06 December, 2011

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Payment made towards security services provided by a contractor cannot be regarded as fees for technical service u/s. 194J of the Act for purpose of tax withholding

This Judgement has been Submitted by CA.Ritesh Daga
PUNE - TRIBUNAL

GlaxoSmithKline Pharmaceuticals Ltd. v. ITO (TDS) [ITA. No. 552 to 555/PN/2010, Order dated 7 October, 2011]

Payment made towards security services provided by a contractor cannot be regarded as fees for technical service u/s. 194J of the Act for purpose of tax withholding

Facts
  • The assessee, a public limited company, was engaged in manufacture of medicines. The assessee had made payments in respect of security services after withholding tax u/s. 194C of the Act.
  • The AO held that, the tax on payment of security charges was required to be deducted u/s. 194J of the Act. He accordingly held the assessee as assessee-in-default u/s. 201 of the Act for short deduction of TDS and levied interest thereon u/s. 201(1A) of the Act.
  • The CIT(A) upheld the AO’s order.  
  • On appeal before the Tribunal, the assessee placed reliance on CBDT Circular No. 715 dated 8 August, 1995.
Issue
  • Whether payment made to contractor for providing security services would be regarded as fees for technical services for the purpose of tax withholding u/s. 194J of the Act? No
Held
The Tribunal held that,
  • Any payment, to be covered u/s. 194J of the Act, should be fees for technical services and such fees should be for rendering of any technical, managerial or consultancy services.
  • In case of ACIT v. Merchant Shipping Service Pvt. Ltd. [2011]135 TTJ 589 (Mum), it was held that, any payment to be considered as fees for the technical services for purpose of section 194J of the Act should be consideration for acquiring or using technical know-how generally provided or made available by human element.
  • There must be direct live link between payment and receipt/use of technical services.
  • Furthermore, any payments to be considered as technical in nature for the purpose of section 194J of the Act must be covered by the expression ‘fees for technical services’ as defined u/s. 9(1)(vii) of the Act.
  • Accordingly, provisions of section 194J of the Act would not be applicable in the assessee’s case.
  • The CBDT in Circular No. 715 dated 8 August, 1995 has provided that, services of an electrician provided by a contractor would be covered under the provisions of section 194C of the Act.
  • Accordingly, security services provided by a contractor would come under the provisions of section 194C of the Act since security guards were also skilled persons as electricians.
  • Consequently, the assessee was justified in withholding tax u/s. 194C of the Act, on payments made towards security services and the interest levied on the short deduction of tax u/s. 201(1A) of the Act was liable to be set aside.
Judgements Referred/Followed
  1. ACIT v. Merchant Shipping Services (P) Ltd., [2011]135 TTJ 589 (Mum)
     2.CIT v. McDowell and Co.Ltd. [2009] 314 ITR 167 (SC)


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