ITO, Ward-15(1), Hyderabad V. M/s Prithvi Information Solutions Limited, Hyderabad

ITA 992/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77975 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: P MURALI MOHAN RAO
• Section: 133A; 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1038, 1039 & 1040/HYD/2013 ASSESSMENT YEAR 2005-06, 2006-07 & 2007-08 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD PAN AACCP5281F VS. ITO, WARD 15(1) (TDS) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.991 & 992/HYD/2013 ASSESSMENT YEAR 2005-06 & 2006-07 ITO, WARD 15(1) (TDS) HYDERABAD. VS. M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD PAN AACCP5281F (APPELLANT) (RESPONDENT) FOR ASSESSEE: MR. P. MURALIMOHAN RAO FOR REVENUE: MR. B. YADAGIRI DATE OF HEARING: 08.05.2014 DATE OF PRONOUNCEMENT: 27.06.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE 5 APPEALS ARE BY ASSESSEE AND REVENUE FOR A.YS. 2005-06, 2006-07 AND 2007-08. IN ALL THE YEAR S, THE ISSUE IS WITH REFERENCE TO LEVY OF TAX AS SHORT DED UCTION OF TAX UNDER SECTION 201 AND INTEREST UNDER SECTION 201(1A ) OF THE I.T. ACT, 1961. 2. WE HAVE HEARD THE LD. COUNSEL AND LD. D.R. AND PERUSED THE DOCUMENTS PLACED ON RECORD. 2 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD 3. BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN ON- SITE AND OFF-SITE AS OFFSHORE SOFTWARE DEVELOPMENT/ PROCESS OUTSOURCING. A SURVEY U/S. 133A WAS CONDUCTED IN TH E CASE OF ASSESSEE ON 21.09.2006 AND ITS DETAILS OF EXPENDITU RE UNDER DIFFERENT HEADS WERE CALLED FOR TO VERIFY THE TDS L IABILITY OF ASSESSEE. AFTER VERIFICATION OF THE DETAILS FILED B Y ASSESSEE AO NOTICED THAT ASSESSEE HAS BEEN DEDUCTING TAX AT SOU RCE ON SALARIES, RENT, CONTRACT AND PROFESSIONAL CHARGES B UT ON THE EXPENDITURE BOOKED TOWARDS SOFTWARE DEVELOPMENT, TD S WAS DONE U/S. 194C BUT NOT U/S. 194J AS REQUIRED. AFTER VERIFYING THE INVOICES/BILLS AND AGREEMENTS FOR THE EXPENDITU RE BOOKED TOWARDS SOFTWARE DEVELOPMENT CHARGES, A.O. NOTICED THAT THE SOFTWARE DEVELOPMENT CHARGES IN INDIA IN FACT WERE THE PAYMENTS TOWARDS TECHNICAL SERVICES/FEES AND LIABLE FOR TDS U/S. 194J. AFTER EXAMINING THE AGREEMENT COPIES WIT H THE COMPANIES WITH WHICH ASSESSEE ENTERED INTO AGREEMEN T FOR THE A.Y. 2004-05 FOR SOFTWARE DEVELOPMENT SERVICES, A.O . CONCLUDED THAT EXPENDITURE WAS FEES FOR PROFESSIONA L SERVICES AND TECHNICAL SERVICES AND COVERED BY SECTION 194J OF THE ACT AND ACCORDINGLY CALCULATED THE TAX AND INTEREST OF RS.18,06,000/- U/S. 201(1) R.W.S. 194J AND RS.14,17 ,170/- U/S.201(1A) OF THE ACT AND REDUCED THE AMOUNT OF RS.7,22,4090/- OF TDS MADE U/S. 194C BY ASSESSEE AN D RAISED THE TOTAL DEMAND OF RS.25,01,310/-. 3.1. LIKEWISE, IN FINANCIAL YEAR 2006-07 THE DEMAN DS ARE RAISED AS UNDER : (I) TDS U/S. 194J RS.10,96,452/- (II) INTEREST U/S.201(1A) RS. 7,28,674/- -------------------- RS.18,25,026/- 3 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD 3.2 LIKEWISE, IN FINANCIAL YEAR 2007-08 THE DEMAND S ARE RAISED AS UNDER : (I) TDS U/S. 194J RS.1,68,89,432/- (II) INTEREST U/S.201(1A) RS . 92,04,396/- ---------------------- RS.2,60,93,828/- ----------------------- 3.3. IT WAS THE CONTENTION OF ASSESSEE THAT IT HAS ENTERED INTO AGREEMENTS WITH VARIOUS COMPANIES FOR UNDERTAKING THE WORK FOR DEVELOPMENT OF SOFTWARE AN D I.T. ENABLED SERVICES AND VARIOUS MODULES FOR EFFECTIVE MANAGEMENT INFORMATION SYSTEM OF EXCHANGE OF INFORM ATION BETWEEN HEAD OFFICE IN INDIA AND ITS EMPLOYEES WORK ING AT VARIOUS CLIENTS SITES. IT WAS THE CONTENTION THAT THIS IS A CONTRACT FOR ESTABLISHING THE MANAGEMENT INFORMATIO N SYSTEM AND NOT PROVISION OF TECHNICAL SERVICES AND THEREFO RE, ASSESSEE HAS DEDUCTED TAX UNDER THE PROVISION OF 194C OF THE ACT. A.O. WAS OF THE OPINION THAT THESE PAYMENTS ARE NOT CONT RACT PAYMENTS BUT PAYMENTS FOR PROVISION OF SOFTWARE SER VICES WHICH COME UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. ACCORDINGLY, A.O. RAISED THE DEMANDS. 4. ASSESSEE CONTENDED BEFORE THE LD. CIT(A) ABOUT THE NATURE OF WORKING AND THE FACT THAT VARIOUS PAY MENTS WERE COVERED BY PROVISIONS OF SECTION 194C AND MADE DETA ILED SUBMISSIONS WHICH WAS SENT TO THE A.O. FOR OFFERING THE COMMENTS ON REMAND. AFTER CONSIDERING THE SAME, LD. CIT(A) UPHELD THE A.OS CONTENTION BY STATING AS UNDER : 4 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD 5. THE REMAND REPORT AND THE REPLY OF THE APPELLAN T HAVE BEEN CONSIDERED AND I AM IN AGREEMENT WITH THE ARGUMENT OF THE ADDL. CIT AND IT IS THE CONTENT OF THE CONTRACT WHICH DETERMINES THE NATURE OF SERVICE REN DERED AND NOT THE CONTRACT PER SE. A CONTRACT MAY BE ENTE RED INTO FOR COMPLETING A CIVIL WORK OR FOR RENDERING LEGAL CONSULTANCY OR FOR RENDERING ANY TECHNICAL SERVICES BUT THE NAT URE OF SERVICES BEING RENDERED IN ALL THESE THREE INSTANCE S IS DIFFERENT AND MERE EXISTENCE OF CONTRACT IS NOT DEC ISIVE IN ITSELF FOR CATEGORIZING THE ACTIVITY. THE VENDOR CO MPANIES HAVE PROVIDED THE TECHNICAL SERVICES FOR AN EFFECTI VE MANAGEMENT INFORMATION SYSTEM FOR EXCHANGE OF INFOR MATION BETWEEN THE HEAD OFFICE IN INDIA AND ITS EMPLOYEES WORKING AT VARIOUS CLIENT SITES IN RESPECT OF DIVERSIFIED S ECTORS SUCH AS HEALTH CARE, TELECOM, BANKING AND FINANCIAL ETC. , SINCE THE NEED FOR SUCH SOFTWARE IS FOR REVIEWING THE PROGRES S OF WORK EXECUTED BY THE EMPLOYEES OF THE APPELLANT COMPANY AT CLIENTS SITES WHICH REQUIRES TECHNICAL EXPERTISE I N ALL THESE DIVERSE FIELDS AND THEREFORE, THE NATURE OF SERVICE S RENDERED CAN ONLY BE CATEGORISED AS TECHNICAL SERVICES/PROFE SSIONAL SERVICES. ACCORDINGLY, THE A.O. IS JUSTIFIED IN APP LYING THE PROVISIONS OF SECTION 194J OF THE I.T. ACT AND THER EFORE, THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 5. WHILE CONFIRMING THE ACTION OF THE A.O., LD. CI T(A) HOWEVER, GAVE DIRECTION TO THE A.O. THAT THE TAXES CANNOT BE COLLECTED AGAIN ONCE THE TAXES HAVE BEEN PAID BY TH E DEDUCTEES IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. HINDUSTAN COCA COLA BEVERAGES P. LTD., 293 ITR 226 (SC) AND THE A.O. WAS DIRECTED TO VERIFY IF THE VENDOR-D EDUCTEES HAVE PAID THE TAXES ON THE INCOME RECEIVED FROM ASS ESSEE AND IF HE WAS SATISFIED, TO DELETE THE DEMAND RAISED UN DER SECTION 201(1) OF THE I.T. ACT AND TO RE-CALCULATE THE INTE REST UNDER SECTION 201(1A) OF THE I.T. ACT, AS PER LAW. 6. EVEN THOUGH LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. TO THE EXTENT OF APPLICATION OF PROVISIONS OF SECTION 194J, 5 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD SURPRISINGLY REVENUE HAS RAISED THE GROUNDS AS UNDE R IN ITS APPEALS IN ITA.NO.991/HYD/2013 & ITA.NO.992/HYD/201 3 : A.Y. 2005-06 : 1. THE ORDER OF THE CIT(A)-II IS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE. 2. THE CIT(A)-II, HYDERABAD HAS ERRED IN NOT DECIDI NG THE CORE ISSUE OF THE PROVISIONS OF THE ACT WITH REGARD TO APPLICABILITY OF SECTION 194C OR 194J WHICH COVERS SUCH PAYMENTS IMPUGNED IN APPEAL. 3. ANY OTHER MATTER THAT MAY BE URGED DURING THE CO URSE OF APPELLATE PROCEEDINGS. 6.1 AS CAN BE SEEN FROM THE ORDER OF THE LD. CIT(A ), LD. CIT(A) UPHELD THE CONTENTION OF THE A.O. THAT T HE AMOUNTS ARE COVERED BY THE PROVISIONS OF SECTION 194J. IN F ACT, ASSESSEE ALSO PREFERRED THE APPEAL ON THE SAME ISSUE. WE ARE SURPRISED THAT REVENUE IS CONTESTING ON AN ISSUE WHICH WAS D ECIDED IN ITS FAVOUR, WHICH INDICATES THE NON-APPLICATION OF MIND NOT ONLY BY THE A.O. BUT ALSO BY THE LD. CIT-(TDS), WHO APPROVED THE FILING OF APPEAL. THIS SORT OF MINDLESS ACTION BY THE REVENUE DOES ATTRACT LEVY OF COST. HOWEVER, WE REFR AIN FROM DOING SO. WE ADVISE THE REVENUE AUTHORITIES TO APPL Y THEIR MIND BEFORE PREFERRING APPEALS TO ITAT. REVENUE APP EALS, THEREFORE, ARE INFRUCTUOUS AND ACCORDINGLY DISMISSE D. 7. IN THE RESULT, APPEALS ITA.NO.990 & 991/HYD/2013 OF THE REVENUE ARE DISMISSED. 6 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD ITA.NO.1038, 1039/HYD/2013 AY 2005-06, AY 2006-07 8. COMING TO ASSESSEES APPEALS FOR THE A.YS. 2005 - 06 AND 2006-07 ASSESSEE HAS RAISED COMMON GROUNDS A ND FOR THE SAKE OF RECORD, GROUNDS IN A.Y. 2005-06 ARE EXT RACTED : A.Y. 2005-06 : 1. THE LD. CIT(A)-II, HYDERABAD ERRED BOTH IN LAW AND ON FACTS WHILE PARTLY ALLOWING THE APPEAL. 2. THE LD. CIT(A)-II, HYDERABAD ERRED IN CONFIRMING THE ACTION OF THE A.O. IN COMPUTING SHORT DEDUCTION OF TAX AND INTEREST OF RS.10,83,600/- & RS.14,17,710/- U/S. 201(1) AND 201(1A) RESPECTIVELY. 3. THE LD. CIT(A)-II, HYDERABAD ERRED IN JUSTIFYING THE ACTION OF THE A.O. IN APPLYING THE PROVISIONS OF SE C. 194J INSTEAD OF THE PROVISIONS OF SECTION 194C OF THE I.T. ACT, 1961. 4. THE LD. CIT(A)-II, HYDERABAD OUGHT TO HAVE APPRECIATED THAT THE CONTRACT PAYMENTS MADE ARE COVERED UNDER THE PROVISIONS OF SECTION 194C AND ACCORDINGLY TDS HAS TO BE MADE. 5. THE LD. CIT(A)-II, HYDERABAD OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS ENTERED INTO CONTRACT AGREEMENTS FOR PERFORMING THE SERVICES WITH VARIOUS PARTIES. 6. ASSESSEE MAY ADD, ALTER OR MODIFY ANY OTHER POIN T TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL. 9. AS BRIEFLY STATED, ASSESSEE HAS ENTERED INTO AGREEMENTS WITH M/S. CAM SOFT INDIA P. LTD. INTEGRA TELECOMMUNICATIONS & SOFTWARE LTD., ZUDA INFORMATIO N TECHNOLOGY P. LTD., HIGHTEC COMPUTECH P. LTD., M/S. GLOBAL INFOSYSTEMS LTD., VENDORS WHO ARE LOCATED IN INDIA FOR UNDERTAKING CERTAIN WORKS IN INFORMATION SYSTEMS. A SSESSEE 7 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD DEDUCTED TAX AT SOURCE UNDER SECTION 194C AND REMIT TED THE SAME TO THE GOVERNMENT ACCOUNT. IT WAS THE CONTENTI ON THAT THE WORKS UNDERTAKEN WERE NOT OF CONTRACT TO FALL UNDER SECTION 194C, BUT FEES FOR TECHNICAL SERVICES. ASSE SSEE- COMPANY SUBMITTED THAT IT DID NOT PAY ANY FEES TOWA RDS PROFESSIONAL/TECHNICAL SERVICES AS CONSIDERED BY TH E A.O. THE LD. CIT(A) REMANDED MATTER TO THE A.O. AND OBTAINED THE REMAND REPORT. A.O. ANALYSED THE PROVISIONS OF 194J READ WITH EXPLANATION-2 TO SECTION 9(1)(VII) TO COME TO THE D ECISION THAT FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION FOR RENDERING ANY MANAGERIAL TECHNICAL OR CONSULTANCY S ERVICES. HE HAS GIVEN A DETAILED NOTE TO THE LD. CIT(A) WHICH W AS ALSO EXTRACTED IN THE IMPUGNED ORDER. THE CONTENTIONS AS EXTRACTED BY LD. CIT(A) IN PARA 4.1 OF THE A.O. ARE AS UNDER : 4.1 THE ADDL.CIT, IN HIS FORWARDING NOTE HAS SUBMITTED AS UNDER: 2.2 THE ASSESSING OFFICER HAS SUBMITTED THE COMMENT S FOR ALL THE THREE YEARS. DURING THE REMAND PROCEEDI NGS, ASSESSEE WAS REQUESTED TO FILE COPIES OF AGREEMENTS ETC., ENTERED INTO BY ASSESSEE WITH THESE JOUR COMPANIES. COPIES OF AGREEMENTS FILED BY ASSESSEE A RE ENCLOSED TO THIS REPORT. THE CORRESPONDENCE WITH M/ S. GLOBAL INFOSYSTEMS LIMITED IS DATED 15.10.2005, WITH M/S. HITEC COMPUTECH. PVT. LTD. IS DATED 01.09.2005, WITH MI S. INTEGRA TELECOMMUNICATIONS & SOFTWARE LIMITED IS DATED 01.10.2005 AND WITH CAM SOFT (INDIA) PVT. LTD. IS DATED 01.09.2005. THE CONTENT OF THE CORRESPONDENCE WITH ALL THESE SERVICE PROVIDERS IS THE SAME. AS CAN BE SEEN FROM THE CONTRACT TERMS, ASSESSEE HAS REQUESTED THESE COMPANIES FOR DEVELOPMENT OF SOFTWARE & IT ENABLED SERVICES WITH VARIOUS MODULES. ASSESSEE HAS EXPLICITLY MENTIONED THAT IT HAS A STRONG PRESENCE WITH OVER 800 EMPLOYE ES WORKING AT SEVERAL OF ITS CLIENT'S SITES. ASSESSEE' S CLIENTELE ARE OPERATING IN VARIOUS SECTORS LIKE 8 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD HEALTHCARE, TELECOM, RETAILING, INSURANCE AND BANKI NG & FINANCIAL SERVICES. ASSESSEE PUT ON RECORD ITS NEED FOR AN 'EFFECTIVE MANAGEMENT INFORMATION SYSTEMS' FOR EXCHANGE OF INFORMATION BETWEEN THE HEAD OFFICE IN INDIA AND ITS EMPLOYEES WORKING AT VARIOUS CLIENTS SITES. THE NEED JAR SUCH SOFTWARE IS FOR REVIEWING THE PROGRESS OF WORK EXECUTION BY THE EMPLOYEES OF ASSESSEE COMPANY AT CLIENT'S SITES. ASSESSEE HAD PA ID HUGE AMOUNTS TO THESE COMPANIES FOR BEING PROVIDED WITH THE SOFTWARE SERVICES. 2.3. A PERUSAL OF THE DOCUMENTS MAKES IT EVIDENT THAT ASSESSEE IS IN THE BUSINESS OF INFORMATION. TECHNOLOGY AND I.T. ENABLED SERVICES. ASSESSEE HAS DIVERSIFIED CLIENTS RANGING FROM HEALTHCARE TO TELECOM, BANKING AND FINANCIAL SERVICES. THE REQUIREMENT FOR EACH SECTOR IS DISTINCT AS THEY ARE INTO SPECIALIZED ACTIVITIES LIKE INSURANCE, HEALTHCARE ETC. THE SOFT WARE SOLUTIONS I SERVICES REQUIRED BY ASSESSEE COMPANY A RE HIGHLY SPECIALIZED IN NATURE AND THEY ARE MADE TO ORDER AS PER THE REQUIREMENTS OF ASSESSEE COMPANY. IT IS WORTH MENTIONING HERE THAT ASSESSEE HIMSELF HAS LAID DOWN THE CLAUSE THAT THE REQUIRED SOFTWARE/SERVICES SHOULD BE PROVIDED WITHIN THE PERIOD OF 90 DAYS BY THESE COMPANIES AND THAT IF THE SOLUTIONS OFFERED BY THESE COMPANIES IS NOT FOUND ACCEPTABLE, THEN SUCH COMPANIES WOULD MODIFY AND PROVIDE WITH NEW SOLUTIONS. THEREFORE, IT IS EVIDEN TLY A CASE OF ASSESSEE COMPANY PROCURING 'PROFESSIONAL SERVICES FROM' VARIOUS COMPANIES FOR DEVELOPING IT S OWN MIS SOFTWARE WHICH INTURN WOULD HELP ASSESSEE, MONITOR THE PROGRESS OF WORK AT VARIOUS CLIENTS SI TES WHO ARE ENGAGED IN HIGHLY SPECIALIZED AND DIVERSIFI ED ACTIVITIES HAVING NO COMMANOLITY IN THE NATURE OF BUSINESS. THEREFORE, THE SERVICES OBTAINED BY ASSES SEE IS NOT A CASE OF MERE EXECUTION OF ANY CONTRACT. ON THE OTHER HAND, THE PROFESSIONAL SERVICES PROCURED BY ASSESSEE ARE HIGHLY SPECIALIZED CALLING FOR TECHNI QUES OF APPLIED ENGINEERING. THE FIELD OF ELECTRONICS IS NOTHING BUT APPLIED ENGINEERING AND THE FIELD OF INFORMATION TECHNOLOGY IS NOTHING BUT APPLIED ELECTRONICS. IN OTHER WORDS, IT IS A SUPER SPECIALTY WITHIN THE FIELD OF ENGINEERING AND ANY SERVICES RENDERED IN SUCH SPHERE OF ACTIVITY CANNOT BE ANYTH ING 9 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD OTHER THAN 'PROFESSIONAL SERVICES'. THEREFORE, THE ASSESSING OFFICER HAD RIGHTLY CONCLUDED THAT THE NA TURE OF ACTIVITIES ARE COVERED UNDER SEC. 194J OF THE I. T. ACT. IT MAY NOT BE OUT OF PLACE TO MENTION HERE THAT ANY AGREEMENT BETWEEN TWO PARTIES IS IN THE NATURE OF CONTRACT. HOWEVER, THE NATURE OF A CONTRACT DIFFERS FROM ACTIVITY TO ACTIVITY. A CONTRACT MAY BE ENTERED INT O FOR COMPLETING A CIVIL WORK OR FOR RENDERING LEGAL CONSULTANCY OR FOR RENDERING ANY TECHNICAL SERVICES . BUT, THE NATURE OF SERVICES BEING RENDERED IN ALL T HESE THREE INSTANCES IS DIFFERENT. THEREFORE, MERE EXISTENCE OF CONTRACT IS NOT DECISIVE IN ITSELF FOR CATEGORIZING THE ACTIVITY UNDER SEC. 194C OF THE ACT. WHAT IS REQUIRED TO BE SEEN IS THE NATURE AND CONTENT OF CONTRACT AND T HE NATURE OF SERVICES BEING RENDERED AS PER THE CONTRA CT. THE COMMENTS OF AO ARE DULY RECOMMENDED ON THIS ISSUE. 4.2 THE REMAND REPORT WAS FORWARDED TO THE APPELLANT FOR ITS COMMENTS/OBJECTIONS AND THE APPELLANT VIDE ITS LETTER DATED 07.03.2013 HAS REITERATED WHAT WAS STATED DURING THE ASSESSMENT PROCEEDINGS AND THE REMAND PROCEEDINGS AND MADE AN ALTERNATE PLEA THAT SINCE THE VENDOR/DEDUCTEES MUST HAVE PAID THE TAXES ON THE INCOME RECEIVED FROM THE APPELLANT NO DEMAND U/S.201(1) CAN BE RAISED AGAIN ON THE, DEDUCTOR APPELLANT IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES PVT. LTD. VS. CIT (293 ITR 226). BASED ON THE ABOVE DETAILED NOTE OF THE A.O. LD. C IT(A) CONFIRMED THAT THE SERVICES RENDERED CAN ONLY BE CA TEGORISED AS TECHNICAL SERVICES OR PROFESSIONAL SERVICES. 10. IT WAS THE CONTENTION OF THE LD. COUNSEL T HAT THOSE COMPANIES HAVE NOT RENDERED ANY TECHNICAL OR PROFES SIONAL OR MANAGERIAL SERVICES SO AS TO COME UNDER THE DEFINIT ION OF SEC. 9(1)(VII). ASSESSEE EVEN THOUGH IS IN THE BUSINESS OF SOFTWARE SERVICES, HAS NOT UNDERTAKEN ANY SOFTWARE SERVICES FROM THEM 10 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD BUT ASKED THEM TO BUILD A SYSTEM FOR INFORMATION MA NAGEMENT BETWEEN HEAD OFFICE AND ITS ON-SITE EMPLOYEES. THEY MAY BE USING THEIR COMPETENCE IN SOFTWARE SYSTEMS BUT AS F AR AS ASSESSEE IS CONCERNED, IT HAS GOT A PRODUCT IN THE FORM OF SOFTWARE PACKAGE AND THIS IS NOTHING BUT WORKS CONT RACT. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS ALREADY DED UCTED TAX UNDER SECTION 194C AND SO THE OPINION OF THE A.O. T HAT THESE SERVICES SHOULD BE CONSIDERED AS TECHNICAL DOES NOT HOLD GOOD. HE THEN REFERRED TO THE DEFINITION OF FEES FOR TECH NICAL SERVICES AS PER EXPLANATION-2 TO SECTION 9(1)(VII) REFERRED TO UNDER 194J. IT WAS THE SUBMISSION THAT SERVICES ARE NOT TECHNIC AL SERVICES SO AS TO CONSIDER UNDER SECTION 9(1)(VII) BUT ORDIN ARY CONTRACTUAL SERVICES WHICH COME UNDER 194C. 11. LD. D.R. HOWEVER, SUPPORTED THE ORDERS OF THE A.O. AND LD. CIT(A) WHO HAVE CONSIDERED THE ISSUE. 12. ISSUE AS CAN BE SEEN FROM THE ABOVE IS WHETHER THE PAYMENTS FOR WORK UNDERTAKEN BY ASSESSEE CAN BE CAT EGORISED UNDER SECTION 194C OR 194J. AS SEEN FROM THE CONTRA CTS ASSESSEE IS NOT ASKING THE OTHER COMPANY TO RENDER ANY PERSONAL SERVICES IN THE FIELD OF COMPUTERS BUT ASS IGNED THE CONTRACT FOR DEVELOPMENT OF INFORMATION SYSTEMS SO AS TO MANAGE THE ON-SITE EMPLOYEE WORK FOR WHICH VARIOUS AMOUNTS WERE PAID. THERE IS NO DISPUTE WITH REFERENCE TO TH E FACT THAT THOSE PACKAGES ARE TO BE DEVELOPED BY VENDORS. IN F ACT, A.O. AS WELL AS THE LD. CIT(A) ACCEPTS THAT THE RELATION SHIP IS VENDEE-VENDOR, AS REFERRED IN ORDER. CONSIDERING TH AT NATURE OF AGREEMENT AND THE WORK UNDERTAKEN ON BEHALF OF ASSE SSEE, WE ARE OF THE OPINION THAT PAYMENTS MADE TO THE VENDOR COMPANIES DO FALL UNDER 194C. EVEN THOUGH ASSESSEE IS IN THE 11 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD SOFTWARE BUSINESS AND SERVICES RENDERED/WORK UNDERT AKEN ARE ALSO ON THE FIELD OF SOFTWARE SERVICES, THESE CANNO T BE CONSIDERED AS PER PROFESSIONAL SERVICES AS THEY HAV E NOT RENDERED ANY PERSONAL SERVICES TO THE COMPANY. IT I S A CONTRACT BETWEEN A COMPANY AND COMPANY. EVEN THOUGH THE NATU RE OF CONTRACT DIFFERS FROM ACTIVITY TO ACTIVITY, ASSESSE ES NATURE OF WORK DO INDICATE THAT THOSE COMPANIES HAVE NOT REND ERED ANY TECHNICAL / PROFESSIONAL SERVICES SO AS TO COME WIT HIN THE DEFINITION OF SECTION 9(1)(VII). WE ARE OF THE OPIN ION THAT CATEGORIZATION OF WORKS CONTRACT AS AGREEMENT FOR S ERVICES CANNOT BE ACCEPTED. IN VIEW OF THIS, ASSESSEES CON TENTIONS ARE TO BE UPHELD. 13. THE COORDINATE BENCH IN THE CASE OF GLAXOSMITHKLINE PHARMACEUTICALS LTD., VS. ITO (2011 ) 48 SOT 643 CONSIDERED SIMILAR SERVICES AND HELD THAT PAYME NT MADE FOR SERVICES OF SECURITY GUARD PROVIDED BY CONTRACT OR CANNOT BE KEPT IN THE NATURE OF MANAGERIAL, TECHNICAL OR CONS ULTANCY SERVICES SO AS TO ATTRACT CLAUSE 7 TO SECTION 9(1) READ WITH SECTION 194J. IT WAS HELD THAT FOR TREATING THE PAY MENT FOR TECHNICAL SERVICES TO BE COVERED UNDER SECTION 194J , THERE SHOULD BE CONSIDERATION FOR ACQUIRING OR USING TECH NICAL KNOWHOW SIMPLICITOR PROVIDED, OR MADE AVAILABLE BY HUMAN ELEMENT AND THERE SHOULD BE DIRECT OR LIVE LINK BET WEEN PAYMENT AND RECEIPT/USE OF TECHNICAL SERVICES INFOR MATION. THE CONTENTIONS OF ASSESSEE THAT PAYMENT IS COVERED UND ER SECTION 194C WAS ACCEPTED. SIMILAR ARE THE FACTS IN THE PRE SENT CASE WHERE EVEN THOUGH SERVICES OF OTHER COMPANY IN THE FIELD OF COMPUTERS ARE AVAILED, WHAT ASSESSEE OBTAINED IS NO T A TECHNICAL SERVICE BUT A TECHNICAL PRODUCT IN THE FO RM OF 12 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD COMPUTER PACKAGE. THEREFORE, WE ARE OF THE OPINION THAT THE PAYMENTS MADE ARE RIGHTLY COVERED UNDER SECTION 194 C AND ASSESSEE HAS DEDUCTED TAX ACCORDINGLY. THE ACTION O F THE A.O. TO BRING IT UNDER SECTION 194J CANNOT BE SUSTAINED ON THE FACTS OF THE CASE. THEREFORE, THE DEMANDS TO THE EXTENT O F 201(1) CANNOT BE SUSTAINED. CONSEQUENTLY, THE INTEREST LEV IED UNDER SECTION 201(1A) ALSO CANNOT BE SUSTAINED. 14. EVEN THOUGH, LD. CIT(A), CONSIDERING THE HONB LE SUPREME COURT JUDGMENT IN THE CASE OF HINDUSTAN COC A COLA BEVERAGES LTD. (SUPRA), DIRECTED THE A.O. TO EXCLUD E AMOUNT WHICH ARE OFFERED TO TAX BY THE VENDORS THAT MAY BE COME ACADEMIC NOW AS WE HAVE HELD THAT PAYMENTS ARE NOT COVERED UNDER THE PROVISIONS OF SECTION 194J. TO THAT EXTEN T ORDERS OF CIT(A) ARE REVERSED AND A.O. IS DIRECTED TO DELETE THE AMOUNTS RAISED. ASSESSEES GROUNDS ARE ALLOWED. ITA.NO.1040/HYD/2013 - A Y 2007-2008 15. IN THIS APPEAL SIMILAR ISSUE IS INVOLVED. HOWE VER, AS SEEN FROM THE ORDER OF THE A.O. THERE ARE TWO SO RTS OF PAYMENTS INVOLVED. ONE SORT OF PAYMENT WAS SIMILAR TO PAYMENTS MADE IN A.YS. 2005-06 AND 2006-07 TO INDIA N RESIDENT COMPANIES. THIS ISSUE ON PAYMENTS MADE TO DOMESTIC COMPANIES WHICH WAS BROUGHT UNDER SECTION 194J AS AGAINST 194C IS SIMILAR TO THE ISSUE DECIDED IN EAR LIER YEARS. FOR THE REASONS STATED IN ABOVE APPEALS, WE ARE OF THE OPINION THAT ASSESSEE HAS CORRECTLY DEDUCTED TAX UNDER SECT ION 194C FROM THESE AMOUNTS. THEREFORE, GROUNDS RAISED IN TH IS YEAR ARE ALLOWED ACCORDINGLY. 13 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD 16. THE OTHER ISSUE WHICH WAS RAISED IN A.Y. 2007- 08 IS WITH REFERENCE TO PAYMENTS MADE ABROAD BY ASSESS EES ON- SITE UNIT IN USA. ON VERIFYING THE SCHEDULE-M OF TH E ANNUAL REPORT AND NOTICING THAT ASSESSEE HAS PAID SOFTWARE DEVELOPMENT, SALARY AND BENEFITS AND EXPENSES ABROA D, A.O. WAS OF THE OPINION THAT SINCE THESE EXPENSES WERE C LAIMED TO HAVE BEEN INCURRED FOR SOFTWARE EXPENSES OVERSEAS A ND TOOK ENTIRE EXPENDITURE AS A CLAIM IN INDIA, THE AMOUNTS ARE TO BE COVERED UNDER SECTION 194J. HE ACCORDINGLY RAISED T HE DEMANDS. AS SEEN FROM THE ORDER, IT IS NOT CLEAR WH ETHER THE ENTIRE AMOUNT CONSIDERED BY THE A.O. IS FOR PAYMENT S MADE TO THE DOMESTIC COMPANIES OR MADE ABROAD FOR OVERSEAS SERVICES. HOWEVER ASSESSEE HAS RAISED TWO ISSUES AND LD. CIT( A) ALSO DECIDED THE TWO ISSUES WITH OUT STATING THE AMOUNTS INVOLVED. ACCORDINGLY, WE WERE ALSO CONSIDERING THE ISSUES ON LY BUT THE AMOUNTS INVOLVED ARE NOT CLEAR FROM THE ORDERS OF A UTHORITIES. 17. COMING TO THE ISSUE OF PAYMENTS ABROAD, THE FA CTS AS STATED AND EXTRACTED IN THE ORDER OF LD. CIT(A) ARE THAT ASSESSEE HAS INCURRED EXPENDITURE OVERSEAS FOR PROV IDING ON- SITE SERVICES TO THE CLIENTS ABROAD BY ENGAGING MAN POWER. ASSESSEE EXPLAINED THAT COMPANY IS PROVIDING ON-SIT E SERVICES TO CLIENTS ABROAD BY ENGAGING MAN POWER FROM M/S. P LUTUS SOLUTIONS INC USA FOR EXECUTION OF WORKS AT CUSTOME RS WORK PLACE IN USA AND AN AMOUNT OF RS.30.16 CRORES WAS P AID OUT OF THE SALE PROCEEDS RECEIVED FROM CUSTOMERS AND TH E NET OF INCOME OVER EXPENDITURE WAS REMITTED TO INDIA. IT W AS FURTHER EXPLAINED THAT ON-SITE EXPENSES ARE INCURRED ABROAD AND THE VENDORS ARE NOT ASSESSED/ ASSESSABLE IN INDIA. THER EFORE, PROVISIONS OF TDS ARE NOT APPLICABLE ON SUCH EXPEND ITURE BEING 14 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD INCURRED ABROAD. ASSESSEE PLACED THE NECESSARY LEDG ER EXTRACTS AND DETAILS OF EXPENDITURE AND SUBMITTED THAT AS PE R PROVISIONS OF SECTION 195, ASSESSEE IS NOT LIABLE F OR DEDUCTION. HOWEVER, A.O. WAS OF THE OPINION THAT EXPLANATION ( 2) TO SECTION 195 INSERTED BY FINANCE ACT, 2012 W.E.F. 01 .04.1962 MAKES IT CLEAR THAT PAYMENTS MADE TO NON-RESIDENT I S SUBJECT TO TDS WHETHER OR NOT, THE NON-RESIDENT PERSON IS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDI A. CONSIDERING THE REPORT OF THE A.O. LD. CIT(A) AGREE D WITH THE A.O. BY STATING AS UNDER : 5. THE REMAND REPORT AND THE REPLY OF THE APPELLANT HAVE BEEN CONSIDERED AND I AM IN AGREEMENT WITH THE ARGUMENT OF THE ADDL.CIT AND IT IS THE CONTENT OF THE CONTRACT WHICH DETERMINES THE NATURE OF SERVICE RENDERED AND NOT THE CONTRACT PER SE. A CONTRACT MAY BE ENTERED INTO FOR COMPLETING A CIVIL WORK OR FOR RENDERING LEGAL CONSULTANCY OR FO R RENDERING ANY TECHNICAL SERVICES BUT THE NATURE OF SERVICES BEING RENDERED IN ALL THESE THREE INSTANCE S IS DIFFERENT AND MERE EXISTENCE OF CONTRACT IS NOT DECISIVE IN ITSELF FOR CATEGORIZING THE ACTIVITY. T HE VENDOR COMPANIES HAVE PROVIDED THE TECHNICAL SERVICES FOR AN EFFECTIVE MANAGEMENT INFORMATION SYSTEM FOR EXCHANGE OF INFORMATION BETWEEN THE HEAD OFFICE IN INDIA AND ITS EMPLOYEES WORKING AT VARIOUS CLIENT SITES IN RESPECT OF DIVERSIFIED SECT ORS SUCH AS HEALTH CARE, TELECOM, BANKING AND FINANCIAL ETC. SINCE THE NEED FOR SUCH SOFTWARE IS FOR REVIEWING TILE PROGRESS OF WORK EXECUTED BY THE EMPLOYEES OF THE APPELLANT COMPANY AT CLIENT'S SITE S WHICH REQUIRES TECHNICAL EXPERTISE IN ALL THESE DIVERSE FIELDS AND THEREFORE, THE NATURE OF SERVICE S RENDERED CAN ONLY BE CATEGORIZED AS TECHNICAL SERVICES/PROFESSIONAL SERVICES. ACCORDINGLY, THE A. O. IS JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 194J OF THE I.T. ACT AND THEREFORE, THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 15 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD 5.1. HOWEVER, THE APPELLANT'S ALTERNATE PLEA THAT SINCE THE DEDUCTEES MUST HAVE PAID THE TAXES ON THE INCOME RECEIVED FROM THE APPELLANT AND NO DEMAND U/S.201(1) CAN BE RAISED AGAIN IS CONSIDERED AND THERE APPEARS MERIT IN THE CONTENTION. IN VIEW OF T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M/S. HINDUSTAN COCA COLA BEVERAGES PVT. LTD. VS. CIT (SUPRA), THE ASSESSING OFFICER IS DIRECTED TO VERIF Y IF THE VENDOR DEDUCTEES HAVE PAID THE TAXES ON THE INCOME RECEIVED FROM THE APPELLANT AND IF HE IS SATISFIED, TO DELETE THE DEMAND RAISED U/S. 201(1) OF I.T. ACT AND RECALCULATE THE MANDATORY INTEREST U/S . 201(LA) OF THE I.T. ACT AS PER LAW. 18. LD. COUNSEL SUBMITTED THAT BOTH A.O. AND LD. CIT(A) ARE NOT CORRECT IN INVOKING THE EXPLANATION 2 WITHOUT ESTABLISHING THAT THE SAME IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT AS HELD BY THE HONBLE SUPREME COURT. HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F GE TECHNOLOGY CENTRE P. LTD.VS CIT 327 ITR 456 AND ALS O DECISION OF ITAT, HYDERABAD IN THE CASE OF ACIT VS. IEC SYST EM P. LTD., 127 TTJ 435. 19. LD. D.R. HOWEVER, RELIED ON THE ORDERS OF THE A.O. AND LD. CIT(A). 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, EXAMINED THE DETAILS ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE HAS UNDERTAKEN ON-SITE WORK IN USA AND THE RECEIPTS AND PAYMENTS ARE IN US A. SINCE ASSESSEE IS AN INDIAN COMPANY, THE NET OF THE AMOUN TS AFTER CONSIDERING THE EXPENDITURE WAS REMITTED TO INDIA A ND WAS INCORPORATED IN THE BOOKS OF ACCOUNTS. JUST BECAUSE THE EXPENDITURE WAS DEBITED TO THE P & L ACCOUNT IN THE BOOKS OF ACCOUNTS IN INDIA, THE AMOUNTS CANNOT BE CONSIDERED AS 16 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD PAYMENTS MADE FROM INDIA. IT IS A FACT THAT AMOUNTS ARE PAID ABROAD AND THE SERVICES ARE RENDERED ABROAD. THOSE COMPANIES WHO RECEIVED THE AMOUNTS HAVE NO PERMANENT ESTABLIS HMENT IN INDIA OR EVEN THE BUSINESS CONNECTION IN INDIA. THEREFORE, THE PAYMENTS MADE TO THEM ABROAD CAN NOT BE BROUGHT TO TAX IN INDIA AS THE JURISDICTION OF IT ACT EXTENDS ONLY TO TERRITORY OF INDIA. WHERE THE PAYMENTS HAVE BEEN MADE FROM INDIA , THEN IT CAN BE VERIFIED WHETHER AMOUNTS CAN BE BROUGHT TO T AX AS PER THE PROVISIONS OF I.T. ACT OR WHETHER DOUBLE TAXATI ON AVOIDANCE AGREEMENT (DTAA) CAN BE INVOKED SO AS TO CLAIM BENIFIT. HOWEVER, SINCE THE AMOUNTS ARE PAID OUTSID E INDIA TO PERSONS OUTSIDE INDIAN TERRITORY, WHO DOES NOT HAVE ANY TAX LIABILITY AS FAR AS I.T. ACT, 1961 IS CONCERNED, TH E AMOUNTS PAID ABROAD CANNOT BE CONSIDERED AS SUMS CHARGEABLE UN DER THE PROVISIONS OF THIS ACT. EVEN THOUGH EXPLANATION-2 C LARIFIES THE POSITION THAT WHETHER OR NOT A NON-RESIDENT PERSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA OR ANY OTHER PERSONS IN ANY OTHER MANNER WHATSOEVER IN INDIA, THE EXPLANATION CANNOT OVERRIDE THE MAIN PROVISION OF SECTION 195 ABOUT SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT. MOREOVER, AS DEFINED IN SECTION-5, SCOPE OF TOTAL I NCOME NO INCOME ACCRUES OR ARISE OR DEEMED TO ACCRUE OR ARIS E IN INDIA ON THE PAYMENTS MADE IN USA BY BRANCH THERE. THEREF ORE, THE PAYMENTS MADE ABROAD CANNOT BE CONSIDERED AS INCOME CHARGEABLE UNDER THE PROVISIONS OF THE ACT. EXTRAT ERRITORIAL JURISDICTION CANNOT BE ASSIGNED TO SECTION 195 BY I NVOKING EXPLANATION (2) ON THE FACTS OF THE CASE. THEREFORE , WE ARE OF THE OPINION THAT THE ACTION OF THE A.O. AS CONFIRME D BY THE LD. CIT(A) IS NOT JUSTIFIED AND CANNOT BE SUPPORTED BY PROVISIONS OF 17 ITA.NO.1038 TO 1040/H/2013 & 991 & 992/HYD/2013 M/S. PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD THE ACT. THEREFORE, ASSESSEES CONTENTIONS INCLUDIN G ADDITIONAL GROUNDS RAISED ON THIS ISSUE ARE ALLOWED. 21. IN THE RESULT, ASSESSEES APPEALS ARE ALLOWED AND REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.06.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 27 TH JUNE, 2014 VBP/- COPY TO 1. M/S. PRITHVI INFORMATION SOLUTIONS LTD., PRITHVI HOUSE, 2-56/2/19, KHANAMET, MADHAPUR, HYDERABAD 500 081. 2. ITO, WARD 15(1) (TDS), HYDERABAD. 3. CIT(A)-II, HYDERABAD 2 COPIES. 4. CIT-II, HYDERABAD 5. D.R. A BENCH, ITAT, HYDERABAD.