The Commissioner of Income Tax [TDS] V. M/S A.P.Gas Power Corporation ltd.,

ITTA/160/2016

AI Insights

The case revolves around an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, which had upheld the Appellate Commissioner's ruling that the payments made by the respondent/assessee to APGENCO were not subject to Tax Deductible at Source under Section 194J but under Section 194C. The Revenue contended that the contract was for technical and consultancy services, thus attracting Section 194J. However, the Tribunal and the Appellate Commissioner found that the contract was for the operation and maintenance of the power plant, which is covered under Section 194C. The court's analysis focused on the nature of the contract and the specific obligations it entailed, leading to the conclusion that the payments were correctly categorized under Section 194C.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 730344 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 18-07-2016
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: K RAJI REDDY
• Keywords: CIT(Appeals); Income tax appellate tribunal; Operation and maintenance charges; Tax deductible at source; Technical and consultancy services
• Section: 201; 154; 194C; 194J; 260A; 201(1A)

Judgement Text

"THE HON’BLE SRI JUSTICE V. RAMASUBRAMANIAN AND THE HON’BLE MRS JUSTICE ANIS I.T.T.A.No.160 of 2010 JUDGMENT: (Per Hon’ble Sri Justice V. Ramasubramanian) This appeal is by the Revenue under Section 260A of the Income Tax Act, 1961. Heard Mr. K. Rajireddy, learned Senior Standing Counsel for the Income Tax Department. The respondent/assessee, is engaged in the business of generation and sale of power. During the assessment year 2007-08, the assessee debited its Profit & Loss Account with an amount of Rs.11,07,26,520/- towards operation and maintenance charges and a sum of Rs.9,44,32,957/- towards repairs for maintenance of plant and machinery. These payments were obviously made pursuant to an agreement that respondent/assessee had with APGENCO, dated 25.03.2006, for operation and maintenance of power plants. The Assessing Officer treated the contract as one for providing technical and consultancy services, liable to be subjected to Tax Deductible at Source, under Section 194J instead of Section 194C. Therefore, a notice under Section 154 was issued. Thereafter, an order was passed under Section 201 and Section 201 (1A) on 31.03.2011. The said order became the subject matter of an appeal before the CIT (Appeals) in ITA No.0421/CIT(A)-8,Hyd/2011-12. The Commissioner allowed the appeal by an order dated 24.03.2015. The same was confirmed by the Income Tax Appellate Tribunal by an order dated 18.09.2015 passed in I.T.A.No.674/HYD/2015. It is against the said order that the Revenue has come up with the present appeal. Even as per the order passed under Section 201(1), the contract that the respondent/assessee had with APGENCO was for the operation and maintenance of the power plant. This contract was actually termed as a contract for work. But what the Assessing Officer held, as seen from para-7 of his order dated 31.03.2011, was that the Articles of Agreement between the respondent/assessee and APGENCO contain different obligations. Therefore, the Assessing Officer proceeded on the footing that there are different types of payments, which are specific and distinctive from each other, under the said contract. Hence the Assessing Officer concluded that all the payments made cannot be termed as a comprehensive contract for works. The Assessing Officer also went on the basis of the fact that the service tax was paid. Therefore, he concluded that Section 194J was attracted. But unfortunately, the Assessing Officer failed to appreciate the fundamental distinction between Section 194C and Section 194J. The caption given to Section 194C itself is “Payment to Contractors”. Sub- section (1) of Section 194C indicates that whenever any person responsible for making any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, a sum stipulated thereunder shall be deducted towards income tax at source. The essential ingredients of sub-section (1) of Section 194C are – 1) there must be an obligation upon the person to whom payment is liable to be made, to carryout any work including supply of labour; and 2) the obligation should arise out of a contract between the contractor and the other person. Insofar as Section 194J is concerned, the same deals primarily with fees paid or payable for professional services, fees for technical services, royalty or any sum referred to in Section 28 (va) and any remuneration, fees or commission by whatever name called other than those on which tax is deductible under Section 192. The primary distinction between a payment made under Section 194C and a payment made under Section 194J is that the former arises out of a contract for carrying out certain items of work while the latter arises out of services rendered. In the case on hand, even according to the Assessing Officer, the contract was for operation and maintenance of the power plant. This is why the Assessing Officer had to concede that the payments made by the respondent/assessee comprised of different categories and that only some of them related to services rendered. In the light of such a finding, the Appellate Commissioner as well as the Tribunal were right in holding that the case was one covered clearly by Section 194C and not Section 194J. Hence the appeal is devoid of merits and the same is accordingly dismissed. There shall be no order as to costs. __________________________ JUSTICE V. RAMASUBRAMANIAN _____________ JUSTICE ANIS 18th July, 2016 Js. LR. Copy to be marked "