Income Tax Appellate Tribunal - Hyderabad
Acit (Tds), Tds Circle-2(1), Hyd, ... vs Nexgen Educational Trust, Hyd, ... on 31 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. Asst. Year Appellant Respondent
1152/Hyd/16 2012-13
Asst. M/s. Nexgen Educational
1153/Hyd/16 2013-14 Commissioner of Trust,
Income Tax (TDS), HYDERABAD
TDS Circle-2(1), [TAN: HYDN04161D]
1154/Hyd/16 2014-15 HYDERABAD [PAN: AABTN3182H]
1155/Hyd/16 2015-16
For Revenue : Dr. Sibendu Moharana, CIT-DR
& Shri M. Sitaram, DR
For Assessee : Shri K. Gopal, AR
Date of Hearing : 10-10-2017
Date of Pronouncement : 31-10-2017
ORDER
PER BENCH :
These four appeals are by Revenue against the orders of the Commissioner of Income Tax (Appeals)-8, Hyderabad, dated 06-06-2016 issued separately but commonly for the impugned assessment years. The issue is whether assessee is liable to pay interest u/s. 201(1A) for all the impugned assessment years and also u/s. 201(1) for AYs. 2013-14 and 2015-16 in which years, Assessing Officer (AO) raised the demands under that section also.
I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 2 -:
2. Briefly stated, assessee is a trust running educational institutions in the name of Sri Chaitanya Techno Schools and Sri Chaitanya Junior Colleges. The trust entered into service agreement with M/s. K12 Educational Management Pvt. Ltd., (hereafter referred to as K12) and M/s. Varsity Educational Management P. Ltd., (hereafter referred to as 'Varsity') for rendering various services as may be required in relation to administrative, management and operation of educational institutions. For various services rendered by K12 and Varsity, assessee was making payments as per the agreements and has deducted tax on the payments made u/s. 194C of the Income Tax Act [Act] considering the agreements as 'works contract'. A survey action u/s. 133A was conducted on 12-03-2015 in the premises of assessee-trust at Hyderabad. After analyzing the various agreements, AO was of the opinion that the services provided to assessee are in the nature of technical services and accordingly, tax was required to be deducted at 10% u/s. 194-J. AO was of the opinion that there was a short deduction made by assessee and raised demands mainly u/s. 201(1A) towards interest for the deferred payments. The demand was also raised on certain payments to Varsity in AY. 2013-14 u/s. 201 and in AY. 2015-16 on entire payments on the reason that the assessee is failed to furnish necessary details of remittance of tax by the deductees in those years.
3. Ld.CIT(A) on appeals by assessee in his detailed orders, extracted the order of the AO from pages 3 to 27, extracted written submissions from 27 to 59 and detailed submissions of AO from 59 to 79 and thereafter considered the issue mostly on legal principles I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 3 -:
from pages 79 onwards to 96. His conclusions are that assessee has correctly deducted tax holding that the agreements are for 'works contract' and so there is no violation under the TDS provisions. Accordingly, he has cancelled both levy of tax u/s. 201(1) and levy of interest u/s. 201(1A). His conclusions in para 11 & 12 (AY. 2015-16) are as under:
"11. In the light of the foregoing discussion, both on fact and law, following are the findings:
• That the nature of work performed by the companies falls under the ambit of section 194C. The appellant has appropriately deducted tax to source at the rate of 2% and deposited the same to the credit of Central Government.
• The nature of work performed cannot be equated with a technical service provided by these companies and payments cannot be treated as 'fees for technical services' attracting deduction of tax at higher rate under section 194J as contended by the Assessing Officer.
• In view of the findings that the nature of work carried out by the service provider-companies fall under section 194C, there is no liability to deduct tax at a higher rate falling under section 194J. The appellant has deducted tax at correct rate and aid the same to the credit of government. The appellant cannot be treated as an assessee in default under section 201(1) of IT Act. Consequently, the question of levy of interest under section 201(1A) would not arise. Accordingly, the demand raised u/s. 201(1) and 201(1A) for the AY 2015-16 amounting to Rs.12,15,69,252/- and Rs. 1,43,40,069/- respectively are deleted. Hence, the Ground Nos. 2, 3 & 4 are allowed.
12. Ground Nos. 5 relates to alternate plea for the purpose of section 201(1). The appellant has also taken the alternative plea that since the recipient of income has paid taxes on the entire income and as there is no loss to revenue, the appellant cannot be deemed to be assessee in default for the purpose of section 201(1). During the course of the hearing, the Authorised Representatives submitted that a confirmation on the letter heads of K-12 and Varsity has been filed before the Assessing Officer and the same has not been considered. It was also submitted that Form No.26A could not be filed since due date for filing returns of the income by the corporate was for off by the date assessment was completed. In the report submitted by the Assessing Officer it was mentioned that since form No.26A was not submitted, the demand U/s.201(1) was raised. During I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 4 -:
the course of appellate proceedings, confirmation as required in Form No. 26A duly certified by a Chartered Accountant confirming the fact that the payments made by the appellant were shown as income 'in the hands of K-12 and Varsity were filed. Therefore, as the deductee accepted the payments made by the appellant as its income, the appellant cannot be deemed to be 'assessee in default' for the purpose of Section 201(1). This argument has merit. But since specific findings on merit that the assessee is not required to deduct tax under section 194J and therefore, cannot be treated as assessee In default for the purpose of Section 201(1), Ground No.5 becomes academic for the purpose of this order. Hence, the Ground No.5 is dismissed".
4. Revenue is aggrieved in all the years and raised the grounds accordingly. For the sake of record, the grounds raised in AY. 2015-16 are extracted hereunder:
"1. Whether on the facts and in the circumstances, of the case, the Ld.CIT(A) did not err in deleting the demand amount of Rs,12,15,69,252/- raised under section 201(1) of the Income Tax Act)?
2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) did not err in deleting the interest amount of Rs. 1,43,40,069/- charged under section 201(1A) of the Income Tax Act?
3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) did not err in deleting the Interest charged under section 201(1A) of the Income Tax Act by holding that the assessee cannot be treated as the assessee in default under section 201(1) of the Act?
4. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) did not err in deleting the demand raised under section 201(1) and interest charged under section 201(1A) of the Income Tax Act by holding that the services rendered by M/s K12 Educational Management Pvt. Ltd. and M/s Junior Varsity Educational Management Pvt. Ltd. were not in the nature of technical services and the provisions of section 194J of the Act are not applicable on the payments made by the assessee to the said companies?
5. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) did not err in deleting the demand raised under section 20l(1) and the interest charged under section 201(1A) of the Income Tax Act by holding that the provisions of section 194J of the Act are not applicable on the payments made to the said companies even though the 'Service Agreement' between the assessee and the said companies clearly I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 5 -:
indicated that the services rendered were in the nature of 'Technical Services'?"
Ground No. 6 is general in nature. The grounds are similar in other years except the amount of demands raised u/s. 201(1) in AY. 2013-14 which stands at Rs. 35,95,200/-. There was no demand u/s. 201(1) in AY. 2012-13 and 2014-15. So the grounds 2 to 6 are raised in other years with varying amounts involved.
5. It was the submission of Ld.DR that CIT(A) is not correct in giving findings that there are no technical services involved where as AO has given detailed reasons while considering the technical services. He also relied on the Co-ordinate Bench decision in the case of Sri Gowtham Academy of General & Technical Education Vs. Dy. Commissioner of Income Tax, in ITA No. 433/Hyd/2015 (AY. 2012-13) dt. 03-02-2017, particularly in para 7 of that order, wherein that assessee on similar services being provided by the deductee- K12 has deducted taxes at different rates. He referred that order to submit that the agreements are not composite agreements and payments are made for individual services on a different categorization. Therefore, the order of CIT(A) that the agreements are of 'works contracts' cannot be upheld. He has no objection if the issues are restored to the file of AO for fresh consideration.
6. Ld.AR in reply, however, submitted that assessee was deducted tax treating it as 'works contract' and there is no failure on the part of assessee. Regarding raising of the demand in AY. 2013-14 and 2015-16, it was submitted that assessee could not furnish the necessary tax payment details of the deductees in time I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 6 -:
so that the demand has been raised, but proviso to Section 201(1) is applicable as the deductees remitted taxes. It was for this reason that Ld.CIT(A) deleted the demands u/s. 201(1). It was further submitted that Ld.CIT(A) also considered the alternate submissions in para 12 of the order. Therefore, the grounds pertaining to Section 201(1) should not survive.
6.1. As far as interest u/s. 201(1A), it was submitted that even in case where tax was to be deducted u/s. 194J, since the deductees have already filed returns by payment of advance tax itself, the period of interest leviable will become 'zero' and therefore, there can be no levy of interest u/s. 201(1A), following the principles laid down by the Hon'ble Karnataka High Court in the case of CIT (TDS) Vs. Bharat Hotels Ltd., [384 ITR 77] (Karn). It was the submission that even if the issue is remitted on the nature of services being rendered, the interest u/s. 201(1A) may not arise as those assessees have paid advance tax in respective years and placed on record a chart containing income declared, advance tax paid to submit that no interest was leviable. Hence, the orders of the CIT(A) can be upheld.
7. We have considered the rival contentions and perused the orders on record. As far as the tax u/s. 201(1) is concerned, the issue may relate to short deduction of tax due to difference of opinion whether the agreements are to be considered u/s. 194C or u/s. 194J. In case of Sri Gowtham Academy of General & Technical Education Vs. Dy. Commissioner of Income Tax, in ITA No. 433/Hyd/2015 (AY. 2012-13) dt. 03-02-2017, wherein similar issue was raised, but the ITAT did not uphold the order of the AO I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 7 -:
and CIT(A), as the facts involved indicate that the said assessee has deducted tax at different rates u/s. 194C as well as 194J as under:
Para 7. ............
Expenditure TDS Gross Rate of TDS Amount
Section TDS
Programs % Functions 194C 19,86,180.00 2% 39,723.00
Electronic Media, other 194C 3,42,01,453.00 2% 6,84,029.00
publicity & Marketing
services
Print Media 194C 83,58,616,.00 2% 1,67,172.32
General Maintenance 194C 2,45,13,898.00 2% 4,90,277.96
services
Provision of Education 194C 4,09,46,320.00 2% 8,18,926.40
services - AV lab,
computer lab,
Multimedia
Expenditure TDS Gross Rate of TDS Amount
Section TDS
Teacher training 194J 11,48,749.00 10% 1,14,874.90
service
Staff hiring services 194J 36,96,665.00 10% 3,69,666.50
Performance review & 194J 28,27,377.00 10% 2,82,737.70
benefit analysis
Audit & Quality 194J 22,71,137.00 10% 2,27,113.70
management service
Provision of space 194I 10,19,00,343.00 10% 1,01,90,034.30
Examination & 194J 1,22,49,404.00 10% 12,24,940.00
assessments
Accounts & Records 194J 37,43,521.00 10% 3,74,352.10
Content Dev. & 194J 1,22,58,852.00 10% 12,25,885.20
curriculum
Improvement services
Brand Royalty fee 194J 51,88,500.00 10% 5,18,850.00
More or less, similar services are being provided by K12 and Varsity to the assessee. We were informed that consequent to the survey operations, the assessee has changed its opinion and taxes are being deducted u/s. 194C and 194J, as directed by the AO. However, we are not informed which of the services rendered were considered for Section 194J. As far as the impugned years are I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 8 -:
concerned, by virtue of amendment to Section 201(1), wherein the proviso was inserted, Ld.CIT(A) has given relief as no demand u/s. 201(1) can be raised as the deductees have offered incomes and paid taxes after claiming TDS. Following the principles laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. Vs. CIT [163 Taxman 355 (SC)/ [2007] 293 ITR 226 (SC)], demand u/s. 201(1) cannot be raised and certainly the proviso to Section 201(1) as amended is applicable. In view of that whether the tax is to be deducted u/s. 194C or 194J, it does not matter, so long as the demand u/s. 201(1) cannot be raised as per the provisions of the Act, on the fact that deductees have paid taxes thereon on the incomes. CIT(A) has considered that assessee has correctly deducted tax u/s. 194C and the issue of demand u/s. 201(1) was considered as an alternative plea. However, we noticed that certain amounts are to be considered u/s. 194J.
Therefore, this issue of considering the amounts u/s. 194C or 194J of various services rendered is to be restored to the file of AO for verification afresh keeping in mind the services rendered, the principles of law involved and the facts of the case. In case assessee satisfies that the deductees have paid taxes, the proviso to Section 201(1) may apply and no further demand u/s. 201(1) can be raised. The so called Chartered Accountant's certificate, filed before the CIT(A) can also be examined, keeping in mind the observations of the CIT(A) in the alternate, plea discussed in para 12 of the order of the CIT(A). Therefore, AO is directed to examine about the nature of services and which of the services are coming u/s. 194J, then examine whether a demand u/s. 201(1) can be raised in AYs. 2013-14 and 2015-16. If assessee satisfies that the deductees have paid taxes thereon on the incomes, no demand I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 9 -:
u/s. 201(1) can be raised following the principles laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. Vs. CIT (supra) and amendment to Section 201(1) w.e.f. 01-07-2012.
7.1. Coming to the issue of levy of interest u/s. 201(1A), interest is to be levied u/s. 201(1A), if there is a short deduction of tax.
Therefore catogorisation of services is required to be considered for the short deduction. We are of the opinion that AO is not correct to treat all the services as 'technical service' in nature and it is also not correct on the part of the CIT(A) to give a finding that there is no human element in rendering the services which attracts Section 194J. As rightly held by the Co-ordinate Bench in the case of Sri Gowtham Academy of General & Technical Education Vs. Dy. Commissioner of Income Tax, in ITA No. 433/Hyd/2015 (AY. 2012-
13) dt. 03-02-2017, certain services are covered u/s. 194C where as certain certain other services are covered u/s. 194J. The order of the Co-ordinate Bench in paras 8, 9 and 10 is as under:
"8. From the perusal of the above, it is clear that the services rendered by M/s K12 Techno Services Pvt. Ltd. are distinguishable from each other and though the recipient of all the payments is a single party, the nature of the services are discernible and different. If the contention of the Revenue was to be accepted, then why should the TDS be deducted u/s 194J and not u/s 194C for all the payments treating the entire agreement as a work contract?. When the basket of services is filled with different and distinguishable services, we are of the opinion that the assessee was correct in adopting different rates of TDS for different types of payments.
9. The decisions relied upon by the Ld. AO and the CIT(A) are distinguishable from the facts of the case before us. In the case of EMC Vs Income Tax Officer (Cited Supra), the issue was whether the assessee therein was a contractor u/s 194C(1) or a subcontractor u/s 194C(2) of the Act. And therefore it is not relevant to the present case.
I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 10 -:
10. In the case of Oberoi hotels India Pvt Ltd, the Hon'ble Supreme Court was dealing with the case of an assessee who was running hotels and the issue therein was the nature of services rendered for managing a modern hotel, including promotion of business, recruiting and training staff etc., whereas in the case before us, the assessee is running an educational institution and the types of services are totally distinguishable from the services in the case of a hotel. Therefore, this case is distinguishable on facts. In the case of Associated Cements, the Hon'ble Supreme Court was considering whether the tax deductor can decide or estimate the income component of the receipt and deduct tax thereon only and restrict the TDS to such income alone but such is not the case before us. Even the CBDT circular relied upon by the Ld. DR provided that the all the payments cannot be covered under one section.
Therefore, in our opinion, the Assessing Officer and CIT(A) have erred heard in holding that the assessee ought to have made TDS u/s 19J of the Act on the entire payment to M/s K12 Techno Services Private Limited".
7.2. As can be seen from the above order since that assessee has deducted tax u/s. 194C as well as 194J, the issue was accepted as such and treating the agreement as composite agreement for all services u/s. 194J was not accepted. However, in this case, assessee has treated the services entirely u/s. 194C. Therefore, the issue of services which require human element and are of technical nature required to be examined, in the light of the services rendered. The principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd., [383 ITR 1] (SC) is required to be kept in mind. Accordingly, we are of the opinion that to the extent of levy of interest u/s. 201(1A) is concerned, the issue is to be examined whether any of these services are required to be considered u/s. 194J. In case any of the services are considered to be covered u/s. 194J, then AO is statutorily required to levy interest u/s. 201(1A) even though no demand is raised u/s. 201(1). This requires a separate consideration by the AO.
I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 11 -:
7.3. While considering the levy of interest u/s. 201(1A), we notice that there is a merit in assessee's contention that those deductees have paid taxes and therefore, following the principles laid down by the Hon'ble Karnataka High Court in the case of CIT (TDS) Vs. Bharat Hotels Ltd., [384 ITR 77] (Karn), there cannot be any interest u/s. 201(1A). Assessee filed a statement that those deductees have paid advance taxes also. However, these are required to be examined by the AO, in the light of the taxes paid and returns filed. The Hon'ble Kerala High Court in the case of US Technologies International P. Ltd., Vs. CIT [195 Taxmann 323] (Ker) has held that the provisions of Section 271C are applicable not only for failure to deduct tax but also failure to remit the tax deducted into Govt. account. Under those facts, the Hon'ble High Court of Kerala has considered that corresponding interest u/s.
201(1A) is required to be paid. Therefore, the issue of levy of interest u/s. 201(1A) for the duration of interregnum period i.e., from the date of payment on which TDS was to be made and to the dates payment of tax by the deductees is required to be levied after due examination of the facts. AO is directed to examine the facts and consider the principles of law before levying interest u/s. 201(1A). Assessee should be given due opportunity before deciding the issue. Assessee is also directed to furnish necessary details to examine the services which may be covered u/s. 194C/194J. With these observations, the issues in these appeals are restored to the file of AO, for which purpose the orders of the CIT(A) and AO which were originally passed are hereby set aside with a direction to re- examine the issue as stated above.
I.T.A. Nos. 1152 to 1155/Hyd/2016 :- 12 -:
8. With these observations and directions, all the appeals of Revenue are considered allowed for statistical purposes.
Order pronounced in the open court on 31st October, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 31st October, 2017
TNMM
I.T.A. Nos. 1152 to 1155/Hyd/2016
:- 13 -:
Copy to :
1. The Asst. Commissioner of Income Tax(TDS), TDS Circle- 2(1), Hyderabad.
2. M/s. Nexgen Educational Trust, Plot No. 80, Shri Sai Plaza, III Floor, Ayyappa Society, Madhapur, Hyderabad.
3. CIT (Appeals)-8, Hyderabad.
4. CIT-TDS, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.