Income Tax Appellate Tribunal - Jaipur
Rajasthan Knowldege Corp. Ltd., Jaipur vs Department Of Income Tax on 13 February, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA Nos. 38, 39 & 40/JP/2013
fu/kZkj.k o"kZ@Assessment Years : 2009-10 to 2011-12
The I.T.O. cuke M/s Rajasthan Knowledge
T.D.S.-2, Jaipur Vs. Corporation Limited,
7-A, Jhalana Industrial Area,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECR 1253 K
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Ajay Malik (Addl.CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri R.S. Singhvi (CA) &
Shri P.D. Baid (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 04/12/2014
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015
vkns'k@ ORDER
PER: R.P. TOLANI, J.M. This is a set of three appeals filed by the revenue for A.Ys. 2009- 10, 2010-11 and 2011-12 arising out of common order of learned CIT(A), Alwar dated 18/10/2012. The common ground raised in all the three appeals is as under:-
2 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation "The learned CIT(A) has erred in law and on facts in holding the assessee i.e. Rajasthan Knowledge Corporation Ltd. not liable for TDS u/s 194J of the I.T. Act for payments to IT Gyan Kendra (ITGK) and others."
2. Brief facts of the case are that the assessee (in short known as RKCL) is an entity along with five other entities for imparting computer education to government employees and other persons in State of Rajasthan through its business franchise network i.e. District Lead Centers (DLCs) and I.T. Gyan Kendras (ITGK) through its Programme Support Agency (PSA). M/s RKCL through its Programme Support Agency (PSA) has set up District Lead Centres. The DLCs further appoint IT Gyan Kendras for running courses like RS-CIT (Raj. State Certificate Course in IT), RS-CFA, RS-CEL, RS-CRM etc. under respective PSAs. The I.T. Gyan Kendras collects Rs. 2300/- per student for the course and send the full amount to M/s RKCL which in turn after keeping Rs. 850/- with itself sends back Rs. 1450/- to I.T. Gyan Kendras as their share to educate the computer programme. Out of this amount of Rs. 850/-, M/s RKCL pays Rs. 100/- per students for PSAs and Rs. 75 per student to district lead centers (DLCs) on which the company is deducting. In assessee's consideration the amounts were in 3 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation the nature of revenue sharing under the collaboration business of all these entities.
2.1 The Assessing Officer was of the view that the assessee was not deducting any TDS on Rs. 1450/- paid to IT Gyan Kendras by it for each student. Consequently, a show cause notice was issued to the assessee for above mentioned years as to why it should not be treated as an assessee in default in this behalf. The assessee replied that it was neither running any professional or technical services on its own, it was part of a collaboration; the payments were mere sharing of interse revenue and not attributable to rendering of any professional or technical services to payee collaborator. On further queries in this behalf, the assessee vide letter dated 14/11/2011 contended as under:-
"The learner is required to deposit the entire course fee Rs. 2300/- for RS-CIT with the concerned ITGK who receives the same on behalf of all the stakeholders and also issues a receipt for the same. Subsequently the entire course fee received from each learner is deposited by the ITGK in the bank account of the RKCL for the purpose of centralized collection and onward distribution of revenue share out of the course fee as per the collaboration stipulations.
The aggregate revenue of Rs. 2300/- is shared amongst the following three stakeholders in the following manner in 4 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation accordance with the revenue sharing agreements/collaboration agreements.
S.No. Stakeholder Revenue Share.
(i) ITGK Rs. 1450/-
(ii) RKCL Rs. 750/-
(iii) VMOU Rs. 100/-
This type of structure of singly point collection and sharing of revenue amongst the various stakeholders has been adopted just for administrative purpose/convenience to maintain check/control over the aggregate receipt, number of registrations, timing of receipt etc. so that all stakeholder collaborative partners receive their respective share correctly and on time alongwith the entire information about the learner's registration.
VIII. Liability for deducting of tax from payment of share to ITGK in fees collection:
(a) ITGK is one of the collaborating partners of the said courses. The ITGK is entitled to its share of the RS-CIT course fee being paid by a learner, which is collected by ITGK itself. ITGK is not providing any kind of services to the RKCL. Rather the structure of the project is such that the ITGKs and the RKCL alongwith VMOU inter alia, have come together to promote e-Literacy among the learners in the State of Rajasthan. The learners in turn shall pay the course fee which is shared inter alia, between the ITGKs and the RKCL for performing their respective obligations/responsibilities towards the learner. The share of an ITGK being Rs. 1450 per learner represents an 5 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation amount which is being diverted/transferred by way of overriding title before even coming at the disposal of the RKCL.
(b) As a matter of fact, the recipient of the fee from the learner is also ITGK and it is only for the administrative convenience and internal check purposes that the remittance is sent for centralized distribution to the RKCL. It need not be emphasized that there is a difference between receipt of income and 'remittance' thereof. In the hands of the RKCL, neither the income to the extent of Rs. 1450/- is received not accrued in view of the scheme, therefore, there is no question of the RKCL paying the amount of Rs. 1450/- to the ITGKs. It is just 'distribution' of income which cannot be equated with payment.
(c) Thus, in view of above, this being sharing of fee, RKCL is not liable for deduction of tax at source."
2.2 Assessee's reply didn't find favor with the Assessing Officer, who held that the assessee was liable for deduction of TDS U/s 194J of the Income Tax Act, 1961 (in short the Act) and deemed the assessee in default for corresponding TDS amount U/s 201(1) of the Act and further liable for interest U/s 201(1A) of the Act.
3. Aggrieved, the assessee preferred first appeal. The learned CIT(A) held that the provisions of Section 194J of the Act were not 6 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation applicable to assessee and accordingly, the demand in this behalf was deleted by following observations:
"I have considered the order of the A.O. and submissions made by the AR of the appellant. The A.O. is of the view that the company is carrying out the activity of education, training and allied activities and delivering State of the Art IT Solutions and IT Enables Services to the Community at large through various supporting agencies/centres like DLC, PSA and ITGKs. These agencies have been entrusted with imparting computer training and are being paid for their services/Jobs by M/s RKCL. Therefore, the appellant was under obligation to deduct TDS on these technical work payments under different sections of the IT Act. The A.O. is of the view that the appellant has made payment to IT Gyan Kendras per head/person for technical education by these Kendras and has worked the TDS liability @ 10.33% on payments of share in RS-CIT course fees to ITGK and payment of share in RS-CIT exam to Vardhman Mahavir Open University. The A.O. has not even specified the section under which the TDS liability has been worked out in the computation although in the show cause notice reference has been made to liability of TDS U/s 194J of the Act. From the detail submissions made by the A.R. of the appellant and the copy of agreement filed it is observed that:
(i) The appellant i.e. RKCL has entered into agreements with PSAs (Programme Support Agency), VMOU (Vardhman Open University Kota), DLCs (District Lead Centres) and ITGLs
7 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation (Information Technology Gyan Kendras) through the PSAs for implementation of various proframmes relating to e-Learning (RS-CIT and other courses) in which specific responsibilities of the parties and the modalities of the sharing of revenue by them have been laid out. This structure has been summarized in the flow chart in para 4.2 above.
(ii) From the agreements between the parties involved it is clear that the dominant intention of the parties was to conduct the business of providing specific e-learning courses in the State of Rajasthan and share the revenue generated by way of fees received from the learners. In this revenue sharing model, the entire fees (course fee/exam fee) collected from the learners have been received with the appellant through ITGKs, which is then redistributed to or shared with the ITGKs and VMOU as per the agreement. For instance, the aggregate revenue of Rs. 2300 for RS-CIT, course which is received by the ITGK from a learner, is transferred to the appellant which is shared among the three stake holders as under:
ITGK Rs. 1450/-
RKCL Rs. 750/-
VMOU Rs. 100/-
(iii) The transactions between ITGK and RKCL and VMOU
and RKCL are not of a service provider and service receiver. The relation between these parties is one of collaborators as per the agreements made and the revenue shared cannot be said to be payments for technical services rendered by ITGKs and VMOU, as held by the A.O. 8 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation
(iv) For the above conclusion, I also derive support from the following case laws cited by the appellant and discussed in para 4.2 above:
(1) CIT Vs. Career Launcher India Ltd. case NO. (2012) 20 taxman.com 637 of Hon'ble High Court of Delhi.
(2) CIT Vs. NIIT Ltd. (2009) 318 ITR 289 (Delhi). The Hon'ble Delhi High Court have held in these cases that the dominant intention of the parties, gathered from a composite reading of the entire agreement as a whole, was to conduct business and share the profits and therefore the Tribunal was correct in law in holding that (a) the assessee (NIIT/Franchisor) was not liable to deduct taxes u/s 194I of the Act in respect of the amount shared by the assessee and remitted to the franchisee in the case of CIT Vs. NIIT Ltd. and
(b) the assessee (Career Launcher/Franchisor) was not liable to deduct taxes u/s 194C of the Act in respect of the amount shared by the assessee and remitted to the franchisee in the case of CIT Vs. Career Launcher Ltd.
In view of above discussion, it is held that the A.O. was not correct in holding that the TDS provisions of section 194J was applicable to the payments, being share in RS-CIT Course fees, to ITGK or VMOU. Thus, there is no justification for raising the demand for short deduction of tax u/s 201(1) with respect to these payments. Since there was no such tax liability under section 201(1), there is no justification for further raising interest demand u/s 201(1A) of the Act. Accordingly, the A.O. is directed to delete the demand raised of Rs. 2172571/- and 9 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation Rs. 147658/- with reference to payments to ITGK and VMOU. The ground No. 2 and 3 of the appellant are allowed."
4. Aggrieved, the Revenue is in appeal before us. The learned D.R. relied on the order of the learned Assessing Officer.
5. Learned counsel for the assessee on the other hand, vehemently contends that ld. AO has misdirected himself in not appreciating the facts available on record and correct relationship of the payer and payee, there is no questionof liability for TDS on the assessee in terms of sec 194J. Assessee was part of a business conglomerate along with other entities including university mentioned above. From the agreements, which are referred to during the course of arguments it is emphasized that a revenue sharing model was devised by these entities. In consideration of the clauses of agreements and revenue sharing model, the assessee is neither a service provider nor a service receiver vis a vis the payee. Thus, the payment was shared by the franchisee's/collaborators and the act of sharing revenue cannot be treated as rendering of professional or technical services by any stretch of imagination. In the case of CIT Vs. Career Launcher India Ltd. (supra) similar type of payments were held by the department to be liable for TDS U/s 194C i.e. in the nature of contract payments. The 10 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation Hon'ble Delhi High Court after detailed consideration of facts and various case laws, came to the conclusion that such revenue sharing payments are neither liable for 194C i.e. contract payments nor the provisions of Section 40a(ia) of the Act were applicable to such payments by following observations:
"41. We are not referring in detail to the judgment of this Court in CIT Vs. NIIT Ltd. (supra) cited on behalf of the assessee because that case was concerned with the provisions of Section 194I of the Act. However, on going through the judgment we find that there are observations therein to the effect that a franchisee agreement cannot be broken up into several parts to bring it within the TDS provisions and that the dominant intention of the parties to the agreement should be respected and given effect to, as gathered from the composite agreement. It is significant to note that in that case the assessee (NIIT) was engaged in the business of providing computer education and training through its own centres and also through franchisees, who were providing NIIT courses under licenses from the assessee. The other terms of the franchisee agreement, which have been referred to in the judgment, show that as in the present case, in that case also the NIIT was to provide the relevant course material and expertise in providing computer education to the franchisees, that it was the responsibility of the franchisees to set up infrastructure facilities such as class room, equipment,
11 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation furniture, administrative set up etc. and also to operate and manage the education centre on day-to-day basis etc. ITA 939/2010, 911/2011 & 926/2011 Page 30 of 36 In that case it was also one of the terms of the franchisee agreement that fees collected from the students by the franchisees were to be deposited in the account of the assessee and were thereafter to be shared with the franchisees in accordance with the franchisees in accordance with the franchise/license agreement. On these facts, it was held by the Division Bench of this Court that the dominant intention of the parties, gathered from a composite reading of the entire agreement as a whole, was to conduct business and share the profits. The ratio of this judgment equally applies to the facts of the present case despite the fact that a different TDS provision has been invoked by the income tax authorities in the present case.
42. For the above reasons we hold that the conclusion arrived at by the Tribunal cannot be disturbed. The Tribunal was right in law in holding that the provisions of Section 194C and section 40(a)(ia) are not applicable to the facts of the case. We accordingly, answer the substantial question of law in favour of the assessee and against the Revenue for both the years."
It is pleaded that the Hon'ble Delhi High Court has given a clear finding that the revenue sharing payments between the franchisees are modicum of sharing revenue and cannot be held as liable to TDS. In 12 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation Career Launcher case, the payments were held liable U/s 194C of the Act whereas in assessee's case a more stringent and arbitrary view has been taken by the Assessing Officer. Thus, the learned Assessing Officer failed to appreciate the basic facts on record that the impugned payments were not on account of rendering any services in terms of sec. 194J, the were mere intra entity payments consequent to revenue sharing arrangements under a valid multi entity business module. Learned CIT(A) after detailed examination of facts, record, agreements and judicial analysis has passed a detailed order, there being no infirmity therein, it deserves to be upheld .
6. We have heard the rival contentions of both the parties and perused the material available on the record. The contents of the agreements referred to by the assessee, placed on the record, have not been disputed by the department. Thus, the uncontroverted fact which emerges from the record is to the effect that the payments in question were not made by assessee qua any service of professional or technical nature rendered to the payee. All the above entities by a valid collaboration, formed a business module on the revenue sharing basis for imparting computer education to Rajasthan Govt employees and others. The services if any were provided to the students and the the 13 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation payee in question. The nature of internal distribution of revenue based on the mutual agreements can't be held to be rendering of professional or technical services by any stretch of imagination. We find merit in the erudite contentions of ld. counsel for the assessee. Our view is reinforced by Hon'ble Delhi High court judgment in the case of Career Launchers, the act of sharing of revenue in a multi entity business model cannot be held as contract payments and taking the logic further they cannot be held as payments on account of rendering of any professional or technical services as contemplated by Section 194J of the Act. In view therefore, we find no infirmity in the impugned orders of the learned CIT(A), which are upheld.
7. In the result, all the three revenue's appeals are dismissed.
Order pronounced in the open court on 13/02/2015.
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(T.R. Meena) (R.P.Tolani)
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Tk;iqj@Jaipur
fnukad@Dated:- 13th February, 2015
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ITO, TDS-2, Jaipur.
14 ITA 38,39 & 40/JP/2013_ ITO Vs. Rajasthan Knowledge Corporation
2. izR;FkhZ@ The Respondent- M/s Rajasthan Knowledge Corporation Limited, Jaipur.
3. vk;dj vk;qDr¼vihy½@The CIT(A), Alwar.
4. vk;dj vk;qDr@ CIT, Jaipur
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA Nos. 38, 39 & 40/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar