The ITO, TDS-1, RAJKOT-GUJARAT V. M/s. Wockhardt Hospital Limited, RAJKOT-GUJARAT

ITA 8/RJT/2013

• Counselvise Citation: 824914 RSA 2013
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 11-04-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Section: 194C; 201(1)

Judgement Text

H R : : IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT L .. [, R L .. L , BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTAVA, AM ITA NO. 08 /RJT /2013 AO O/ ASSESSMENT YEAR : 2009 - 10 ITO , TDS I, RAJKOT V. M/S. WOCKHARDT HOSPITAL LTD, RAJKOT KALAWAD ROAD, RAJKOT PAN: AAACW 3342G DATE OF HEARING : 11 - 0 4 - 201 3 DATE OF PRONOUNCEMENT : 12 - 0 4 - 201 3 REVENUE BY : SHRI AVINASH KUMAR, DR ASSESSEE BY : NONE / ORDER BY ORDER OF BENCH: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) - II, RAJKOT ON 1 6 .1 0 .201 2 , ON THE FOLLOWING GROUNDS: - THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION MADE U/S 201(1) OF THE I.T. ACT OF RS.4,70,741/ - AND INTEREST CHARGED UNDER SECTION 201 (1)A OF THE IT ACT OF RS.1,34,161/ - BY HOLDING THAT THE PAYMENT MADE TO VARIOUS PARTIES FOR PROVIDING SERVICES FOR ANNUAL MAINTENANCE OF SOPHISTICATED MEDICAL EQUIPMENTS WAS A SIMPLE CONTRACTUAL WORK COVERED U/S 194C OF THE I.T. ACT. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN OVERLOOKING THE FACT THAT THE NATURE OF WORK I.E. INSTALLATION OF MACHINERY , AC SYSTEM FITTING FOR DIALYSIS, ACC SYSTEM INSTALLATION AND AIR CONDITIONER ETC WAS POSSIBLE ONLY DUE TO THE INVOLVEMENT OF HIGHLY SKILLED TECHNICAL & EXPERTS PERSONS AND THEREFORE ALL THESE ACTIVITIES WERE COVERED BY SECTION 194 - J OF THE IT ACT AND NOT BY SEC. 194C OF THE I.T. ACT. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN OVERLOOKING THE HEAD NOTE OF SEC. 194J WHICH CLEARLY SPEAKS THAT TDS PROVISION U/S 194J ARE APPLICABLE IN RESPECT OF FEES FOR TECHNICAL SERVICES AND THE WORK CONTRACT EXECUTED W AS NOT A NORMAL CONTRACT BUT A CONTRACT FOR A SPECIFIC MAINTENANCE OF MACHINERY WHICH ARE USED FOR MATERIAL PURPOSE. 2 ITA 08 /RJT/2013 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. THE APPELLAN T CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 2. THE REVENUE HAS FILED S TATEMENT OF F ACTS ALONG WITH APPEAL MEMO WHICH READS AS UNDER: - IN THIS CASE, TDS VERIFICATION WAS CARRIED OUT ON 30.07.2009. DURING THE COURSE OF VERIFICATION IT WAS FOUND THAT THE PERSON RESPONSIBLE FOR TDS HAD ENTERED INTO AGREEMENTS WITH THREE PARTIES. I.E. SIEMENS LTD., BLUE STAR AND MEG POWER SERVICES FOR MAINTENANCE OF VARIOUS HOSPITAL EQUIPMENTS AND HIGH PRECISION MACHINES AND PAYMENTS WERE MADE AFTER DEDUCTING TAX U/S 194C INSTEAD OF U/S 194J. THE AO VIDE ORDER U/S 201(1)/201(1A) DATED 21. 03.2011 TREATED THE ACTIVITIES AS FEES FOR PROFESSIONAL OR TECHNICAL SERVICES U/S 194J AND RAISED DEMAND OF RS.4,70,741/ - ON ACCOUNT OF DEDUCTION OF TAX AND OF RS.1,34,161/ - ON ACCOUNT OF INTEREST. THE LD CIT (A) HAS SET ASIDE THE ORDER AND DIRECTED THE A .O. TO DELETE THE DEMAND RAISED BY HIM BY HOLDING THAT AS PER DETAILS SUBMITTED BY THE ASSESSEE, PROVISIONS OF SECTION 194J ARE NOT APPLICABLE TO WORK UNDERTAKEN BY THE PARTIES AS WORK CONTRACT, THEREFORE, THE SAME WILL NOT FALL IN THE CATEGORY OF PROFESSI ONAL OR TECHNICAL SERVICES. THE LD. CIT(A) FURTHER HELD THAT RENDERING OF SERVICES BY USING TECHNICAL KNOWLEDGE OR SKILL IS DIFFERENT FROM CHARGING OF FEES FOR TECHNICAL SERVICES. WHERE THE SERVICES OF TECHNICALLY QUALIFIED PERSONS WERE RENDERED ONLY FOR M AINTAINING MACHINERY BUT THE KNOWLEDGE DID NOT VEST IN THE ASSESSEE SO THAT ASSESSEE ITSELF COULD MAKE USE OF IT, THE AMOUNT CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 194J . THE LD. CIT(A) ALSO STATED THAT ONE 3 ITA 08 /RJT/2013 SHOULD NOT GO BY THE NOMENCLATURE GIVEN TO PARTICULAR HEAD OF PAYMENT FOR SUBJECTING SUCH PAYMENT FOR TAX DEDUCTION BECAUSE IN CIRCULAR NO.715 DATED 08.08.1995, IT HAS BEEN CLARIFIED BY THE BOARD THAT THE INCIDENTS OF DEDUCTION OF TAX AT SOURCE DO NOT DEPEND UPON THE NOMENCLATURE, BUT ON THE CONTENTS OF THE AGREEMENT. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, IT IS EVIDENT THAT PROVISION OF SECTION 194J WILL NOT BE APPLICABLE. THE DECISION OF LD. CIT(A) IS NOT JUSTIFIED BECAUSE AS PER THE ORDER U/S 201(1)/201( 1A), NATURE OF WORK UNDERTAKEN BY THE PARTIES ARE INCLUSIVE OF THE WORK WHICH CAN BE CARRIED OUT BY THE TECHNICALLY QUALIFIED PERSONS ONLY AT IT IS FOUND THAT CONTRACT MADE FOR MAINTENANCE OF HOSPITAL EQUIPMENTS ARE TECHNICALLY OF HIGH PRECISION MACHINES A ND LAYMAN OF LABOURER CANNOT NORMALLY ATTEND THE WORK AND QUALIFIED AND HIGHLY SKILLED TECHNICIANS ARE REQUIRED TO ATTEND WORK RELATED TO MAINTENANCE OF THESE EQUIPMENTS. HENCE THE ABOVE WORK CAN ONLY BE DONE BY A QUALIFIED AND HIGHLY SKILLED TECHNICIAN. T HEREFORE WORK ASSIGNED BY THE ASSESSEE WAS NOT A MERELY WORK CONTRACT BUT IT WAS A WORK RELATED TO TECHNICAL SERVICES, IN RESPECT OF HIGHLY TECHNICAL AND PRECISION MACHINES AND EQUIPMENTS. HENCE, A.O. WAS JUSTIFIED IN TREATING THE ACTIVITIES U/S 194J AND THEREFORE LD CIT (A) WAS NOT JUSTIFIED IN NOT TREATING THE ACTIVITIES AS FEES FOR PROFESSIONAL OR TECHNICAL SERVICES U/S 197J. THEREFORE, THE HONBLE ITAT IS REQUESTED TO SET ASIDE THE ORDER OF THE CIT(A) & RESTORE THAT OF THE AO. 3. PERUSAL OF THE ORDE R PASSED BY THE ASSESSING OFFICER ON 21.03.2011 U/S 201(1) AND 201(1A) OF THE INCOME - TAX ACT SHOWS THAT TDS VERIFICATION WAS CARRIED OUT BY THE DEPARTMENT AT THE PREMISES OF THE ASSESSEE - HOSPITAL ON 30.07.2009 DURING WHICH IT WAS FOUND THAT THE ASSESSEE HA D MADE PAYMENT TO VARIOUS PARTIES FOR MAINTENANCE OF VARIOUS HOSPITAL EQUIPMENTS. IT WAS ALSO FOUND THAT THE ASSESSEE HA D DEDUCTED TAX AT SOURCE U/S 194C OUT OF THESE PAYMENT S AT THE RATE OF 2% TREATING THE NATURE OF JOB AS WORKS CONTRACT . THE REVENUE, HOW EVER, TREATED THE AFORESAID NATURE OF JOB AS TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 194J AND THEREFORE HELD THAT THE TAX OUGHT TO HAVE BEEN DEDUCTED AT SOURCE U/S 194C. THE 4 ITA 08 /RJT/2013 R EVENUE WORKED OUT THE AMOUNT OF TAX DEDUCTIBLE U/S 194J AT RS.6,03,709/ - AS AGAINST WHICH THE ASSESSEE HAD DEDUCTED A SUM OF RS.1,39, 268/ - U/S. 194C OF THE ACT. THEREFORE, T HE ASSESSEE WAS HELD LIABLE TO PAY A SUM OF RS.4,70,741/ - BEING SHORT DEDUCTION OF TAX AT SOU RCE ALONG WITH INTEREST RS.1,34,161/ - U/S 201(1A) . 5. ON APP EAL, THE LD CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: - 3.3 IN GROUND NO.1, THE APPELLANT HAS CHALLENGED ACTION OF THE AO IN APPLYING PROVISIONS OF SECTION 194J INSTEAD OF 194C AS CONTENDED BY THE APPELLANT. I HAVE CONSIDERED THE FINDINGS GIVEN BY THE ASSESSING OFFICER IN THE ORDER. I HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS. IT IS TRUE THAT ONE SHOULD NOT GO BY THE NOMENCLATURE GIVEN TO PA RT ICULAR HEAD OF PAYMENT FOR SUBJECTING SUCH PAYMENT FOR TAX DEDUCTION BECAUSE IN CIRCULAR NO.715 DTD. 8 TH AUGUST, 1995, IT HAS BEEN CLARIFIED BY THE BOARD THAT THE INCIDENTS OF DEDUCTION OF TAX AT SOURCE DO NOT DEPEND UPON THE NOMENCLATURE, BUT ON THE CON TENTS OF THE AGREEMENT. FROM THE DETAILS SUBMITTED BY THE APPELLANT, IT IS EVIDENT THAT PROVISIONS OF SECTION 194J WILL NOT BE APPLICABLE TO THE FOLLOWING PARTIES AS THE SAID PARTIES ARE PROVIDING SERVICES FOR ANNUAL MAINTENANCE OF SOPHISTICATED MEDICAL EQ UIPMENTS: - M/S. SIEMENS LTD., M/S. BLUE STAR LTD. MGE UPS SYSTEMS INDIA P LTD THE NATURE OF WORK INVOLVES REPAIRING, MAINTENANCE ETC. WHICH IS PART OF WORK CONTRACT. THEREFORE, THE SAME WILL NOT FALL IN THE CATEGORY OF PROFESSIONAL OR TECHNICAL SERVICES. F URTHER, IT IS NOTICED THAT THOUGH THE WORK INVOLVED IS OF SPECIALIZATION, STILL AS THE AO HAS FAILED TO BRING ON RECORD ANY EVIDENCE WHICH SHOWS THAT TECHNICAL SERVICES RECEIVED ENHANCED THE KNOWLEDGE OF THE APPELLANT, THESE WILL ALSO NOT BE CHARGED U/S 19 4J. RENDERING OF SERVICES BY USING TECHNICAL KNOWLEDGE OR SKILL IS DIFFERENT THAN CHARGING FEES FOR TECHNICAL SERVICES. WHERE THE SERVICES OF TECHNICALLY QUALIFIED PERSON WERE RENDERED 5 ITA 08 /RJT/2013 ONLY FOR MAINTAINING MACHINERY BUT THAT KNOWLEDGE DID NOT VEST IN THE A SSESSEE SO THAT ASSESSEE ITSELF COULD MAKE USE OF IT, THE AMOUNT CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 194J. IN THE CASE OF DCIT V PARASRAMPURIA SYNTHETICS LTD [2008] 20 SOT 248 (DEL)], IT WAS HELD THAT THERE MAY BE USE OF SERVICES OF TECHNICALLY QUALIFIED PERSON SERVICES BUT THAT ITSELF DO NOT BRING THE AMOUNT PAID AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF EXPLN 2 TO SECTION 9(1)(VII). THE AMOUNTS PAID ARE TOWARDS ANNUAL MAINTENANCE CONTRACT OF CER TAIN MACHINERY OR FOR CONVERTING PARTIALLY ORIENTED YARD (POY) INTO TEXTURIZED/TWISTED YARN. THE TECHNOLOGY OR TECHNICAL KNOWLEDGE OF PERSONS IS NOT MADE AVAILABLE TO THE ASSESSEE BUT ONLY BY USING SUCH TECHNICAL KNOWLEDGE SERVICES ARE RENDERED TO THE ASSE SSEE. IN SUCH A CASE, IT CANNOT BE SAID THAT THE AMOUNT IS PAID AS FEES FOR TECHNICAL SERVICES. RENDERING SERVICES BY USING TECHNICAL KNOWLEDGE OR SKILL IS DIFFERENT THAN CHARGING FEES FOR TECHNICAL SERVICES. IN THE LATER CASE THE TECHNICAL SERVICES ARE MADE AVAILABLE DUE TO WHICH ASSESSEE ACQUIRED CERTAIN RIGHT WHICH CAN BE FURTHER USED. ACCORDINGLY WHERE THE PERSONS RENDERING CERTAIN SERVICES HAS ONLY MAINTAINED MACHINERY OR CONVERTED YARN BUT THAT KNOWLEDGE IS NOT VESTED WITH THE ASSESSEE BY WHICH ITSE LF IT CAN DO RESEARCH WORK, THE AMOUNT PAID CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 194J OF THE ACT. IN VIEW OF THE ABOVE FACTS IT IS HELD THAT THE APPELLANT HAS RIGHTLY DEDUCTED TAX AT SOURCE U/S 194C. THUS, TH E A.O. IS DIRECTED TO DELETE THE DEMAND RAISED ON THIS AMOUNT. THUS THIS GROUND OF APPEAL IS ALLOWED. 4. IN THE SECOND GROUND OF APPEAL, THE APPELLANT HAS CHALLENGED CHARGING OF INTEREST U/S 201(1A) ON SHORT DEDUCTION OF VARIOUS CONTRACT PAYMENTS MADE AS ALLEGED DISREGARDING THE EVIDENCE OF RETURN FILED BY OTHER PARTIES. 6 ITA 08 /RJT/2013 4.1 AS THESE TRANSACTIONS ARE HELD TO BE NOT SUBJECTED TO THE PROVISIONS OF SECTION 194J, THERE WILL NOT BE ANY QUESTION OF CHARGING OF INTEREST U/S 201(1A). THEREFORE, THE INTEREST CHA RGED U/S 201(1A) WILL ALSO HAVE TO BE CANCELLED. ACCORDINGLY THE A.O. IS DIRECTED TO CANCEL THE DEMAND RAISED ON THIS ACCOUNT AS WELL. IT IS ALSO SEEN THAT THE APPELLANT HAS SUBMITTED COPIES OF RETURNS OF INCOME FOR THE RELEVANT PERIOD IN RESPECT OF M/S. B LUE STAR LTD. AND M/S. SIEMENS LTD. 6. THE APPEAL FIRST CAME UP FOR HEARING ON 6.3.2013. APPLICATION FOR ADJOURNMENT WAS RECEIVED FROM M/S M J RINDANI & ASSOCIATES. THOUGH THE SAID APPLICATION WAS NOT ACCOMPANIED BY ANY POWER OF ATTORNEY AUTHORIZING M/S M J RINDANI & ASSOCIATES TO REPRESENT THE ASSESSEE - HOSPITAL BEFORE THIS TRIBUNAL, THE APPLICATION FOR ADJOURNMENT WAS ALLOWED IN GOOD FAITH AND UNDER THE IMPRESSION THAT PROPER POWER OF ATTORNEY WOULD BE FILED ON THE NEXT DATE OF HEARING WITHOUT REMINDER . NEXT DATE OF HEARING WAS FIXED ON 11.4.2013. ON 11.04.2013 , APPLICATION FOR ADJOURNMENT WAS AGAIN RECEIVED FROM M/S M J RINDANI & ASSOCIATES. THERE WAS NO POWER OF ATTORNEY ON RECORD AUTHORIZING THE SAID FIRM , I.E. , M/S. M J RINDANI & ASSOCIATES TO REPRESE NT THE ASSESSEE - HOSPITAL BEFORE THIS TRIBUNAL. KEEPING IN VIEW THE PERSISTENT DEFAULT IN FILING POWER OF ATTORNEY AND THE FACT THAT NO POWER OF ATTORNEY WAS PLACED ON RECORD AUTHORISING THE SAID FIRM TO SEEK ADJOURNMENT ON BEHALF OF THE ASSESSEE - HOSPITAL, T HE APPLICATION FOR ADJOURNMENT WAS REJECTED AND THE REJECTION WAS ANNOUNCED IN THE OPEN COURT. NOBODY TURNED UP FOR HEARING. ON PERUSAL OF THE MATERIALS ACCOMPANYING THE APPEAL MEMO, IT WAS FELT THAT THE APPEAL COULD BE DECIDED WITHOUT THE PRESENCE OF THE ASSESSEE OR HIS CHARTERED ACCOUNTANTS. THE APPEAL WAS THEREFORE HEARD EX - PARTE QUA THE ASSESSEE - HOSPITAL. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD . THE LD CIT(A) HAS GIVEN COGENT REASONS FOR COMI NG TO THE CONCLUSION THAT THE NATURE OF JOB AWARDED BY THE ASSESSEE - HOSPITAL FOR WHICH PAYMENTS WERE MADE AND TAX WAS DEDUCTED AT SOURCE WAS NOT IN THE NATURE OF SEEKING TECHNICAL SERVICES PAYMENTS BUT IN THE NATURE OF WORKS CONTRACT. WE ARE IN AGREEMENT W ITH THE REASONING GIVEN BY HIM FOR COMING TO THE AFORESAID CONCLUSION. 7 ITA 08 /RJT/2013 IN OUR CONSIDERED VIEW, THE ASSESSEE HAS RIGHTLY DEDUCTED THE TAX AT SOURCE U/S 194C OF THE INCOME - TAX ACT. ON THE FACTS OF THE CASE, IT IS HELD THAT THE SUM AND SUBSTANCE OF THE JOB AW ARDED BY THE ASSESSEE - HOSPITAL TO THE DEDUCTEES IS IN THE NATURE OF WORK S CONTRACT WITHIN THE MEANING OF SECTION 194C AND NOT IN THE NATURE OF SEEKING TECHNICAL SERVICES WITHIN THE MEANING OF 194J . IN THIS VIEW OF THE MATTER, WE CONFIRM THE ORDER PASSED BY THE LD CIT(A). THE APPEAL FILED BY THE REVENUE IS DISMISSED. T 12 .04 . 2013 T ORDER PRONOUNCED ON 12 .0 4. 201 3 SD/ - SD/ - ( H.. O / T. K. SHARMA) ( .. CA / D. K. SRIVASTAVA) A A / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE 12.04. 2013 /RAJKOT BT T RJO 2O / COPY OF ORDER FORWARDED TO: - 1. / APPELLANT - . THE ITO, TDS - 1, RAJKOT 2. V / RESPONDENT - M/S. WOCKHARDT HOSPITAL LTD., RAJKOT KALAWAD RD, RAJKOT 3. R / CONCERNED CIT 4. - / CIT (A) - II , RAJKOT 5. VAAR, H R, / DR, ITAT, RAJKOT 6. O / GUARD FILE. / BY ORDER , TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT