ITO, Rohtak V. The Senior Manager (Finance), Jhajjar

ITA 4475/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6736 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 26-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ K CHOPRA SENIOR
• Keywords: Retrospective amendment
• Section: 133A; 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NOS.4474 TO 4476/DEL./2013 (ASSESSMENT YEARS : 2010-11 TO 2012-13) ITO, TDS, VS. THE SENIOR MANAGER (FINANCE), ROHTAK (HARYANA). BHARAT HEAVY ELECTRICALS LTD. , BHEL SITE OFFICE, IGSTPP, JHARLI, DISTT. JHAJJAR. (TAN : RTKB03863G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. INDRA BANSAL, ADVOCATE REVENUE BY : SHRI MANOJ K. CHOPRA, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THESE APPEALS, AT THE INSTANCE OF THE REVENUE, ARE FILED AGAINST THE ORDER OF THE CIT (APPEALS), ROHTAK DATED 18.04.2013 FOR T HE ASSESSMENT YEARS 2010-11 TO 2012-13. 2. FIRST, WE TAKE UP ITA NO.4474/DEL/2013 FOR AY 20 10-11, FOR THE SAKE OF CONVENIENCE, AS THE FACTS AND CIRCUMSTANCES OF A LL THE THREE ASSESSMENT YEARS ARE SIMILAR AND THE GROUNDS OF APPEAL TAKEN I N ALL THE THREE YEARS ARE ALSO SIMILAR. ITA NOS.4474 TO 4476/DEL./2013 2 3. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE FOR A Y 2010-11 ARE REPRODUCED BELOW :- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND FACT IN DELETING THE DEMAND OF RS.4,71,74,238/- FOR THE F.Y. 2009-10, CREATED ON ACCOUNT OF SHORT DEDUC TION OF TAX FROM THE PAYMENT MADE TO DIFFERENT PARTIES FOR THE WORK DONE BY THEM WHICH FALLS UNDER THE PROVISIONS OF SECTION 194-J OF THE LT. AC T. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN LAW AND FACTS IN HOLDING THAT THE AMOUNT P AID TO SUB-CONTRACTORS CANNOT BE TERMED AS TECHNICAL SERVICES AS PER THE D EFINITION IN EXPLANATION 2 TO SECTION 9(I)(VII) OF THE LT. ACT, IGNORING THE FACTS THAT AS PER THE TERMS AND SPECIFICATION OF BHEL THE WORK CAN BE DONE BY T HE QUALIFIED ENGINEERS AND TECHNICAL STAFF ONLY, WHICH COMES WIT HIN THE PURVIEW OF TECHNICAL SERVICES U/S 194-J OF THE I.T. ACT. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN THE LAW AND FACTS IN APPLYING THE RATI O OF CASE LAW OF PROVISION TO SECTION 201(1) OF THE ACT, AS THE SAME IS INCORP ORATED IN THE ACT FROM 1.07.2012 AND NOT FROM THE RETROSPECTIVE EFFECT. (IV) THAT THE APPELLANT CRAVES FOR THE PERMISSION T O ADD, DELETE OR AMEND THE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4. THE AFORESAID GROUNDS ARE INTER-CONNECTED, THERE FORE, THE SAME ARE DISPOSED OFF COLLECTIVELY AS UNDER. BRIEF FACTS OF THE CASE ARE THAT M/S. BHARAT HEAVY ELECTRICALS LTD. (BHEL), A GOVT. ENTERPRISE, ENTERED INTO TWO CONTRA CTS WITH M/S ARRAVALI POWER CO. LTD. (APCL) FOR INDRA GANDHI SUPER THERMA L POWER PROJECT, JHAJJAR, I.E., (I) SUPPLY CONTRACT FOR THE WORK OF DESIGN, ENGINEERING, MANUFACTURING, SHOP FABRICATION, ASSEMBLY, INSPECTI ON AND TESTING AT SUPPLIERS WORKS, TYPE TESTING, PACKING, FORWARDING TO SITE OF ALL EQUIPMENTS / MATERIALS/ SPECIAL TOOLS AND MANDATORY SPARES ETC.; AND (II) C ONTRACT FOR WORK OF TRANSPORTATION FROM MANUFACTURERS WORKS/PLACE OF DI SPATCH, PORT CLEARANCE AND ITA NOS.4474 TO 4476/DEL./2013 3 PORT CHARGES, INLAND INSURANCE, DELIVERY AT SITE, R ECEIPT, UNLOADING, HANDLING, STORAGE, INSURANCE & IN-PLANT TRANSPORTATION AT SIT E, COMPLETE INSTALLATION; SUPERVISION, PRE-COMMISSIONING, COMMISSIONING, COMP LETION OF FACILITIES, CONDUCTING PERFORMANCE AND GUARANTEE TESTS AND HAND ING OVER TO APCL OF ALL EQUIPMENTS / MATERIALS AND SPECIAL TOOLS COVERED UN DER STEAM TURBINE GENERATOR PACKAGE. FURTHER, BHEL HAS SUB-CONTRACTED CERTAIN WORK INCLUDING SUPPLY OF LABOUR COMPRISING OF ERECTION/TESTING, CO MMISSIONING (E/T/C) AND TRIAL OPERATION OF IDENTIFIED EQUIPMENTS/PLANTS ETC . 4.1 DURING THE COURSE OF SURVEY OPERATIONS U/S 133A OF THE ACT ON 07.02.2012, THE AO NOTED THAT THE ASSESSEE DEDUCTED TAX AT SOURCE ON THE SUB- CONTRACTS GIVEN U/S 194C OF THE INCOME-TAX ACT, 196 1 (HEREINAFTER THE ACT) AS PER THE DETAILS GIVEN UNDER:- S.NO. NAME OF CONTRACTOR SCOPE OF WORK TOTAL AMOUNT CREDITED OR PAID (IN RS.) TDS DEDUCTED (IN RS.) 1(I) M/S PCP INTERNATIONAL LTD., CHANDIGARH ERECTION TESTING, COMMISSIONING AND TRIAL OPERATION OF POWER CYCLE PIPING, BOILER AND LP PIPING PACKAGES FOR UNIT NOS.1, 2 AND 3 OF 3 X 500 MW UNITS AT APCPL, JHAJJAR, DISTT. JHAJJAR, HARYANA 22,83,14,963/- 40,51,585/- 1(II) M/S PCP INTERNATIONAL LTD., CHANDIGARH ERECTION TESTING, COMMISSIONING AND TRIAL OPERATION OF TWO BOILERS OF UNIT NO.1 AND 3 OF 3 X 500 MW UNITS 22,83,14,963/- 40,51,585/- ITA NOS.4474 TO 4476/DEL./2013 4 AT APCPL, JHAJJAR, DISTT. JHAJJAR, HARYANA 2(I) M/S GOLDEN EDGE ENGINEERING PVT. LTD., NEW DELHI MATERIAL HANDLING, ERECTION, TESTING, COMMISSIONING, TRIAL OPERATION AND HANDING OVER OF 1X20 MW FR V GTG SET INCLUDING AUXILIARIES, PIPING, ASSOCIATED ELECTRICAL C & I EQUIPMENTS, ETC. AT MSIL, MANESAR, HARYANA 2(II) M/S GOLDEN EDGE ENGINEERING PVT. LTD., NEW DELHI ERECTION, TESTING, COMMISSIONING, TRIAL OPERATION AND HANDING OVER OF ALL MECHANICAL ELECTRICAL, C & I, BALANCE OF PLANT & MATERIAL HANDLING WORK OF 1 X 17.5 MW STG & 2X75 TPH HRSG AT MSIL, GURGAON, HARYANA 1,43,33,585/- 2,78,257/- 3. M/S. BHAVANI ERECTORS PVT. LTD., KOLLAM, KERALA ERECTION, TESTING, COMMISSIONING AND HANDING OVER OF ELECTROSTATIC PRECIPITATORS PACKAGE OF 3 X 500 MW UNITS 1 3 AT APCPL, JHAJJAR, DISTT. JHAJJAR, HARYANA. 6,58,28,175/- 12,02,612/- 4(I). M/S. INDWELL CONSTRUCTION PVT. LTD., VIJAYAWADA ERECTION, TESTING, COMMISSIONING AND TRIAL OPERATION OF MAIN BOILER OF UNIT NO.2 OF 3 X 500 MW UNITS AT ITA NOS.4474 TO 4476/DEL./2013 5 APCPL, JHAJJAR, DISTT. JHAJJAR, HARYANA. 4(II). M/S. INDWELL CONSTRUCTION PVT. LTD., VIJAYAWADA ERECTION, TESTING, COMMISSIONING AND TRIAL OPERATION OF TG & AUXILIARIES OF 3 X 500 MW UNITS 1 - 3 AT APCPL, JHAJJAR, DISTT. JHAJJAR, HARYANA. 13,29,13,484/- 22,31,867/- TOTAL 44,13,90,207/- 77,64,321/- 4.2 FROM THE PERUSAL OF DETAILS GIVEN BY THE ASSESS EE, THE AO NOTED THAT THE AFORESAID FOUR CONTRACTORS HAD PROVIDED SUCH SERVIC ES WHICH FELL UNDER THE PURVIEW OF PROFESSIONAL & TECHNICAL SERVICES' AND THEREFORE, TAX WAS LIABLE TO BE DEDUCTED U/S 194J OF THE ACT AND NOT U/S 194C . IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FILED ITS REPLY DATED 15 .02.2012. THE AO, AFTER CONSIDERING THE REPLY OF THE ASSESSEE, HAD NOT ACCE PTED THE SAME FOR THE FOLLOWING REASONS :- (I) THE CONTRACTS ARE NOT ONLY FOR ERECTION/INSTALL ATION BUT ALSO FOR COMMISSIONING, TESTING & TRIAL OPERATION OF VARIOUS EQUIPMENTS. CLAUSE 38.1 OF 'SPECIAL CONDITIONS OF CONTRACT' ST ATES THAT THE CONTRACTOR SHALL DEPLOY ALL THE SKILLED WORKMEN LIK E MILLWRIGHT FITTERS, WELDERS & INSTRUMENTS TECHNICIANS ETC. TO CARRY OUT THE WORK AS PER SPECIFICATIONS. THIS SHOWS THAT THE CON TRACTORS ARE REQUIRED TO EMPLOY QUALIFIED ENGINEERS AND HIGHLY S KILLED MANPOWER TO EXECUTE CERTAIN ACTIVITIES AND THEREFOR E IT IS EVIDENT THAT THESE CONTRACTORS ARE PROVIDING TECHNICAL SERV ICES. ITA NOS.4474 TO 4476/DEL./2013 6 (II) FROM THE AGREEMENTS, IT IS NOTED THAT THE CON TRACTOR HAS TO DO TESTING WORK OF ALL THE EQUIPMENT AND MACHINERY ERE CTED AND COMMISSIONED BY IT AS PER THE TERMS AND SPECIFICATI ONS OF BHEL. TESTING WORK CANNOT BE HANDLED BY UNQUALIFIED AND U NTRAINED PERSONS BUT ONLY BY QUALIFIED ENGINEERS AND TECHNIC AL STAFF. (III) FURTHER, THE CONTRACTORS HAVE TO UNDERTAKE TR IAL OPERATIONS OF DIFFERENT EQUIPMENTS INSTALLED BY IT AS PER THE INS TRUCTIONS AND SPECIFICATIONS GIVEN BY BHEI AND THE TRIAL OPERATIO NS CANNOT BE HANDLED BY LABOURERS AND THEY CAN ONLY BE HANDLED B Y QUALIFIED ENGINEERS, SUPERVISORS AND TECHNICIANS. IN SUCH A N ETWORK, THE LEVEL OF HUMAN INTERVENTION IS MUCH HIGHER AND OF S OPHISTICATED NATURE AS CONSTANT NETWORK MONITORING IS REQUIRED F OR ERROR FREE QUALITY OF SERVICE WHEREIN TECHNICAL EXPERTS MONITO R PHYSICALLY THE EQUIPMENTS AS WELL AS THE NETWORK. THIS PROVES THAT THIS IS NOT ONLY A CASE OF INSTALLING A SYSTEM BUT IT IS AL SO A CASE OF PROVIDING TECHNICAL SERVICES BY THE CONTRACTORS TO BHEL. THE AO HELD THAT THE ASSESSEE IS COVERED UNDER THE PROVISIONS OF SECTION 194J IN RESPECT OF THE PAYMENTS TO ABOVE MENTIONED CONTR ACTORS AND ACCORDINGLY, THE AO RAISED DEMAND U/S 201 (1) & 201 (1A) OF RS.4 ,71,74,238/- FOR THE YEAR UNDER CONSIDERATION I.E. AY 2010-11. SIMILAR DEMAN DS OF RS.6,03,09,297/- FOR THE AY 2011-12 AND OF RS.1,52,56,813/- FOR THE AY 2012-13 WERE RAISED. 5. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY AND THE LD. CIT (A) DELETED THE ADDITION BY OBSERVING AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE ISSUE, THE REPO RT OF THE AO AND THE SUBMISSIONS MADE BY THE AR. SECTION 194J MANDATES D EDUCTION OF TAX AT 10% IN RESPECT OF PAYMENTS MADE TOWARDS 'FEE FOR T ECHNICAL SERVICES'. ITA NOS.4474 TO 4476/DEL./2013 7 TECHNICAL SERVICES HAS BEEN DEFINED IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9 AS UNDER:- EXPLANATION 2 - FOR THE PURPOSE OF THE CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUM PSUM CONSIDERATION] FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR C ONSULTANCY 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 CONSIDE RATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD ' SALARIES'. THIS SHOWS THAT CONSTRUCTION ACTIVITY HAS BEEN KEPT OUT OF THE PURVIEW OF SECTION 194J. 6.1 THE READING OF CLAUSES 6, 7 & 11 OF THE CONTRAC T WITH M/S PCP INTERNATIONAL SHOW THAT IT IS IN THE NATURE OF CONT RACT FOR WORK AND LABOUR AND THE SAME IS TO BE CARRIED OUT UNDER THE SUPERVI SION OF BHEL ENGINEERS. FURTHER, THE CONTRACTOR HAS TO OBTAIN MA TERIALS INCLUDING EQUIPMENTS AND HAS TO BARE TAXES ON SUCH MATERIALS. AS PER SECTION 194C OF THE ACT, ANY PERSON RESPONSI BLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK ( INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL DEDUCT AND DEPOSIT TDS AT THE SPECIFIED RATES AND SUM. AS PER CLAUSE (IV) (E) OF EXPLANATION TO SECTION 194C, 'WORK' SHALL INCLUDE MANUFACTURING OR SUPPLYI NG A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH CUSTOMER BUT DOES NOT INCLUDE MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO T HE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCH ASED FROM A PERSON, OTHER THAN SUCH CUSTOMER. IN THE PRESENT CASE, THE DESIGN & DRAWINGS OF THE WORK ARE PREPARED BY BHEL WHICH IS EXECUTED BY THE CONTRACTORS UNDER THE SUPERVISION OF BHEL. THE SCOPE OF WORK GIVEN TO THE SUB-CONTRACTORS IS F OR ERECTION, TESTING, COMMISSIONING AND TRIAL OPERATION AND HAND ING OVER OF BOILER UNITS, ELECTROSTATIC PRECIPITATORS ETC. THESE ACTIV ITIES INVOLVE CONSTRUCTION WORK, WELDING, ERECTION, ALIGNMENT, TRANSPORTATION OF EQUIPMENT AND MATERIALS ETC. WITH THE HELP OF MEN & MACHINES, WHI CH ARE BEYOND THE SCOPE OF TECHNICAL SERVICES AS DEFINED IN SECTION 9 OF THE ACT. THE CONTRACTS AWARDED BY THE APPELLANT ARE FOR THE ERECTION/TESTING/ COMMISSIONING OF PLANT & MACHINER Y AND ARE IN THE NATURE OF CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT SUCH WORK. THE SUPPLY OF LABOUR TO CARRY OUT TH E WORK INVOLVES BOTH SKILLED & UNSKILLED LABOUR. QUALIFIED ENGINEERS AND SKILLED MANPOWER ALONG WITH UNSKILLED LABOUR WERE USED BY THE SUB-CO NTRACTORS FOR EXECUTION OF THE CONTRACT INCLUDING TESTING/TRIAL OPERATIONS. FOR THE CONSTRUCTION OF POWER PLANT, THE SERVICES OF TECHNICAL PERSONNEL IN CLUDING ENGINEERS IS ITA NOS.4474 TO 4476/DEL./2013 8 INEVITABLE. THE SCOPE OF THE SUB- CONTRACT WAS ACTU AL EXECUTION OF WORK INVOLVING THE SERVICES OF TECHNICAL PERSONNEL AS WE LL AS NON-TECHNICAL PERSONNEL. WHAT THE APPELLANT INTENDED TO GET FROM ITS SUB-CONTRACTOR WAS A PHYSICAL OUTPUT, A TANGIBLE STRUCTURE AND NOT MER ELY THE SERVICES OF ITS QUALIFIED ENGINEERS/ STAFF. 6.2 ANY PAYMENT FOR TECHNICAL SERVICES IN ORDER TO BE COVERED U/S 194J, SHOULD BE A CONSIDERATION FOR ACQUIRING OR USING TE CHNICAL KNOW-HOW PROVIDED OR MADE AVAILABLE BY HUMAN ELEMENT. THE WORK ENTRUSTED FOR THE SUB-CONTRACTORS IS PART OF THE CONTRACT OFFERED TO THE APPELLANT BY ITS CLIENT AND HENCE TH E SUB-CONTRACTORS ALSO COME IN THE PURVIEW OF IT ACT AND (HE APPELLANT HAS DEDUCTED THE TAX IS U/S 194C FROM THE PAYMENTS MADE TO IT. THE AMOUNTS PAID TO SUB- CONTRACTORS IS EITHER FOR ERECTION, INSTALLATION, F ABRICATION, COMMISSIONING, TESTING & TRIAL OPERATION OF SOME PARTS OF THE POWE R PLANT AND THEREFORE CANNOT BE TERMED AS TECHNICAL SERVICES AS PER THE D EFINITION IN EXPLANATION 2 TO SECTION 9 (1) (VII). 6.3 THE BASIS OF THE AO TO CONCLUDE THAT THE SCOPE OF THE CONTRACT COMES UNDER THE PROVISIONS OF SECTION 194J SINCE TH E TESTING, TRIAL OPERATIONS ETC. CANNOT BE HANDED BY LABOURERS BUT O NLY BE DONE BY QUALIFIED ENGINEERS ETC. IS MISPLACED AND MISCONCEI VED AS WHAT IS EXECUTED BY THE SUB-CONTRACTORS IS ERECTION/ INSTALLATION, C OMMISSIONING, TESTING & TRIAL OPERATION ETC. WHICH INVOLVES PROCUREMENT OF MATERIALS INCLUDING EQUIPMENTS BY THE SUB-CONTRACTORS, FABRICATION ETC. AND THEREAFTER INSTALLATION, TESTING & TRIAL OPERATION WHICH CLEAR LY IN THE SCOPE OF 'WORK' AS DEFINED IN SECTION 194C OF THE ACT. ANY WORK OF ERECTION, TESTING, COMMISSIONING AND TR IAL OPERATION ETC. INVOLVES UTILIZATION OF MATERIAL AND MANPOWER . MANPOWER INCLUDES SKILLED PROFESSIONALS LIKE ENGINEERS, TECHNICIANS E TC. AND UNSKILLED LABOUR ETC. BECAUSE PROFESSIONALS & SKILLED PERSONNEL WERE EMPLOYED IN THE EXECUTION OF THE SUB-CONTRACT DOES NOT MEAN, BY ANY STRETCH OF IMAGINATION, THAT APPELLANT GOT ONLY TECHNICAL SERV ICES AND NOT A PHYSICAL OUTPUT, AS PER THE TERMS OF THE CONTRACT. WHAT THE APPELLANT GOT FROM THE SUB-CONTRACTORS WAS A PHYSICAL OUTPUT, A TANGIBLE S TRUCTURE AND NOT MERELY THE SERVICES OF QUALIFIED ENGINEERS/ STAFF. IF THE LOGIC OF THE AO IS APPLIED THEN, EVEN THE EXECUTION OF BUILDINGS/ROADS CONTRA CTS ETC., WHICH EMPLOY ENGINEERS AND SKILLED PERSONNEL, WOULD AMOUNT TO RE CEIPT OF TECHNICAL SERVICES AND NOT EXECUTION OF WORKS CONTRACT. THE C ASE LAWS RELIED UPON BY THE AR ARE RELEVANT AND APPLICABLE TO THE FACTS OF THE APPELLANT. 6.4 IN ANY CASE, THE SUB-CONTRACTORS HAVE ALREADY O FFERED THE PAYMENTS RECEIVED FROM THE APPELLANT TO TAX, AS PER THE EVID ENCE FURNISHED BY THE AR. AS PER SECTION 191 OF THE ACT, A PERSON SHALL B E TREATED AS ASSESSEE IN DEFAULT ONLY WHEN (I) HE DOES NOT DEDUCT TAX AT SOU RCE AS REQUIRED UNDER THE ACT FROM THE PAYMENTS MADE TO THE ASSESSEE; AND (II) THE ASSESSEE HAS ALSO FAILED TO PAY SUCH TAX DIRECTLY. IN VIEW OF TH E ABOVE, THE APPELLANT ITA NOS.4474 TO 4476/DEL./2013 9 CANNOT BE DEEMED AS AN ASSESSEE IN DEFAULT AND THE DISPUTED SHORT DEDUCTION OF TAX CANNOT BE DEMANDED FROM THE APPELL ANT AS PER THE CASE LAW OF HON'BLE SUPREME COURT IN HINDUSTAN COCA COLA BEVERAGE (P) LTD. V. CIT (2007 ) 163 TAXMAN 355. THIS RATIO HAS ALSO BEEN INSERTED SUBSEQUENTLY W.E. F. 01.07.2012 AS PROVISO TO SECTION 201(1) OF THE ACT. 6.5 IN VIEW OF THE ABOVE, THE TAX & INTEREST LEVIED BY THE AO U/S 201 (1) & 201 (1A) IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED. AS THE FACTS OF THE OTHER APPEALS ARE ALSO SIMILAR, THE TA X & INTEREST LEVIED BY THE AO U/S 201 (1) & 201 (1A) IN THOSE APPEALS ARE ALSO DELETED. IN THE RESULT, ALL THE APPEALS ARE ALLOWED. 6. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFI CER AND SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN LAW AND FACT IN DELETIN G THE DEMAND OF RS.4,71,74,238/- CREATED ON ACCOUNT OF SHORT DEDUCT ION OF TAX FROM THE PAYMENT MADE TO DIFFERENT PARTIES FOR THE WORK DONE BY THEM WHICH FALLS UNDER THE PROVISIONS OF SECTION 194-J OF THE LT. AC T. HE FURTHER SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE AM OUNT PAID TO SUB-CONTRACTORS CANNOT BE TERMED AS TECHNICAL SERVICES AS PER THE D EFINITION IN EXPLANATION 2 TO SECTION 9(I)(VII) OF THE I.T. ACT, IGNORING THE FACTS THAT AS PER THE TERMS AND SPECIFICATION OF BHEL THE WORK CAN BE ONLY DONE BY THE QUALIFIED ENGINEERS AND TECHNICAL STAFF ONLY, WHICH COMES WITHIN THE PU RVIEW OF TECHNICAL SERVICES U/S 194-J OF THE I.T. ACT. HE SUBMITTED TH AT THE LD. CIT(A) HAS ALSO ERRED IN THE LAW AND FACTS IN APPLYING THE RATIO OF CASE LAW OF PROVISION TO SECTION 201(1) OF THE ACT, AS THE SAME IS INCORPORA TED IN THE ACT FROM 1.07.2012 AND NOT FROM THE RETROSPECTIVE EFFECT. T HEREFORE, HE PLEADED TO SET ASIDE THE ORDER OF THE LD. CIT (A) AND RESTORE THAT OF THE ASSESSING OFFICER. ITA NOS.4474 TO 4476/DEL./2013 10 7. LD. AR FOR THE ASSESSEE, REITERATING THE SUBMISS IONS MADE BEFORE THE LD. CIT (A), SUBMITTED THAT THE CONTRACT BETWEEN BHEL A ND M/S PCP INTERNATIONAL LTD., CHANDIGARH PERTAINS TO WORK TO BE CARRIED OUT BY THE CONTRACTOR AS MENTIONED IN SCOPE OF WORK. IN THIS REGARD, HE REFERRED TO VARIOUS CLAUSES OF THE CONTRACT AS UNDER :- (I) AS PER CLAUSE 1 OF THE CONTRACT, THE CONTRACTOR SHALL EXECUTE THE WORK OF 'ERECTION, TESTING, COMMISSIONING AND TRIAL OPERATION OF POWER CYCLE PIPING, BOILER AND LP PIPING PACKAGES F OR UNIT NOS.1, 2 AND 3 OF 3 X 500 MW UNITS AT APCPL, JHAJJA R DISTT, JHAJJAR , HARYANA, AND MORE PARTICULARLY DESCRIBED IN THE TENDER SPECIFICATIONS INCLUDING DRAWINGS AND SPECIFICATION S IN ACCORDANCE WITH AND SUBJECT TO TERMS AND CONDITIONS CONTAINED IN THESE PRESENTS, INSTRUCTIONS TO TENDERERS, GENERAL CONDITIONS OF CONTRACT, SPECIAL CONDITIONS, ANNEXURES, LETTER OF INTENT AND SUCH OTHER INSTRUCTIONS, SPECIFICATIONS GIVEN TO HIM FRO M TIME TO TIME BY BHEL. (II) CLAUSE 6 OF THE CONTACT STATES THAT THE CONTAC TOR SHALL BE DEEMED TO HAVE CAREFULLY EXAMINED THE AGREEMENT AND THE DO CUMENTS GOVERNING THE SAME AND ALSO TO HAVE SATISFIED HIMSE LF AS TO THE NATURE AND CHARACTER OF THE WORKS TO BE EXECUTED BY HIM. (III) CLAUSE 7 OF THE CONTRACT STATES THAT CONTRACT OR SHALL CARRY OUT AND COMPLETE THE EXECUTION OF THE SAID WORKS TO THE ENT IRE SATISFACTION OF THE ENGINEER OR SUCH OTHER OFFICER AUTHORIZED BY BHEL, WITHIN THE AGREED TIME SCHEDULE. (IV) CLAUSE 11 OF THE CONTRACT STATES THAT ALL APPL ICABLE CHARGES ON ACCOUNT OF OCTROI, TERMINAL AND OTHER TAXES INCLUDI NG SALES TAX OR ITA NOS.4474 TO 4476/DEL./2013 11 OTHER DUTIES ON MATERIAL OBTAINED FOR EXECUTION OF THE SAID WORKS SHALL BE BORNE AND PAID BY THE CONTRACTOR. HE SUBMITTED THAT THE READING OF THE CLAUSES 6, 7 & 11 CLEARLY SHOWS THAT THE CONTRACT AWARDED TO M/S PCP INTERNATIONAL LTD., CHA NDIGARH IS IN THE NATURE OF CONTRACT FOR WORK AND LABOUR AS THE SAME IS TO B E CARRIED OUT UNDER THE SUPERVISION OF BHEL ENGINEERS. HE FURTHER SUBMITTED THAT THIS FACT IS STRENGTHENED BY THE FACT THAT THE CONTRACTOR HAS TO OBTAIN MATERIALS INCLUDING EQUIPMENTS AND HAS TO BEAR THE TAXES ON SUCH MATERI ALS. FURTHER, HE REFERRED TO SPECIAL CONDITIONS OF CONTRACT SECTION III A WHICH SHOWS THAT THE SAID CONTRACT IS FOR WORK AND LABOUR. HE FURTHER REFERR ED TO VARIOUS CLAUSES OF THE CONTRACT TO HIGHLIGHT THIS FACT. RELYING ON THE PR OVISIONS OF SECTION 194C, HE SUBMITTED THAT THE SUBJECT CONTRACT ARE A CONTRACT FOR WORK AND LABOUR AND BHEL HAS PREPARED THE DESIGN & DRAWINGS AND HAS TEC HNICAL KNOW-HOW TO GET THE WORK EXECUTED BY THE CONTRACTORS WHICH IS B EING EXECUTED UNDER THE SUPERVISION AND TO THE SATISFACTION OF THE BHEL. TH EREFORE, HE SUBMITTED THAT THE CONTRACTS AWARDED BY M/S APCPL AND SUB-CONTRACT ED BY BHEL TO VARIOUS SUB-CONTRACTORS ARE FOR ERECTION OR INSTALLATION OF PLANT & MACHINERY AND CLEARLY FALLS UNDER THE DEFINITION OF WORK UNDER SECTION 194C OF THE ACT. IN THIS REGARD, HE ALSO RELIED ON THE CBDT CIRCULAR NO .681 DATED 08.03.1994. HE ALSO RELIED ON THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF STATE OF HIMACHAL PRADESH VS. ASSOCIATED HOTELS OF INDIA LTD. (1972) 29 ITA NOS.4474 TO 4476/DEL./2013 12 STC 474. THEREFORE, HE PLEADED THAT THE SUB-CONTRA CTS BY BHEL ARE IN THE NATURE OF CONTRACTS FOR WORK AND LABOUR AND NOT IN THE NATURE OF TECHNICAL FEE AND THE PAYMENTS ARE IN THE NATURE OF CONTRACTS COV ERED U/S 194C AND NOT IN THE NATURE OF TECHNICAL FEE COVERED BY U/S 194J. HE FURTHER RELIED ON THE DECISION OF ITAT, PUNE BENCH IN GLAXOSMITHKLINE PHA RMACEUTICALS LIMITED VS. ITO AND HONBLE KARNATAKA HIGH COURT IN CIT VS. NOVA NORDISK PHARMA INDIA LTD. ORDER DATED 05.01.2012 IN APPEAL NO.1262 /2006. 7.1 HE SUBMITTED THAT AS PER SECTION 194J OF THE A C, ANY PERSON, NOT BEING INDIVIDUAL OR A HUF, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM BY WAY OF FEES FOR PROFESSIONAL SERVICES OR FESS FOR T ECHNICAL SERVICES OR REMUNERATION TO DIRECTORS NOT CHARGEABLE U/S 192 OR ROYALTY OR NON-COMPETE FEES REFERRED IN SECTION 28(VA) SHALL DEDUCT TDS @ 10%. HE SUBMITTED THAT FOR THIS PURPOSE, FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9. HE SUBMITTED THAT IN THE LIGHT OF CIT V. BHARTI CELLULAR LTD. [2008] 175 TAXMAN 573 (DELHI), EXPRESSION 'FEES FOR TECHNICAL SERVICES' AS APPEARI NG IN SECTION 194J WOULD HAVE REFERENCE TO ONLY TECHNICAL SERVICE RENDERED B Y A HUMAN, IT WOULD NOT INCLUDE ANY SERVICE PROVIDED BY MACHINES OR ROBOTS. HE SUBMITTED THAT THE CONTRACTS AWARDED BY M/S APCPL AND SUB-CONTRACTED B Y BHEL TO VARIOUS SUB-CONTRACTORS ARE FOR E/T/C OF PLANT & MACHINERY WHICH IS CONSTRUCTION OF BOILER & TURBINE, HENCE SECTION 194J IS NOT APPLICA BLE. HE SUBMITTED THAT IT ITA NOS.4474 TO 4476/DEL./2013 13 IS CLEAR THAT THE PAYMENTS MADE TO ALL SUCH CONTRAC TORS ARE FOR 'WORKS CONTRACT', I.E. TOWARDS BOTH SUPPLY OF MATERIAL AND LABOUR WITHIN THE SCOPE OF SECTION 194C, AND NOT FOR PROFESSIONAL OR TECHNICAL SERVICES AS DEFINED BY EXPLANATION (A) AND (B) TO SECTION 194J READ WITH S ECTION 9 (1) (VII) EXPLANATION 2. 7.2 LD. AR FURTHER SUBMITTED THAT THE CONTRACTS AWA RDED BY M/S APCPL AND SUB-CONTRACTED BY BHEL TO VARIOUS SUB-CONTRACTO RS ARE FOR ERECTION/ TESTING/ COMPLETION (E/T/C) OF PLANT & MACHINERY AN D ARE IN NATURE OF CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK). THE SUPPLY OF LABOUR TO CARRY OUT THE WORK INVOLVED BOTH SKILLED AND UNSKILLED LABOUR. HE SUBMITTED THAT QUALIFIED ENGINEERS, HIGH LY SKILLED MANPOWER ALONGWITH UNSKILLED LABOUR WERE USED BY SUBCONTRACT ORS FOR EXECUTION OF CERTAIN ACTIVITIES OF E/T/ C INCLUDING 'TESTING WOR K', 'TRIAL OPERATIONS'. HE FURTHER SUBMITTED THAT SUCH MANPOWER IS USED ONLY F OR THE EXECUTION OF THE CONTRACTED WORK AND NOT FOR ANY OTHER ACTIVITY OF T HE ASSESSEE. HE SUBMITTED THAT THE EXECUTION OF WORK IS DONE WITH THE HELP OF MAN, MATERIAL, MACHINES AND EQUIPMENTS, ETC. AND IS NOT ONE EXCLUSIVELY BY QUALIFIED ENGINEERS AND HIGHLY SKILLED MANPOWER. THUS, ASSESSEE HAS NOT OBT AINED 'TECHNICAL SERVICES' FROM SUBCONTRACTS. AS SUCH, HE SUBMITTED THAT THE C ONTRACTS ARE COVERED BY SECTION 194C AND NOT BY 194J. HE, THEREFORE, PLEAD ED THAT THE ORDER OF THE LD. CIT (A) BE UPHELD ON THESE ISSUES AND STATED THAT A O ERRED IN HOLDING THE ITA NOS.4474 TO 4476/DEL./2013 14 ASSESSEE IN DEFAULT AND RELIED ON THE ORDER OF THE HONBLE SUPREME COURT IN HINDUSTAN COCA COLA BEVERAGES VS. CIT (2007) 163 TAXMANN 355 / 293 ITR 226. 8. WE HAVE HEARD BOTH THE SIDES ON THESE ISSUES AND PERUSED THE MATERIAL ON RECORD. AS PER SECTION 194J OF THE ACT, DEDUCTIO N OF TAX AT 10% IN RESPECT OF PAYMENTS MADE TOWARDS 'FEE FOR TECHNICAL SERVICE S' AND THE DEFINITION OF TECHNICAL SERVICES HAS BEEN ADOPTED AS DEFINED IN E XPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9 AS UNDER:- EXPLANATION 2 - FOR THE PURPOSE OF THE CLAUSE, FEE S FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMPSUM CONS IDERATION] FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICE OF TECHNICAL OR OTHER PERS ONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBL Y, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD ' SALARIES'. A BARE READING OF THE ABOVE DEFINITION OF TECHNICAL SERVICES IT IS VIVID THAT CONSTRUCTION ACTIVITY HAS BEEN KEPT OUT OF THE PURV IEW OF SECTION 194J OF THE ACT. NOW, WHEN WE GO THROUGH THE CONTRACT CLAUSES 6, 7 & 11 WITH M/S PCP INTERNATIONAL SHOWS THAT IT IS IN THE NATURE OF CON TRACT FOR WORK AND LABOUR AND THE SAME IS TO BE CARRIED OUT AS PER THE DRAWING AN D SPECIFICATION GIVEN BY THE ASSESSEE AND UNDER THE SUPERVISION AND SATISFACTION OF BHEL ENGINEERS AND THE CONTRACTOR HAS TO OBTAIN MATERIALS INCLUDING EQ UIPMENTS AND HAS TO BARE TAXES ON SUCH MATERIALS. 8.1 AS PER SECTION 194C OF THE ACT, ANY PERSON RESP ONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK (INCL UDING SUPPLY OF LABOUR FOR ITA NOS.4474 TO 4476/DEL./2013 15 CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT B ETWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL DEDUCT AND DEPOSIT TDS AT THE SPECIFIED RATES AND SUM. AS PER CLAUSE (IV) (E) OF EXPLANATION TO SECTI ON 194C, 'WORK' SHALL INCLUDE MANUFACTURING OR SUPPLYING A PRODUCT ACCORD ING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCH ASED FROM SUCH CUSTOMER BUT DOES NOT INCLUDE MANUFACTURING OR SUPPLYING A P RODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON, OTHER THAN SUCH CUSTOMER. WE FIND IN THE P RESENT CASE, THE DESIGN & DRAWINGS OF THE WORK ARE PREPARED BY BHEL WHICH IS EXECUTED BY THE CONTRACTORS UNDER THE SUPERVISION OF BHEL. THE LD. CIT (A) HAS RIGHTLY OBSERVED THAT THE SCOPE OF WORK GIVEN TO THE SUB-CO NTRACTORS IS FOR ERECTION, TESTING, COMMISSIONING AND TRIAL OPERATION AND HAND ING OVER OF BOILER UNITS, ELECTROSTATIC PRECIPITATORS ETC. AND THESE ACTIVITI ES INVOLVE CONSTRUCTION WORK, WELDING, ERECTION, ALIGNMENT, TRANSPORTATION OF EQU IPMENT AND MATERIALS ETC. WITH THE HELP OF MEN & MACHINES, WHICH CANNOT BE TE RMED AS TECHNICAL SERVICES AS PER THE DEFINITION GIVEN IN SECTION 9 O F THE ACT. THE LD. CIT (A) CORRECTLY STATED THAT THE CONTRACTS AWARDED BY THE ASSESSEE ARE FOR THE ERECTION/TESTING/ COMMISSIONING OF PLANT & MACHINER Y AND ARE IN THE NATURE OF CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT SUCH WORK. WE TAKE NOTE THAT THE SUPPLY OF LABOUR TO CAR RY OUT THE WORK/CONTRACT INVOLVES BOTH SKILLED & UNSKILLED LABOUR. FURTHER, WE TAKE NOTE THAT FOR ITA NOS.4474 TO 4476/DEL./2013 16 COMMISSION OF POWER PLANT, QUALIFIED ENGINEERS AND SKILLED MANPOWER ALONG WITH UNSKILLED LABOUR NEED TO USE BY THE SUB-CONTRA CTORS FOR EXECUTION OF THE CONTRACT INCLUDING TESTING/TRIAL OPERATIONS. THE N ATURE AND SCOPE OF THE SUB- CONTRACT AS RIGHTLY HELD BY THE LD. CIT (A) WAS ACT UAL EXECUTION OF WORK INVOLVING THE SERVICES OF TECHNICAL PERSONNEL AS WE LL AS NON-TECHNICAL PERSONNEL. IN A TURN-KEY PROJECT LIKE COMMISSIONIN G OF POWER PLANT ETC. WHAT THE ASSESSEE INTENDED TO GET FROM ITS SUB-CONTRACTO R WAS A PHYSICAL OUTPUT, A TANGIBLE STRUCTURE AND NOT MERELY THE SERVICES OF I TS QUALIFIED ENGINEERS/ STAFF. 8.2 THE LD. CIT (A) HAS RIGHTLY OBSERVED THAT ANY P AYMENT FOR TECHNICAL SERVICES IN ORDER TO BE COVERED U/S 194J, SHOULD BE A CONSIDERATION FOR ACQUIRING OR USING TECHNICAL KNOW-HOW PROVIDED OR M ADE AVAILABLE BY HUMAN ELEMENT. THE WORK ENTRUSTED FOR THE SUB-CONTRACTORS IS PART OF THE CONTRACT OFFERED TO THE ASSESSEE BY ITS CLIENT AND HENCE THE SUB-CONTRACTORS ALSO COME IN THE PURVIEW OF THE ACT AND THE ASSESSEE HAS DEDUCTE D THE TAX IS U/S 194C FROM THE PAYMENTS MADE TO IT. THE AMOUNTS PAID TO SUB-CO NTRACTORS IS EITHER FOR ERECTION, INSTALLATION, FABRICATION, COMMISSIONING, TESTING & TRIAL OPERATION OF SOME PARTS OF THE POWER PLANT AND THEREFORE CANNOT BE TERMED AS TECHNICAL SERVICES AS PER THE DEFINITION IN EXPLANATION 2 TO SECTION 9 (1) (VII). 8.3 WE ALSO TAKE NOTE THAT IN ANY CASE, THE SUB-CON TRACTORS HAVE ALREADY OFFERED THE PAYMENTS RECEIVED FROM THE ASSESSEE TO TAX AND SO THE SHORT DEDUCTION OF TAX CANNOT BE DEMANDED FROM THE ASSESS EE AS PER THE CASE LAW OF ITA NOS.4474 TO 4476/DEL./2013 17 HON'BLE SUPREME COURT IN HINDUSTAN COCA COLA BEVERA GE (P) LTD. V. CIT (2007) 163 TAXMAN 355. 8.4 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF THE LD. CIT (A) AND THE SAME IS UPHELD. THE GROUNDS OF REV ENUES APPEAL ARE REJECTED. 9. AS THE FACTS OF THE OTHER TWO APPEALS OF THE REV ENUE BEING ITA NOS.4475/DEL/2013 AND 4476/DEL/2013 FOR AYS 2011-12 & 2012-13 RESPECTIVELY ARE ALSO SIMILAR TO THE AFORESAID APPE AL IN AY 2010-11, WE REJECT THE GROUNDS TAKEN BY THE REVENUE IN BOTH THE APPEAL S FOR AYS 2011-12 & 2012-13. 10. IN THE RESULT, ALL THE THREE APPEALS OF THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF FEBRUARY, 2016. SD/- SD/- (J.S. REDDY) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 23 RD DAY OF FEBRUARY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), ROHTAK. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.