By TIOL News Service

JAIPUR, SEPT 03, 2013: 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.

(See 2013-TIOL-663-HC-RAJ-IT)