By TIOL News Service

NEW DELHI, OCT 05, 2017: THE Issue before the Tribunal is - Whether TDS is liable to be deducted only u/s 194J on the value of professional services of installation, deployment and redeployment, and not in respect of supply of equipment. YES is the answer.

Facts of the case:

The Assessee is a telecom company. During the subject year, it had awarded contract works to HCL Infosystems Ltd. connected with the project of Commonwealth Games, 2010, held in New Delhi. In order to verify the compliance by the Assessee with reference to the TDS provisions under Chapter XVII-B of the Act, a query letter was issued to the Assessee for some information. The Assessee was required to furnish the details of TDS deducted on the payments made to the HCL. The Assessee was also required to submit the copies of acknowledgements of filing quarterly e-TDS on the payments made and also to submit the copies of acknowledgements of filing quarterly e-TDS returns for the concerned FYs. As per the AO, the Assessee had not furnished any information / response with reference to the query letter and as the matter involved time limitation, AO had no alternative except to pass the order u/s. 201(1) /201(1A) for the FY 2010-11 holding that the Assessee had paid all the contract amount during FY 2010-11 and accordingly the Assessee was liable to deduct tax at source in accordance with the provisions of section 194C/194J from those amounts paid and since there was no evidence brought before the AO to establish that that tax was deducted at source, the Assessee was deemed to be in default for that amount and accordingly, the Assessee was also liable to pay interest u/s. 201(1A).

Tribunal held that,

++ in respect of agreement for the supply of equipments, no TDS is deductible u/s 194C, as it is amounts to a contract of sale. HCL Infosystems Ltd. supplied equipments as per the specifications of the Assessee but the same have not been purchased from MTNL. HCL Infosystems Ltd. has purchased the said equipments from person other than such customer i.e. not from MTNL. Hence, TDS provisions would not fall applicable on the supply of equipments. Further since billing for the supply of equipments is separate from that of the services, TDS would not be deducted on the supply of equipments. Thus, TDS would only be liable to be deducted on the value of Professional services availed by the Assessee u/s 194J. The Assessee has duly complied with the law by deducting TDS on services provided by HCL Infosystems Ltd. Thus based on such facts, provisions of law, case laws, circulations and clarifications it is clear that MTNL is not liable to deduct TDS on the said transaction of Supply of equipments provided by HCL Infosystems Ltd;

++ however, the provisions of TDS would fall applicable on the Services of installation, deployment and redeployment which has been duly deducted and deposited by the Assessee. With regards to facts, HCL Infosystems Ltd. supplied equipments as per the specifications of the Assessee company but the same have not been purchased from appellant and also the billing for the supply of equipments has been separately done from that of the services. Furthermore as per the provisions stated u/s 194C, tax shall be deducted at source on the invoice value excluding the value of material, if such value is mentioned separately in the invoice. Thus, it is clear that TDS would not liable to be deducted on the supply of equipments as the same is not being covered under the purview of Section 194C;

++ in view of case laws, circulations and clarifications, it is clear that in respect of agreement for the supply of equipments, no TDS is deductible u/s 194C. The TDS would only be liable to be deducted on the value of professional services of installation, deployment and redeployment availed by the appellant company u/s 194J which the Assessee has already deducted and deposited. It is also clear that Assessee is not liable to deduct TDS on the said transaction of supplying of equipments as per the provisions of Section 194C. In the view of the clear provisions of Section 194C, the Assessee is not liable to deduct TDS amounting to Rs.6,64,00,359/- on the supply of equipments by M/ s HCL Infosystems Ltd., therefore, the CIT(A) under the circumstances has rightly held that the action of AO of holding Assessee company as in default for amount of Rs.6,64,00,359/- was without any cogent basis. Accordingly, CIT(A) has rightly gave the relief to the Assessee in respect of the total amount, which does not need any interference.

(See 2017-TIOL-1369-ITAT-DEL)