THE issue before the Bench is - Whether when the assessee
agrees to pay service tax separately over and above the technical or
professional fees, the service tax paid to the service provider is not to be
included in the total sum for the purpose of TDS u/s 194J. And the answer goes
against the Revenue.
Facts of the
case
The
assessee, Rajasthan Urban Infrastructure Development Project(RUIDP), is a
project of Government of Rajasthan for the Infrastructure Development and civic
amenities in the specified areas/cities in the State of Rajasthan. The project
was financially assisted by the loan from the Asian Development Bank through the
Government of India. The accounts were maintained on cash basis and also audited
by the Chartered Accountant as per the requirement of the Asian Development Bank
and also audited by the Department of Accountant General of Rajasthan. The RUIDP
appointed the technical and project consultants on open tender basis and the
limited companies as well as corporate consulting firms of repute. They are
selected and appointed as per the laid down procedure. The assessee deducted the
tax at source from the payments made by it and deposited the same as per the
relevant provisions of the Income Tax Act and the return for the same was filed
in due time. It appeared that main consultants were charging the service tax at
the prevailing rates on the amount of fee payable as per the agreement and the
same was paid by the assessee/RUIDP. The tax was deducted on fees and other
payments of expenses as being part of the contract, however, no TDS was deducted
on service tax in view of the term of contract. The Assessing Officer raised a
demand of Rs.1,70,881/- along with interest, amounting to Rs 44,776/-, on
account of TDS on the amount paid as service tax. The matter relates to the
Financial Year 2005-06. The assessee preferred an appeal, which was allowed.
Revenue's appeal to the Tribunal was dismissed.
On
appeal, the counsel for the Revenue submitted that the Appellate Authority and
Income Tax Appellate Tribunal, both, had committed an illegality in relying upon
the Circular dated 28.04.2008, which was in respect of Section 194-I of the
Income Tax Act, whereas the dispute in the present case was in respect of TDS,
to be deducted under Section 194J of the Act. It was further argued that the
Circular dated 28.04.2008 was clarified by a subsequent Circular dated
30.06.2008, which was wrongly held to be inapplicable or contrary to the law by
the Appellate Authority as well as Appellate Tribunal. She, therefore, submitted
that orders passed by the Appellate Authority as well as Appellate Tribunal,
were illegal and same were liable to be set aside.
Having heard the parties,
the HC held that,
++
the dispute relates to a point as to whether TDS is to be deducted on the amount
payable on account of service tax or not? The Tribunal has considered the
agreement and recorded a finding that as per the term of contract, the amount of
service tax was to be paid separately, therefore, the same was not subject to
TDS. The Appellate Authority decided the appeal on the basis of reasoned order
dated 31.03.2009 passed in Appeal No.413/Jaipur/ 2008-09 of the same assessee,
which is the subject matter of D.B. Income Tax Appeal No.239/2011. The finding
was discussed and considered, in detail, by the Income Tax Appellate Tribunal
and vide order dated 30.10.2009, the Tribunal dismissed the appeal of the
Department. The said order is also under challenge in D.B. Income Tax Appeal
No.239/2011, preferred on behalf of the Revenue;
++ so
far as submission of the counsel for the Revenue is concerned, the Circular dated 28.04.2008 was not applicable
as it was in respect of Section 194-I of the Act relating to rent and not
technical fees, therefore, it was wrongly relied upon. We have considered the
provisions of Section 194J of the Income Tax Act, in the light of Circulars
dated 28.04.2008 and 30.06.2008. The words, “any sum paid”, used in Section 194J
of the Act, relate to fees for professional services, or fees for technical
services. As per the terms of agreement, the amount of service tax was to be
paid separately and was not included in the fees for professional services or
fees for technical services. In these circumstances, we are satisfied that the
orders passed by the Appellate Authority as well as the Appellate Tribunal, are
in accordance with the provisions of Section 194J of the Income Tax Act. The
service tax was to be paid separately or not, is purely a question of fact and
as per the agreement entered in the present case, it was to be paid separately
and there is a finding of fact in this regard, recorded by the Appellate
Authority as well as the Appellate Tribunal also. Even if the Circular dated
28.04.2008, is held to be not applicable in the present case, we find that the
orders passed by both the authorities below, are in accordance with the
provisions of Section 194J of the Income Tax Act, looking to the facts and
circumstances of the present case;
++ in
view of above discussion, we find that no substantial questions of law are
involved in all these appeals. It is a settled law that Income Tax Appeal before
the High Court is maintainable only on the substantial questions of law, which
are not involved in the present appeals.
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