Kandla Port Trust, GANDHIDHAM V. The Deputy Commissioner of Income Tax, TDS Circle, RAJKOT-GUJARAT

ITA 924/RJT/2010

• Counselvise Citation: 92424914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: JP SHAH SHRI RS SINGH
• Section: 133A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.771/RJT/2010 - AY 2008-09 I.T.A. NO.924/RJT/2010 - AY 2007-08 KANDLA PORT TRUST VS DY.CIT, TDS CIRCLE A.O. BUILDING, TAGORE ROAD RAJKOT GANDHIDHAM (KUTCH) 370 201 PAN : AAALK0046N TAN : RKTKO0657G (APPELLANT) (RESPONDENT) DATE OF HEARING : 08-09-2011 DATE OF PRONOUNCEMENT : 11-11-2011 APPELLANT BY : SHRI JP SHAH / SHRI RS SINGH RESPONDENT BY: SHRI MK SINGH O R D E R PER AL GEHLOT, AM THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-II, RAJKOT DATED 02-03-2010 FOR ASSESSMENT YEAR 2007-08 AND DATED 31-12-2009 FOR ASSESSMENT YEAR 2008-09. 2. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED BY THIS COMMON ORDER. GROUNDS OF APPEAL IN BOTH THE APPEALS ARE IDENTICAL, FOR THE SAKE OF CONVENIENCE, THE GRO UNDS RAISED IN APPEAL FOR ASSESSMENT YEAR 2007-08 ARE REPRODUCED BELOW: 1) LD.CIT(A) HAS ERRED ON FACTS AND LAW BY TREATIN G THE ANNUAL MAINTENANCE CONTRACTS (AMC) WHICH IS OTHERWISE LIAB LE TO TDS U/S 194C AS CHARGEABLE UNDER TECHNICAL SERVICE U/S 194J. FOR THE FACTS AND CIRCUMSTANCES OF CASE, THE AMC CONTRACTS ARE LIABLE TO TDS U/S 194C OF THE INCOME TAX ACT ITA NO.924721 & 924/RJT/2010 2 AND TDS CANNOT BE ONCE AGAIN RECOVERED WHERE THE PR OPER TAX HAS BEEN PAID BY THE PAYEES ON SUCH INCOME. 2. LD.CIT(A) HAS ERRED ON FACTS AND LAW BY TREATING THE PILOTAGE CONTRACT WHICH IS OTHERWISE LIABLE TO TDS U/S 194C AS LIABLE UNDER TECHNICAL SERVICE U/S 194J. FOR THE FACTS AN D CIRCUMSTANCES OF CASE, THE PILOTAGE CONTRACT IS LIA BLE TO TDS U/S 194C OF THE INCOME TAX ACT AND TDS CANNOT BE ON CE AGAIN RECOVERED WHERE THE PROPER TAX HAS BEEN PAID BY THE PAYEE ON SUCH INCOME. 3. LD.CIT(A) HAS ERRED ON FACTS AND LAW BY TREATING THE TAXI & TUG HIRE CHARGES WHICH IS OTHERWISE LIABLE TO TDS U /S 194C AS LIABLE UNDER RENT U/S 194I OF THE ACT. FOR THE FACTS AND CIRCUMSTANCES OF CASE, SUCH PAYMENTS ARE LIABLE TO TDS U/S 194C OF THE ACT AND TDS CANNOT BE ONCE AGAIN RECOVE RED WHERE THE PROPER TAX HAS BEEN PAID BY THE PAYEE ON SUCH INCOME. 3. THE APPEAL FOR ASSESSMENT YEAR 2009-09 IN ITA NO .771/RJT/2010 HAS BEEN EARLIER DECIDED EXPARTE VIDE ORDER DATED 10-02 -2010. THE ASSESSEE FILED MISCELLANEOUS APPLICATION IN MA NO.29/RJT/2011 WHIC H HAS BEEN ALLOWED AND THE EARLIER ORDER OF THE ITAT DATED 10-02-2010 WAS RECA LLED VIDE ORDER DATED 30-08- 2011 IN THE MISCELLANEOUS APPLICATION. 4. THE BRIEF FACTS OF THE CASE ARE THAT TDS SURVEY U/S 133A WAS CARRIED OUT FROM 08-09-2008 TO 16-09-2008 AT THE PREMISES OF TH E ASSESSEE. THE ASSESSEE RUNS A PORT AT KANDLA. DURING THE COURSE OF SURVEY IT WAS NOTICED THAT THE ASSESSEE HAS TAKEN ON RENT VARIOUS VEHICLES, LIKE C ARS, JEEPS FROM TRAVEL AGENCIES. IT HAS ALSO HIRED A TUG BOAT, NAMED OCE AN SPARKLE ON DAILY BASIS. THE ASSESSEE USED TO MAKE TDS U/S 194C OF THE ACT F ROM THE PAYMENT MADE TO TRAVEL AGENCY AND THE OWNER OF THE TUG BOAT. THE D EPARTMENT WAS OF THE VIEW ITA NO.924721 & 924/RJT/2010 3 THAT SUCH PAYMENTS COVERED UNDER THE PROVISIONS OF SECTION 194-I AS THE PAYMENTS MADE TO THEM ARE IN THE NATURE OF RENT. 5. IT WAS ALSO NOTICED THAT THE ASSESSEE HAS MADE P AYMENTS TO VARIOUS CONTRACTORS FOR ANNUAL MAINTENANCE AND HAS MADE TDS U/S 194C OF THE ACT. THE DEPARTMENT WAS OF THE VIEW THAT SUCH PAYMENTS COVER ED UNDER PROVISIONS OF SECTION 194J AND NOT U/S 194C OF THE ACT, AS THEY A RE TECHNICAL FEES AND PROFESSIONAL FEES IN NATURE. IT HAS ALSO BEEN NOTI CED THAT THE ASSESSEE HAS MADE PAYMENTS TO VARIOUS PILOTS, WHO ARE ENGAGED ON DAIL Y BASIS FOR BRINGING VESSELS IN AND OUT OF THE PORT. ON THIS PAYMENT ALSO, THE ASSESSEE DEDUCTED TAX U/S 194C OF THE ACT. THE REVENUE IS OF THE VIEW THAT S UCH PAYMENT IS COVERED U/S 194J OF THE ACT. 6. THE ASSESSING OFFICER, AFTER CONSIDERING ASSESSE ES SUBMISSION RECALCULATED THE TDS LIABILITY U/S 194J AND 194-I A S PER PAGES 9 & 10 OF THE ORDER OF THE DY.CIT, TDS CIRCLE, RAJKOT. THE DY.CIT, TDS CIRCLE CALCULATED THE LIABILITY U/S 194J AT RS.3,15,320 AND RS. 5,34,217 U/S 194-I AND 194J FOR ASSESSMENT YEAR 2007-08 AND FOR ASSESSMENT YEAR 2008-09 AT RS. 11,86,250 U/S 194J AND RS.20,08,840 U/S 194-I AND 194J OF THE ACT. 7. THE LD.AR SUBMITTED THAT THE ASSESSEE DEDUCTED T AX AT SOURCE U/S 194C OF THE ACT ON PAYMENTS TOWARDS ANNUAL MAINTENANCE CONT RACT (AMC, HEREINAFTER REFERRED), PILOTAGE CONTRACT AND TAXI AND TUG BOAT HIRING CHARGES. THE LD.AR ITA NO.924721 & 924/RJT/2010 4 SUBMITTED THAT THE ASSESSING OFFICER DID NOT POINT OUT ANY SPECIFIC TERMS WHICH NEEDS TO BE CONSIDERED WHILE TREATING THE AMC TO BE SUBJECTED U/S 194J OF THE ACT. THE LD.AR SUBMITTED THAT THE TERM CONTRACTOR HAS BEEN DEFINED AS, THE ONE WHO MAKES AN AGREEMENT WITH ANOTHER TO DO A PIE CE WORK, RETAINING IN HIMSELF CONTROL OF THE MEANS, METHODS AND THE MANNE 5R OF PRODUCING THE RESULT TO BE ACCOMPLISHED, NEITHER PARTLY HAVING THE RIGHT TO TERMINATE THE CONTRACT AT WILL. THE EXPRESSION CONTRACTOR SHALL INCLUDE A CONTRACTOR WHO IS CARRYING OUT ANY WORK. THE LD,.AR SUBMITTED THAT THE EXPRESSION WORK SHALL ALSO INCLUDE ADVERTISING, BROADCASTING AND TELECASTING INCLUDING PRODUCTION OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING, CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS AND CATERI NG. THE TERM WORK CONTRACT INCLUDES CONTRACT FOR SUPPLY OF LABOUR FOR WORKS CO NTRACT. 8. THE LD.AR, WITH REFERENCE TO FEE FOR TECHNICAL SERVICES AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT SUBMI TTED THAT FEE FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION INCLUDING ANY LUM SUM CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE IN COME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. THE LD.AR SU BMITTED THAT THE ASSESSEE HAS MADE FOLLOWING CONTRACTS WITH RESPECTIVE PARTIE S: ITA NO.924721 & 924/RJT/2010 5 1, MUKAND LTD & MCNALLY BHARAT ENGG CO LTD (FOR REP AIRS & MAINTENANCE OF CRANES INSTALLED AT PORT) 2. AVERY INDIA LTD (FOR REPAIRS AND MAINTENANCE OF WEIGHBRIDGE INSTALLED AT PORT) 3. AB ON LINE (FOR REPAIRS AND MAINTENANCE OF EPBX) 4. OTIS ELEVATORS (FOR REPAIRS AND MAINTENANCE OF E LEVATOR) 5. MM CARGO MARINE SERVICES (EXAMINATION OF LOOSE G EARS & APPLIANCES) 9. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE IS RUNNING A PORT AND IN ORDER TO CARRY ON THE OPERATION MACHINERIES, SUCH A HEAVY CRANES, WEIGH BRIDGE, ELEVATOR, EPBX SYSTEM ARE INSTALLED EITHER AT THE P ORT OR AT THE ADMINISTRATIVE BUILDING. THE ASSESSEE AWARDED CONTRACT TO PARTY M ENTIONED AT SERIAL NO.1 FOR REPAIRS AND MAINTENANCE OF CRANES INSTALLED AT THE PORT, TO PARTY MENTIONED AT SERIAL NO.2 ABOVE FOR REPAIRS AND MAINTENANCE OF WE IGH BRIDGE INSTALLED AT PORT, TO PARTY MENTIONED AT SERIAL NO.3 ABOVE FOR REPAIRS AND MAINTENANCE OF EPBX INSTALLED IN THE OFFICE BUILDING AND TO PARTY MENTI ONED AT SERIAL NO.4 FOR REPAIRS AND MAINTENANCE OF ELEVATOR INSTALLED AT OFFICE BUI LDING. THE LD.AR SUBMITTED THAT MAKING OF CRANES, WEIGH BRIDGE, ELEVATOR, EPBX IS C ERTAINLY AN ENGINEERING OPERATION AND IN CASE OF ANY BREAKDOWN, IN ORDER TO MAKE THE SAME OPERATIONAL AGAIN, IT IS OBVIOUS THAT TECHNICAL KNOWLEDGE OF TH E MACHINES AND SPARES ARE REQUIRED OTHERWISE A PERSON WILL NOT KNOW THE FUNCT IONING OF SAID MACHINES AND IN THAT EVENT, IT CANNOT BE MADE OPERATIONAL. CRANES INSTALLED ARE WORTH CRORES OF RUPEES AND IN CASE OF ANY TECHNICAL BREAKDOWN, EVEN IF THE OPERATION IS STOPPED FOR FEW HOURS, THERE IS HEAVY LOSS TO THE PORT. AL SO THE WEIGH BRIDGE, ELEVATOR, EPBX INSTALLED ARE OF DAY TO DAY UTILITY TO THE POR T AND ANY BREAK DOWN FOR ITA NO.924721 & 924/RJT/2010 6 SUBSTANTIAL TIME COST HEAVILY TO THE PORT. IT IS A LSO THE SUBMISSION OF THE LD.AR THAT CONTRACTS AWARDED TO THE ABOVE PARTIES ARE IN THE NATURE OF WORK CONTRACTS COVERING THE SUPPLY OF SPARES, MAINTAINING THE EQUI PMENT IN WORKING CONDITION, REPAIR TO SUCH EQUIPMENT AND MAKING GOOD THE LOSS F OR LOSS OF EQUIPMENT CAUSED TO THE ASSESSEE. THE LD.AR SUBMITTED THAT IN ORDER TO REPAIR SUCH MACHINES, OBVIOUSLY TECHNICAL SPECIFICATION IS REQUIRED BY TH E EMPLOYEE OF THE CONTRACTEE AND MERELY BECAUSE THE EMPLOYEE POSSESSES THE TECHN ICAL DEGREE OR COMPETENCE, IT WILL NOT MAKE THE WORK CONTRACT U/S 194C LIABLE FOR DEDUCTION OF TAX AS FEES FOR TECHNICAL SERVICES U/S 194J OF THE ACT. DURING THE COURSE OF HEARING THE LD.AR POINTED OUT VARIOUS CLAUSES OF TH E AGREEMENT TO DEMONSTRATE THAT THE ASSESSEE WAS HAVING SIMPLY AMCS WITH THE D EDUCTEES. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS RIGHTLY DEDUCTED TA X AT SOURCE U/S 194C OF THE ACT. 10. THE LD.AR, IN SUPPORT OF HIS CONTENTIONS RELIED UPON THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF DY.CIT VS PARASRAMPURIA SYNTHETICS LTD 20 SOT 248 (DEL) AND ITAT, AHMEDABAD BENCH IN THE CASE OF GUJA RAT STATE ELECTRICITY CORPORATION LTD VS ITO 82 TTJ (AHD) 4556. HE HAS A LSO RELIED UPON ANSWER TO QUESTION NO.28 OF CIRCULAR NO.715 DATED 08 TH AUGUST, 1995 ISSUED BY CBDT WHEREIN IT IS STATED THAT THE PAYMENTS MADE TO ELEC TRICIAN OR TO A CONTRACTOR WHICH PROVIDES THE SERVICES OF AN ELECTRICIAN WILL BE IN THE NATURE OF PAYMENT MADE IN PURSUANCE OF A CONTRACT FOR CARRYING OUT ANY WORK. ACCORDINGLY PROVISIONS OF SECTION 194C WILL APPLY IN SUCH CASES. THE LD.AR S UBMITTED THAT THE PERSON WHO ITA NO.924721 & 924/RJT/2010 7 DOES THE WORK OF ELECTRICIAN ALSO HOLDS THE TECHNIC AL DEGREE OR COMPETENCE TO DO SUCH WORK AND THE WORK OF ELECTRICIAN IS VERY MUCH TECHNICAL AS COMPARED TO WORK OF AMC CONTRACTOR AND STILL THAT WORK IS CLASS IFIED AS WORK CONTRACT LIABLE TO TDS U/S 194C OF THE ACT. 11. IN RESPECT OF PAYMENT TO PILOTS SHRI ASHOK SING HAL, SHRI ASHOK C MODI & SHRI BHARAT MODI ON CONTRACTUAL BASIS, THE LD.AR SU BMITTED THAT PILOTAGE IS THE COMPENSATION THAT A PILOT RECEIVES FOR NAVIGATING A VESSEL ESPECIALLY INTO OR OUT OF HARBOUR OR THROUGH A CHANNEL OR PASSAGE. THUS, SUC H CHARGES ARE PAID FOR STEERING OR GUIDING THE SHIP, IN AND OUT OF THE HAR BOUR. A TUG MAY BE EMPLOYED BY THE PILOT FOR NAVIGATING THE VESSEL. ALL THE PI LOTS ARE ENGAGED ON A PIECE RATE BASIS WHICH ITSELF ARE COVERED U/S 194C. THEIR WOR K MAINLY INVOLVES NAVIGATION OF VESSELS. THE NATURE OF WORK ALLOCATED TO THEM SHOU LD BE CONSIDERED IN THE NATURE OF WORKS CONTRACT. IT IS ALSO THE SUBMISSIO N OF THE LD.AR THAT THE PILOTS ARE SUBJECT TO RECEIPT OF RETENTION ALLOWANCE, CONVEYAN CE ALLOWANCE, DAILY ALLOWANCE, NIGHT TIME ALLOWANCE ON THE BASIS OF PIECE RATE WOR K UNDERTAKEN BY THEM. THUS, THEY BEING ENGAGED ON PIECE RATE BASIS MUST BE CONS IDERED AS LIABLE FOR DEDUCTION OF TAX U/S 194C OF THE ACT. THE LD.AR FU RTHER SUBMITTED THAT THE WORK OF PILOT IS SIMILAR TO THE WORK OF TRUCK DRIVER, WH O STEERS / NAVIGATE THE VEHICLES ON ROAD. HERE, INSTEAD OF DRIVER, THE WORD USED IS MO RE SOPHISTICATED AS PILOT. BUT IT CANNOT BE SAID THAT THE PAYMENTS MADE TO TRUCK D RIVERS WILL ATTRACT TDS U/S 194J OF THE ACT. THE CONTRACTS WITH PILOTS ARE SIM PLICITOR WORK CONTRACTS WHEREIN IT IS THE DUTY OF PILOT TO ASSIST IN GUIDING THE VE SSELS. THUS, THE SAME CANNOT BE ITA NO.924721 & 924/RJT/2010 8 SUBJECT TO TDS U/S 194J MERELY BECAUSE PILOT POSSES SES TECHNICAL DEGREE OR COMPETENCE WITH THAT RESPECT. 12. IN RESPECT OF TAX DEDUCTED AT SOURCE ON PAYMENT S TO JEEPS / VEHICLES TAKEN ON CONTRACTUAL BASIS, THE LD.AR SUBMITTED THAT THES E VEHICLES WERE TAKEN BY THE ASSESSEE FROM THAKKER TRAVELS AND RISHABH TRAVELS. THE LD.AR SUBMITTED THAT THE ASSESSEE ENTERED INTO CONTRACT WITH TRAVEL AGEN TS FOR PROVIDING VEHICLES WHEREIN PAYMENTS ARE MADE BASED ON KILOMETER RENT. THE CONTRACT IS WORK CONTRACT WHEREIN THE CONTRACTOR HAS TO PROVIDE VEHI CLE / DIESEL AND DRIVER IS ALSO PROVIDED BY THE CONTRACTOR AND HE HAS TO GUIDE THE VEHICLE RUN AT THE DESIRED PLACE AND HE HAS BEEN PAID CHARGES BASED ON KILOMET ERS RUN. THE LD.AR SUBMITTED THAT ONE OF THE ESSENTIAL CONDITIONS OF RENT IS THAT THE POSSESSION OF ASSET IS HANDED OVER TO THE CONTRACTEE AND THE ASSE T IS PUT TO USE BY THE CONTRACTEE AS PER HIS CHOICE. CONTRACTOR IS NOT DU TY BOUND TO PROVIDE ANY WORK ON SUCH ASSET AND ONCE THE ASSET IS GIVEN TO THE CO NTRACTEE, CONTRACTOR HAS NO ROLE TO PLAY AND HE IS CONCERNED WITH FIXED CHARGES HE IS ELIGIBLE TO GET. A CONTRACT TO PROVIDE WORK IS DISTINCT FROM THE CONTR ACT OF HIRING PROPERTY SINCE IT IS NOT FOR USE OF PLANT AND MACHINERY OR EQUIPMENT. I N A CONTRACT FOR RIGHT TO USE A PROPERTY AS ENVISAGED IN SECTION 194-I, THE EFFECTI VE CONTROL AND POSSESSION OF PROPERTY MUST REST WITH THE CONTRACTOR PARTY. THE LD.AR IN SUPPORT OF HIS CONTENTION HAS RELIED UPON THE ORDER OF ITAT, MUMBA I BENCH F IN THE CASE OF VODAFONE ESSAR LTD VS DY.CIT 135 TTJ (MUM) 385. TH E ALTERNATIVE CONTENTION OF ITA NO.924721 & 924/RJT/2010 9 THE LD.AR THAT RECIPIENTS HAVE PAID THE TAX WHILE F ILING THEIR RETURNS OF INCOME AND THEREFORE THE ACTION OF THE AO IS NOT JUSTIFIED. 13. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE CIT(A) AND SUBMITTED THAT THE CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE AFTER COVERING ALL THE ASPECTS AND CONTENTIONS OF THE ASSESSEE. 14. WE HAVE HEARD THE LD.REPRESENTATIVES OF THE PAR TIES, RECORD PERUSED AND GONE HAVE THROUGH THE DECISIONS CITED. THE ISSUE U NDER CONSIDERATION IS WHETHER ANNUAL MAINTENANCE CONTACT, PILOTAGE CONTRACT AND V EHICLE HIRE CONTRACTS COVER UNDER SECTION 194C OR U/S 194J AND 194-I OF THE ACT . THE ASSESSEE DEDUCTED TAX AT SOURCE UNDER SECTION 194C. THE REVENUE IS OF TH E VIEW THAT ANNUAL MAINTENANCE CONTRACT AND PILOTAGE CONTRACT ARE IN T HE NATURE OF TECHNICAL SERVICES, THEREFORE, FALLS UNDER SECTION 194J AND V EHICLE CONTRACT IS RENT CONTRACT THEREFORE SECTION 194I IS APPLICABLE. TO EXAMINE T HIS ISSUE FIRST OF ALL WE SEE WHAT ARE THE ACTIVITIES OF THE ASSESSEE, AMC & PILO TAGE CONTRACT. THE ASSESSEE IS RUNNING A PORT AND IN ORDER TO CARRY ON THE OPER ATIONS MACHINERIES SUCH AS HEAVY CRANES, WEIGH BRIDGE, ELEVATOR, EPBX SYSTEMS ARE INSTALLED. THE ASSESSEE AWARDED SOME CONTRACTS FOR REPAIRS AND MAI NTENANCE OF THESE MACHINERIES. SECTION 194C PROVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY CONTRACTOR FOR CARRYING OUT ANY WORK INC LUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT BE TWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL, AT THE ITEM OF CREDIT OF SU CH SUM TO THE ACCOUNT OF THE ITA NO.924721 & 924/RJT/2010 10 CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CAS H OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT AN AMOUNT ONE PER CENT OF THE PAYMENT AS APPLICABLE OF SUCH SUM AS INCOME- TAX. THE APEX COURT IN THE CASE OF ASSOCIATED CEMENT COMPANY LTD VS CIT 201 IT R 435 (SC) HELD THAT ANY WORK MEANS ANY WORK AND NOT A WORK CONTRACT WHIC H HAS A SPECIAL CONNOTATION IN THE LIP LAW. INDEED, IN THE SUB-SECTION, THE W ORK REFERRED TO THEREIN EXPRESSLY INCLUDES SUPPLY & LABOUR TO CARRY OUT A WORK. WOR K ENVISAGED IN THE SUB- SECTION, THEREFORE, HAS A WIDE IMPORT AND COVERS A NY WORK WHICH ONE OR THE OTHER OF THE ORGANIZATIONS SPECIFIED IN THE SUB SEC TION CAN GET CARRIED OUT THROUGH A CONTRACTOR UNDER A CONTRACT AND FURTHER INCLUDES OBTAINING BY ANY OF SUCH ORGANIZATIONS. SUPPLY OF LABOUR UNDER CONTRACT WIT H A CONTRACTOR FOR CARRYING OUT ITS WORK WHICH WOULD HAVE FALLEN OUTSIDE WORK BUT FOR SPECIFIC INCLUSION IN THE SUB SECTION. 15. NOW LET US SEE WHAT IS THE MEANING OF FEE FOR TECHNICAL SERVICES. THE MEANING OF FEE FOR TECHNICAL SERVICES PROVIDED IN EXPLANATION (2) OF SECTION 9(1)(VII) READS AS UNDER: EXPLANATION (2) FOR THE PURPOSES OF THIS CLAUSE , FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGER IAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOPES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJ ECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOM E OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. ITA NO.924721 & 924/RJT/2010 11 FROM THE ABOVE DISCUSSION WE FIND THAT FEE FOR TECH NICAL SERVICES INCLUDES PAYMENT OF CONSIDERATION FOR RENDERING OF FOLLOWING SERVICES: (A) MANAGERIAL, (B) TECHNICAL OR CONSULTANCY SERVICES (C) PROVISION OF SERVICES OF TECHNICAL OR OTHER PER SONNEL. 16. FEE FOR TECHNICAL SERVICES DOES NOT INCLUDES FOLLOWING CONSIDERATION - (I) CONSTRUCTION (II) ASSEMBLY (III) MINING OR LIKE PROJECT 17. A PERUSAL OF ANNUAL MAINTENANCE CONTRACT BETWEE N ASSESSEE AND M/S MCNALLY BHARAT ENGINEERING COMPANY LTD, OTIS ELEVAT ORS, WE NOTICE THAT THE AM CONTRACTOR SHALL CARRY OUT ALL REPAIRS AS PER DETAI LED DESCRIPTION IN THE AGREEMENTS. FROM THESE AGREEMENTS WE DID NOT FIND THAT THESE CONTRACTS WERE IN RESPECT OF MANAGERIAL OR TECHNICAL OR CONSULTANCY S ERVICES. THUS, IT IS CLEAR THAT THESE AGREEMENTS WERE RELATED TO ANNUAL MAINTENANCE OF MACHINERIES AND NOT FOR TECHNICAL SERVICES. THE REVENUE IN VIEW OF THE FACT THAT THE CONTRACTORS HAVE UTILIZED SERVICES OF TECHNICAL PERSONS PRESUMED THA T THE ASSESSEE MADE PAYMENTS FOR TECHNICAL SERVICES. FOR THIS PRESUMPT ION WE DO NOT AGREE WITH THE REVENUE. IT MAY BE TECHNICAL SERVICES FOR CONTRACT OR BUT NOT FOR THE ASSESSEE. THE CASE OF ASSESSEE IS SIMPLY A CASE OF ANNUAL MAI NTENANCE OF MACHINERIES FOR SECTION 194J IS NOT APPLICABLE, WE THEREFORE HOLD A CCORDINGLY. ITA NO.924721 & 924/RJT/2010 12 18. AS REGARDS PILOTAGE PAYMENTS, ON PERUSAL OF REL EVANT AGREEMENT WE NOTICE THAT THE ASSESSEE HAS ENGAGED PILOTS ON CONTRACT BA SIS FOR KANDLA PILOTAGE OPERATION ON PERIODICAL BASIS. IT IS PROVIDED IN T HE CONTRACT AGREEMENT THAT CONTRACT PILOTS WILL BE TREATED AS AN EMPLOYEE OF K ANDLA PORT TRUST FROM TIME TO TIME. HE GOES TO THE SHIP OR LEVY LEAVE THE JETTY FOR PILOTAGE WORK. TILL HE RETURNS TO THE JETTY, AFTER COMPLETION OF PILOTAGE OPERATIO N FOR THE PURPOSE OF TAKING RESPONSIBILITY FOR INJURIES SUSTAINED BY HIM DURING THE COURSE OF PILOTAGE OPERATION. THE PILOTS ENGAGED FOR KANDLA, VADINAR WILL BE AVAILABLE FOR PILOTAGE JOB AT EITHER PLACE IN EXIGENCIES. THE PAYMENT IS PROVIDED TO BE MADE FOR DAYS. HE IS AVAILABLE FOR PILOTAGE OPERATION. THE OTHER CONDITION IN THE AGREEMENT ARE IN RESPECT OF ENGAGEMENT OF INITIAL PERIOD, TERMINA TION OF THE CONTRACT BY GIVING ONE MONTH NOTICE, ACCOMMODATION, MEDICAL FACILITIES , ETC. ON CONSIDERATION OF THE TERMS AND CONDITION OF THE AGREEMENT AND ABOVE DEFINITION OF TECHNICAL SERVICES WE FIND THAT THE PAYMENT TO PILOTS IS IN T HE NATURE OF SALARY AS THEIR CONTRACTS AGREEMENT WERE NOT FOR MANAGERIAL AND TEC HNICAL OR CONSULTANCY SERVICES. WE, THEREFORE, ARE OF THE VIEW THAT THE PAYMENT MADE TO PILOTS IS NOT COVERED BY SECTION 194J OF THE ACT. WE HOLD ACCORD INGLY. 19. EVEN OTHERWISE ALSO THE ALTERNATIVE CONTENTION OF THE ASSESSEE IS ACCEPTABLE IN THE LIGHT OF THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES PVT LTD VS CIT WHEREI N IT HAS BEEN HELD THAT IF PAYEE HAS ALREADY PAID TAX DUE ON THE PAYMENT RECEI VED BY HIM FROM THE ITA NO.924721 & 924/RJT/2010 13 ASSESSEE, THE TAX COULD NOT BE RECOVERED ONCE AGAIN FROM THE DEDUCTOR. THE ASSESSEE HAS FURNISHED THE LIST OF SUCH PILOTS ALON G WITH THEIR PAN. 20. NOW COMING TO THE NEXT ISSUE WHETHER UNDER THE FACTS AND CIRCUMSTANCES, THE PAYMENT MADE BY THE ASSESSE FOR VEHICLE HIRE IS COVERED AS RENT AS PROVIDED IN SECTION 194I OF THE ACT. SECTION 194I PROVIDES THAT ANY PERSON NOT BEING ANY INDIVIDUAL OR HUF WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF RENT SHALL AT THE ITEM OF CREDIT FOR SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THERE ON AT THE PRESCRIBED RATE. EXPLANATION (I) TO SECTION 194-I DEFINES RENT AS PAYMENT FOR LAND OR BUILDING INCLUDING FACTORY BUILDING OR LAND APPURTENANT TO T HE BUILDING INCLUDING THE FACTORY BUILDING OR MACHINERY OR PLANT OR EQUIPMENT OR FURN ITURE OR FITTINGS WHETHER OR NOT ANY OR WHOLE OF THE ABOVE ARE OWNED BY THE PAYEE. IN THE CASE UNDER CONSIDERATION. THE ASSESSEE ENTERED INTO AGREEMENT WITH THAKKAR TRAVELS FOR HIRING OF VEHICLES, TATA INDO, DIESEL TATA SUMO, TA TA QUALIS, HONDA CITY AND MARUTI, ETC. IN THE SAID AGREEMENT IT IS PROVIDED THAT THE RATES AT WHICH THE PAYMENTS WILL BE MADE FOR NORMAL RUNNING OF 12 HOUR S FROM TIME OF REPORTING AND FOR DEPLOYMENT BEYOND 12 HOURS. IN THE AGREEMENT N OWHERE IT IS STATED THAT THE POSSESSION OF THE VEHICLES WERE GIVEN TO THE ASSESS EE. THE ITAT, MUMBAI BENCH IN THE CASE OF VODAFONE ESSAR LTD VS DCIT 135 TTJ (MUM)385 WHILE DEALING WITH SECTION 194I HELD THAT MERELY MAKING U SE OF THE FACILITY WITHOUT ITA NO.924721 & 924/RJT/2010 14 HIMSELF USING THE EQUIPMENT AND WITHOUT TAKING POSS ESSION THE PAYMENT CANNOT BE SAID TO BE A RENT. THE RELEVANT FINDING OF THE ITAT ARE REPRODUCED BELOW: 14. WE MAY NOW REFER TO A FEW AUTHORITIES CITED BY BOTH THE SIDES. FROM THE ASSESSEES SIDE REFERENCE WAS MADE TO THE DECISION OF THE AAR IN DELL INTERNATIONAL SERVICES INDIA (P) LTD, IN RE (2008) 218 CTR (AAR) 209 : (2008) 305 ITR 37 (AA R). THIS DECISION SEEMS TO SUGGEST THAT THE USER OF ANY EQUI PMENT SHOULD HAVE SOME RIGHT OVER THE EQUIPMENT AND FURTHER THAT THERE SHOULD BE SOME DEDUCTED MACHINERY OR EQUIPMENT INSTEAD OF A COMMON INFRASTRUCTURE WHICH CAN BE USED BY VARIOUS OPERATO RS TO PROVIDE SERVICES. IT WAS ALSO OBSERVED FURTHER THAT THERE SHOULD BE SOME DEDICATED MACHINERY OR EQUIPMENT INSTEAD OF A COMMO N INFRASTRUCTURE WHICH CAN BE USED BY VARIOUS OPERATO RS TO PROVIDE SERVICES. IT WAS ALSO OBSERVED THAT THERE SHOULD B E A RIGHT TO EXCLUSIVE POSSESSION OR CUSTODY OF THE EQUIPMENT AN D ENJOYMENT THAT OVER A STIPULATED PERIOD OF TIME IN ORDER THAT A PAYMENT CAN BE SAID TO BE RENT. BUT THE MORE IMPORTANT OBSERVATIO N IN THIS ORDER IS AS TO THE MEANING AND IMPORT OF THE WORD USE IN R ELATION TO ANY EQUIPMENT IS NOT TO BE UNDERSTOOD IN THE BROAD SENS E OF AVAILING OF THE BENEFIT OF AN EQUIPMENT, BUT IT INDICATED THAT THERE MUST BE SOME POSITIVE ACT OF UTILIZATION, APPLICATION OR EM PLOYMENT OF THE EQUIPMENT FOR THE DESIRED PURPOSE. IT WAS HELD THA T IF AN ADVANTAGE WAS TAKEN FROM SOPHISTICATED EQUIPMENT INSTALLED AN D PROVIDED BY ANOTHER, IT COULD NOT BE SAID THAT THE CUSTOMER USE D THE EQUIPMENT, IT WOULD BE A CASE OF A CUSTOMER MERELY MAKING USE OF THE FACILITY WITHOUT HIMSELF USING THE EQUIPMENT. IT WAS NECESS ARY, ACCORDING TO THE DECISION THAT THE CUSTOMER CAME FACE TO FACE WITH THE EQUIPMENT, OPERATED IT OR CONTROLLED ITS FUNCTIONS IN SOME MANNER. BUT IF THE CUSTOMER DID NOTHING TO OR WITH THE EQUI PMENT AND DID NOT EXERCISE ANY POSSESSORY RIGHTS IN RELATION THERETO, IT CAN ONLY BE SAID THAT HE MADE USE OF THE FACILITY CREATED BY TH E SERVICE PROVIDER WHO WAS THE OWNER OF THE ENTIRE NETWORK AND RELATED EQUIPMENT. IN THIS CASE THE AAR WAS DEALING WITH A PRIVATE COMPAN Y REGISTERED IN INDIA WHICH WAS MAINLY ENGAGED IN THE BUSINESS OF P ROVIDING CALL CENTRE, DATA PROCESSING AND INFORMATION TECHNOLOGY SUPPORT SERVICES TO THE DELL GROUP OF COMPANIES. A NON-RES IDENT COMPANY KNOWN AS BT, WHICH WAS REGISTERED IN THE USA, PROVI DED THE ASSESSEE WITH TWO-WAY TRANSMISSION OF VOICE AND DAT A THROUGH TELECOM BANDWIDTH. THE ASSESSEE HAD TO PAY FIXED M ONTHLY RECURRING CHARGES FOR THE CIRCUIT BETWEEN USA AND I RELAND AND IRELAND TO INDIA NET OF INDIAN TAXES. THERE WAS NO EQUIPMENT OF BT IN THE ASSESSEES PREMISES AND THE ASSESSEE HAD NO RIGHT OVER ANY ITA NO.924721 & 924/RJT/2010 15 EQUIPMENT HELD BY BT FOR PROVIDING THE BANDWIDTH. THE FIBER LINK CABLES AND OTHER EQUIPMENT WERE USED FOR ALL CUSTOM ERS OF BT INCLUDING THE ASSESSEE. THE BANDWIDTH WAS PROVIDED THROUGH A HUGE NETWORK OF OPTICAL FIBER CABLES LAID UNDER SEA S ACROSS SEVERAL COUNTRIES OF WHICH BT USED ONLY A SMALL FRACTION. THE QUESTION AROSE AS TO THE NATURE OF THE MONTHLY RECURRING CHA RGES PAID BY THE ASSESSE TO BT. THE DEPARTMENTS CASE WAS THAT THE PAYMENT FELL UNDER S.9(1)(VI) OF THE IT ACT AND WAS TO BE TREATE D AS ROYALTY. THE WORD ROYALTY WA DEFINED IN EXPLN.2 BELOW THE SECT ION AND CL.(IVA) OF THE EXPLANATION STIPULATED THAT ANY CONSIDERATIO N FOR THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTI FIC EQUIPMENT WOULD BE CONSIDERED AS ROYALTY. THE QUESTION WHICH THE AAR WAS REQUIRED TO CONSIDER WAS WHETHER THE ASSESSEE COULD BE SAID TO HAVE PAID THE MONTHLY RECURRING CHARGES TO BT FOR T HE USE OF ANY SUCH EQUIPMENT. THE CASE OF THE ASSESSEE BEFORE US IS PROBABLY STRONGER BECAUSE OF THE MORE STRINGENT LANGUAGE USE D IN S.194-I EVEN IF THE RULE OF EJUSDEM GENERIC IS CONSIDERED R IGHTLY APPLICABLE. 21. IN THE LIGHT OF ABOVE DISCUSSION WE FIND THAT I N THE CASE UNDER CONSIDERATION THE ASSESSEE DID NOT TAKE POSSESSION OF THE VEHICLES. THEREFORE, THE PAYMENT MADE CANNOT BE SAID TO BE RENT AS PRO VIDED IN SECTION 194-I OF THE ACT. WE HOLD ACCORDINGLY. 22. THE FACTS OF BOTH THE APPEALS FOR ASSESSMENT YE ARS 2007-08 AND 2008-09 ARE IDENTICAL. THEREFORE, BOTH THE APPEALS ARE DECI DED AS DISCUSSED ABOVE. 23. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON -10-2011. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : OCTOBER, 2011 PK/- ORDER PRONOUNCED ON 11-11-2011 SD/- SD/- JM AM ITA NO.924721 & 924/RJT/2010 16 COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-II, AHMEDABAD 4. THE CIT-I, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT