Income Tax Appellate Tribunal - Mumbai
Ultra Entertainment Solutions Ltd. vs Ito (Tds) on 28 June, 2007
ORDER
V.K. Gupta, Accountant Member
1. This appeal filed by the assessee is directed against the order dated 29-12-2005 of Commissioner (Appeals), Mumbai for assessment year 2003-04.
2. We have heard both the parties and have also perused the material on record.
3. In this appeal, the assessee is aggrieved by the decision of the learned Commissioner (Appeals) in holding that payment for shared use of computer network for sale of Online Lottery Tickets was in the nature of "Technical Services", hence, the assessee was liable to deduct TDS under Section 194J of the Income Tax Act 1961. The assessee is also aggrieved by the decision of the learned Commissioner (Appeals) in holding the assessee in default under Section 201 and directing the Assessing Of f icer to levy interest under Section 201 (1 A) of the Act even when the computer network provider had no taxable income, hence, no loss to revenue on account of tax or interest.
4. The facts, in brief, are that the assessee-company is engaged in the business of selling of online lottery, under license from State Government of Karnataka. A survey under Section 133 A was carried out at the business premises of the assessee for the TDS purpose, wherefrom, it was found that assessee had paid a sum of Rs. 54.89 crores to M/s. Playwin Infravest Pvt. Ltd. (hereinafter called as 'Play win') as operating fees and wherein, the assessee had not deducted tax-at-source. It was explained by the Company Secretary that the assessee had entered into two agreements with Playwin and in respect of commission payment to Playwin the TDS was deducted and deposited, however, in respect of impugned sum the tax was not deducted as the assessee was of the opinion that it was not liable to do so, because under Section 194C, this payment did not fall. The assessing officer, however, analysed, Clauses 2 and 3 of the Agreement dated 7-8-2002 and based upon those "clauses held that the payment made by the assessee to the Play win" fell within the ambit of Section 194C of the Act. The assessing officer, accordingly, treated the assessee as assessee in default and liable for interest under Section 201(1 A). Aggrieved by this, the assessee carried the matter into appeal before the learned Commissioner (Appeals), who, after examining the documents and submissions of the assessee prima facie formed an opinion that assessee was liable to deduct tax under Section 194J and not under Section 194C as held by assessing officer and accordingly, he issued a notice of enhancement to the assessee. The assessee replied that M/s. Play win was engaged in to selling of Online Tickets for various parties, hence, they were required to maintain the computer network for that purpose. It was also contended that the assessee required the services only to sale lottery tickets and all the terminals were owned by M/s. "Playwin", hence no technical service was rendered by them to the assessee. The assessee also placed reliance on the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT (2001) 251ITR 531. The learned Commissioner (Appeals) observed that the assessee was appointed by Government of Karnataka as its Marketing Agent to sell Online Computerized Lottery, however, the assessee had no infrastructure facility, hence, it engaged the services of Play win both in respect of sales as well as provision of infrastructure. The learned Commissioner (Appeals) also analysed the scope of responsibilities as per agreement and held that to accomplish all these tasks, services of technically qualified and skilled persons were required. The learned Commissioner (Appeals) also referred to the "nature" of fee for Technical Services as defined in Explanation to Clause (vii) of Section 9(1) of the Act and held that all the services provided by Play win were in the nature of Technical Services. The learned Commissioner (Appeals) also distinguished the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. (supra) on the ground that in that case the company was providing standard facility whereas in the present case Playwin provided a Customized Computer Network and also rendered services of maintenance and operation of network. The Commissioner (Appeals) also held that M/s. Playwin was engaged in providing such services to other parties also, hence, this fact further established that M/s. Playwin was a Provider of Technical Services to various parties. The learned Commissioner (Appeals) also held that interest under Section 201(1 A) was mandatory and the assessee was liable to pay the same for its default under Section 201 rule with Section 194J of the Act. The learned Commissioner (Appeals), however, directed the assessing officer to verify the facts and accordingly decide whether demand under Section 201(1) was to be raised or not, as the payee had paid the taxes and claimed the refund. Still aggrieved, the assessee is in appeal before us.
5. The learned Counsel narrated the factual matrix of the case, reiterated the submissions made before the revenue authorities and contended that Playwin had given only computers on hire and it was not providing any technical or professional services to the assessee company. It was also contended that Playwin was required to maintain its network in working condition and only for this purpose various provisions were made in agreement, but that would not mean that any professional or technical services were rendered by Playwin to the assessee-company. The learned Counsel also placed strong reliance on the decision of the Tribunakin the case of Gujarat State Electricity Corpn. Ltdv. ITO (2004) 82 TTJ (Ahd.) 456 wherein it was held that payment by the company to Gujarat Electricity Board for entire operation and maintenance of power plant under a comprehensive contract could not be treated as payment of Technical or professional services as contemplated in Section 194J of the Act. The learned Counsel also placed reliance on the decision of the Tribunal in the case of HFCL Infotel Ltd v. ITO (2006) 99 TTJ (Chd.) 440. Thereafter, learned Counsel drew our attention to the Amendment made in Section 194-1 with effect from 13-6-2006 wherein payment for hire equipments/machinery was covered under Section 194-1 and on this basis the learned Counsel contended that such type of payments were not included in the definition of "Technical Services" as mentioned in Section 194J of the Act. It was also contended that there was no loss to the revenue as M/s. Playwin had claimed refund of tax to the tune of approximately 1.4 crores. The learned Counsel also contended that on similar payments received by M/s. Playwin from other parties, no tax had been deducted and it had been accepted by the department, hence, department could not be a selective in its approach. With regard to the interest under Section 201 (1A) the learned Counsel contended that the recipient of a hire charges suffered loss and claimed refund hence levy of interest was not justified. The learned Counsel also pleaded that even the revenue authorities was not sure which Section had to be applied hence, the assessee acted bona fidely. It was also contended that in respect of commission income, the assessee deducted tax-at-source and deposited the same, hence, it was a case of genuine belief and under these facts and circumstances of the case, no interest under Section 201(1 A) was leviable. The learned Counsel, in this regard placed reliance on the following decisions:
(1) CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. ; (2) CIT v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. .
6. The learned departmental Representative, on the other hand, took us through the various clauses of agreement and based upon the provisions of the agreement contended it was a composite agreement wherein the assessee obtained technical services of the nature as defined under Section 194J of the Act, hence, it was liable to deduct tax-at-source. It was also contended that if the payee was suffering loss and was likely not liable to pay any tax, then, the assessee could have taken a certificate from the concerned assessing officer for non-deduction of tax as provided in law and failing to do so the assessee, withheld the money which was due to the Government, hence, it was liable for interest under Section 201(1 A) of the Act. The learned departmental Representative further placed strong reliance on the order of learned Commissioner (Appeals).
7. We have considered the submissions made by both the side materials on record and orders of the authorities below. Admittedly, assessee is engaged in the business of selling Online Lottery under licence from State Government of ICamataka. The assessee, after obtaining the license from State Government, has entered into two agreements with Playwin on 7-8-2002. Under one agreement, Playwin is authorised to sell Online Computerised Lottery directly or through retailers for a consideration in the form of commission @ 2 per cent of the total revenue. As per this agreement, among other responsibilities of marketing, collection of proceeds, Playwin is also entrusted with the responsibility of maintaining of books, records, etc., in accordance with generally accepted accounting principles. The assessee has got a right of inspection. It is also noted that both the parties have secured Intellectual Property Rights for them where such rights have been developed by them. It is also noted that M/s. Playwin cannot assign his rights under the agreement without prior written consent of the assessee. In the other agreement, M/s. Playwin have been appointed to provide its infrastructure to sell online lotteries. It is noted that assessee does not have infrastructure, capabilities and resources to sell online lottery, hence, this agreement has been entered into. If we look at the responsibilities which have been entrusted to the Playwin, it appears that it is not merely a provision of hardware but Playwin is required to carry out all operations connected with sell of Online Lottery Tickets. In addition to these responsibilities, it is required to maintain all records as per procedures prescribed by the assessee. It is also noted that Playwin is also required to back-up at different locations and stand-by arrangement for safety and security of network and data. A restriction on Playwin has also been imposed in the manner that, it cannot crowd the network affecting the access or sale of service to customers of assessee. Playwin has also a role in the designing of a schemes and games. Thus, if both the agreements are read together, it is amply clear that the assessee has put initial resources, to obtain license for sale of online lottery and every subsequent activity has been outsourced. Accordingly, this is a case of customised service because requirement of each and every customer, though, they may be engaged in the similar kind of activities would be different, and, Playwin has to take care of interest of every customer accordingly. Thus, as rightly pointed out by the learned Commissioner (Appeals) the decision of the Hon'ble Madras High. Court in the case of Skycell Communications Ltd. v. Dy. CIT (2001) 251 ITR 531 is distinguishable because in that case customers were obtaining standard facility from the service providers. However, the observations of the Hon'ble Gujarat High Court in the case that the "Technical Service" referred to biSection 9(1)(vii) contemplates rendering of a service to the payer of the fee which, in the present case, support the view of revenue authorities, the Hon'ble High Court has also dealt with the aspect that in the context of present business practices what would constitute rendering of technical services. In the present case, it is important to note that it is not merely the payment for user of equipments or machineries but all the personnel, consumables, spares, maintenance remains the responsibility of Playwin, hence, it is a Composite Contract. Assuming for a moment that all these activities, if would have been carried on by the assessee on its own, it would have employed the people, given the maintenance contracts, hired an office on rent, if not owned and in all this cases it would have required to deduct the TDS in respect of relevant transactions as per the provisions of the Act. If it would have owned the equipment and machineries and then hired the services for run and maintenance, therefore, the provision of Section 194C might have been attracted. Hence, having regard to the extensive coverage of TDS provisions, a payer cannot normally escape from its responsibility from deducting tax-at-source, in respect of various transactions at the time of executing such transaction. We are further of the opinion that in the changed business circumstances, when service industry is gaining prominence, the term "Technical Services" should be interpreted in a widest possible manner otherwise the objects of TDS provision would get defeated. In this legal background, we hold that assessee is liable to deduct the tax under Section 194J of the Act. Accordingly, Ground No. 1 is rejected.
8. Before parting with this issue, we consider it to point out that the decision of the Tribunal in the case of Gujarat State Electricity Corpn. Ltd. v. ITO (2004) 82 TTJ (Ahd.) 456 is distinguishable on fact because in that case assessee was the owner and had given only operation and maintenance contract, hence, the transaction squarely fell within the ambit of Section 194C of the Act. Similarly, the decision of the Tribunal in the case of HFCL InfotelLtd. v. ITO (2006) 99 TTJ (Chd.) 440 is related to standard facility and not with the provision of customised services. We also do not find any force in the contention of the assessee that rent/hire charges for the use of machines/plant have been incorporated subsequently under Section 194-1 and not 194J, because in the present case, it is not merely a hire of machines/equipments and even after amendment, such types of composite contract, in our view, would fall within the scope of Section 194 J of the Act.
9. Now, coming to the question of chargeability of interest under Section 201(1 A) the assessee has mainly relied on the aspect that in the case of Play win there have been losses and assessment has been completed in the case of Play win wherein refund has been granted, hence, in such situation the assessee is not liable for any interest. In this regard, the assessee has placed reliance on the decision of Hon'ble Gujarat High Court in the case of CIT v. Rishikesh Apartment Cooperative Housing Society Ltd. (2002) 253 ITR 310. We find that, in that case the payee had paid more amount of tax by way of advance tax than what was payable and had also paid tax on self-assessment and where in other years, tax was paid late, the assessee had accepted the finding of Appellate Assistant Commissioner regarding its liability towards interest under Section 201 (1 A) of the Act. In the situation, the Hon'ble court held that the assessee's liability to deduct tax at source and payment the same to the revenue was not independent of the liability of the contractor by charging interest to pay the tax and since, the contractor was not liable to pay any tax, hence, by charging interest under Section 201 (1 A) the revenue would derive undue benefit or advantage by getting interest on the amount of tax it had already received on the due date and such a position could not be accepted. Similarly, in the case of CIT v. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (2006) 287 ITR 3542 (Raj). The recipient of income had claimed refund, which had arisen due to tax-deducted-at-source and deposited on due dates. Thus, the crux of both these judgments is that where the due taxes have been paid by recipient of the income directly on time, the interest under Section 201 (1 A) cannot be charged, because it is of compensatory nature and is levied for withholding the money belonging to the Government. Now, coming to the fact of this case, the assessee has submitted a chart, which does not establish the fact that all the taxes paid by the assessee have been paid on due dates, specially, when the assessee has not paid any taxes by way of advance tax/self-assessment tax and all the credits have been taken from tax-deducted-at-source by payers. It is further noted that, even the assessee has been made liable to made interest under Section 201(1 A) for delay in deposit of tax-deducted-at-source, in respect of commission paid to M/s. Playwin. From the Chart submitted to us it is also noted in the case of Foshi De Lak Gaming Solution Pvt. Ltd. the certificate of TDS has been issued on 27-11 -2003 and in the case of E-Cool Gaming Solutions Pvt. Ltd., the TDS certificate has been issued on 31-5-2003 and in both the cases certificate has been issued for whole financial year. Therefore, the fact whether tax was deducted/deposited in time or not cannot be ascertained from the material brought on record. It is a settled position that, liability to pay interest under Section 201(1 A) arises in both these situations, where there is failure to deduct the tax or after deducting, there is failure to deposit the same within the prescribed period as per Rules. It is also a settled position that levy of interest under Section 201(1 A) is mandatory and no exception has been provided. Even in the cases relied on by the assessee, liability has been quashed on the basis of general principles of natural j ustice. Hence, if the assessee has to be given relief in this regard, it can be given only after verification of correct facts with regard to deduction and deposit of tax-at-source on due dates which has resulted into refund of tax to the payee. Such interest shall be payable only on the net amount of tax liability i.e., tax liability assessed by Assessing Officer less amount of tax deducted and deposited in time by the payers and, then, such amount shall be further reduced by the interest already paid under Section 201(1A) by the payers of various incomes to the Playwin. Accordingly, we restore this issue to the file of assessing officer to decide the quantum of interest to be charged under Section 201 (1 A) of the Act. As a result of such verification if it is found that tax deducted and deposited as per the provisions of the Act and Rules made there under covers the entire tax liability of the assessee, then, no interest shall be charged from the assessee under Section 201(1 A) of the Act. Thus, this ground of the assessee stands accepted for statistical purposes to be disposed off in accordance with our directions as above.
10. In the result, appeal filed by the assessee stands partly allowed.