J of the Act. 9. Alternatively, the A.R. submitted that the recipient has already paid the taxes on the amount paid by the company. Therefore, in view of the provisions of section 191 of the Act and also as per the circular issued by the CBDT vide circular no.275/201/95-IT(b) dated 29.1.1997, it was clarified that no demand can be visualized u/s 201(1) .....

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company in its income tax returns and paid the taxes due on such income. Under these circumstances, the A.O. was not correct in coming to the conclusion that the assessee as an assessee in default u/s 201(1) of the Act. In support of his arguments, relied upon the judgement of Hon ble Supreme Court in the case of Hindustan Coca-Cola Beverages Pvt. Ltd. Vs. CIT(supra). 10. We have heard both the parties and perused the materials available on record. The factual matrix of the case is that the asse .....

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provisions of section 194C of the Act. A survey operation u/s 133A of the Act, was conducted in the business premises of the assessee. During the course of survey, it was noticed that the assessee has deducted TDS u/s 194C on payment to M/s Devine Establishment, Chennai. It was further observed that as per the scope of work and terms and conditions of the contract, the payment to the contractors are coming under the provisions of section 194J of the Act. Therefore, the A.O. has passed order u/s .....

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stone. The consideration is paid on hourly basis. The terms and conditions of the contract further provides for provision of providing required consumables for maintenance of the machineries by the assessee. Under these circumstances, the A.O. was not correct in coming to the conclusion that the payments are covered u/s 194J of the Act. 11. The sole issue came up for our consideration is whether the contract entered into by the assessee with M/s. Divine Establishment, is one for supply of manpow .....

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ntion of the assessee that the contract entered into with M/s. Divine Establishment, is for the purpose of extraction of lime stone. The assessee further contended that the contractor needs to provide only manpower required for extraction of lime stone or operating the HEMM provided by the company. The assessee company owned the HEMM and the maintenance expenditure including fuel for operating HEMM is provided by the assessee company. The payment has been made on hourly basis. Therefore, the A.O .....

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k, the contractor was responsible for extracting specified quantity of lime stone within a specified time limit by deploying his manpower as per the requirement of the company from time to time. The supply of the manpower includes supply of trained manpower required for operating the heavy earth moving machineries which were owned by the company. We further observed that the A.O. himself has admitted that the predominant objective of the contract for which the assessee engaged the services of M/ .....

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gh the payments are in the nature of fees for technical services, which comes under the provisions of section 194J of the Act, any services rendered in relation to mining is kept outside the purview of the provisions of section 194J of the Act. The Ld. A.R. invited our attention to the provisions of section 194J of the Act and also to the definition of fees for technical services as defined u/s 9(1)(vii) of the Act. We have gone through the provisions of section 194J of the Act and also the defi .....

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(including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services 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 . A careful study of explanation 2 above, it is clear that any activity relating to mining is not considered as .....

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pient of the consideration has already paid the tax by filing the returns. As per the provisions of section 191 of the Act, in the case of income in respect of which provisions is not made under this chapter for deducting income tax at the time of payment and in any case where income tax has not been deducted in accordance with provisions of this chapter, income tax shall be payable by the assessee direct. The Ld. A.R. further submitted that the said position has been reiterated by the CBDT in C .....

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