PRITHVI
INFORMATION SOLUTIONS LTD Vs ITO : ITAT (Dated : June 27, 2014)
Income tax - Sections 9(1)(vii), 133A, 194C, 194J, 201,
201(1A) - onsite software development - offshore development - fees for
technical services - vendor-vendee relationship.
A) The assessee
company is engaged in on- site and off-site as offshore software
development/process outsourcing. A survey u/s. 133A was conducted in the case
of assessee on 21.09.2006 and its details of expenditure under different heads
were called for to verify the TDS liability of assessee. After verification of
the details filed by assessee AO noticed that assessee had been deducting tax
at source on salaries, rent, contract and professional charges but on the
expenditure booked towards software development, TDS was done u/s. 194C but not
u/s. 194J as required. After verifying the invoices/bills and agreements for
the expenditure 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 with the companies with which assessee entered into agreement
for software development services, A.O. concluded that expenditure was fees for
professional 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 and raised the total
demand of Rs.25,01,310/-.
B)
As briefly stated, assessee has entered into agreements with M/s. CAM Soft
India P. Ltd. Integra Telecommunications & Software Ltd., Zuda Information
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. Assessee educted tax at source under section 194C and remitted the
same to the Government account. It was the contention that the works undertaken
were not of contract to fall under section 194C, but fees for technical
services. Assessee- company submitted that it did not pay any fees towards
professional/technical services as considered by the A.O.
On appeal, the Tribunal held that,
A)
++ as can be seen from the order of the CIT(A), Ld. CIT(A) upheld the
contention of the A.O. that the amounts are covered by the provisions of
section 194J. In fact, assessee also preferred the appeal on the same issue. We
are surprised that Revenue is contesting on an issue which was decided 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 refrain
from doing so. We advise the Revenue authorities to apply their mind before
preferring appeals to ITAT. Revenue appeals, therefore, are infructuous and
accordingly dismissed;
Revenue's appeal dismissed
B)
++ Issue is whether the payments for work undertaken by assessee can be
categorised under section 194C or 194J. As seen from the contracts assessee is
not asking the other company to render any personal services in the field of
computers but assigned 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 the fact that those packages are to be
developed by vendors. In fact, A.O. as well as the CIT(A) accepts that the
relationship is vendee-vendor, as referred in order. Considering that nature of
agreement and the work undertaken on behalf of assessee, we are of the opinion
that payments made to the vendor companies do fall under 194C. Even though
assessee is in the software business and services rendered/work undertaken are
also on the field of software services, these cannot be considered as per
professional services as they have not rendered any personal services to the
company. It is a contract between a company and company. Even though the nature
of contract differs from activity to activity, assessee’s nature of work do
indicate that those companies have not rendered any technical / professional
services so as to come within the definition of section 9(1)(vii). We are of
the opinion that categorization of works contract as agreement for services
cannot be accepted. In view of this, assessee’s contentions are to be upheld.
Assessee's appeal allowed
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