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Showing contexts for: section 194J in M/S.Us Technology Resources P. Ltd, ... vs The Dcit, Trivandrum on 23 May, 2018Matching Fragments
5.4 Thus from above, it becomes evident that STIPL is rendering managerial, technical and consultancy services to the assessee by providing services of technical or other personnel. Thus the services come within purview of section 9(1)(vii) explanation 2 and provisions of section 194J are attracted in this case. Here it is important to note that for assessee, recipient of payment is USTIPL and not its employees as they are paid salary by USTIPL. Since for USTIPL payment received by it is not chargeable under the head salary but business income, so such payment will not be covered under exclusion clause of explanation 2. As regards rent for premises being charged separately, the same would be covered by provisions of section 1941. Thus the payments so made are covered by provisions of section 194J/194I. However no tax at source was deducted by the assessee by claiming that the amount paid are mere reimbursement and so no element of income was there in such payments. So provisions of section 40(a)(ia) are clearly attracted.
5.5 Another important factor to be noted is that the section M/s.US Technology Resources Pvt.Ltd.
194J uses word "any sum" in comparison to section 195 which uses term 'any other sum chargeable under the provisions of this Act'. Thus section 194J presumes that some income is there in every sum paid and so it further says "deduct an amount equal to ten percent of such sum as income tax on income comprised therein". Thus, based on the facts of the present case, where there is a specific agreement between assessee and USTIPL and the payment is being made for specified services by assessee, the tax at source was required to be deducted. The CBDT Vide circular No: 715, dated 8.8.1995 has also clarified that Sections 194C and 194J refer to any sum paid. Thus as TDS is to be deducted on 'any sum paid'; hence it does not make any difference as to whether the slim is paid as a reimbursement or as a pay merit for rendering services for establishing TDS liability. Hence the payments to USTlPL is disallowed by invoking provisions of section 40(a)(ia) of the Act. In this context, it is also relevant that the addition made on this ground was upheld by Hon'ble DRP for A Y 2011-12 in this case.
2013-14.This is also clarified in the explanatory memorandum to Finance bill, 2012.
5.7 The A.O. further observed that since no TDS has been made by USTRPL from the 'subcontracting charges', they will be hit by the disallowance under section 40(a)(ia). Therefore expenses of Rs.34,94,59,683/- under the head "subcontracting charges" was disallowed by the Assessing Officer u/s 40(a)(ia) of the IT Act.
6. Against the above order of the Assessing Officer, the Draft Resolution Panel (DRP) has given a direction that USTIPL is rendering managerial, technical and consultancy services to the assessee by providing services of technical or other personnel. Thus the services come within purview of section 9(1)(vii) explanation 2 and provisions of section 194J are attracted in this case. Here it is important to note that for assessee, recipient of payment is USTIPL and not its employees as they are paid salary by USTIPL. Since for USTIPL payment received by it is not chargeable under the head salary but business income, so such payment will not be covered under exclusion clause of explanation 2. As regards rent for premises being charged separately, the same would be covered by provisions of section 194-I. Thus the payments so made are covered by provisions of section 194J/194I. However no tax at source was deducted by the assessee by claiming that the amount paid are mere reimbursement and so no element of income was there in such payments. So provisions of section M/s.US Technology Resources Pvt.Ltd.
40(a)(ia) are clearly attracted. Another important factor to be noted is that the section 194J uses words `any sum' in comparison to section 195 which uses term `any other sum chargeable under the provisions of this Act'. Thus section 194J presumes that some income is there in every sum paid and so it further stays "deduct an amount equal to ten per cent of such sum as income tax on income comprised therein". Thus, in the facts of the present case, where there is a specific agreement between assessee and USTIPL and the payment is being made for specified services by assessee, the tax at source was required to be deducted. So, the AO has rightly disallowed all these payments by invoking provisions of section 40(a)(ia) of the Act. The CBDT vide circular No.715 dated 8.8.1995 has also clarified that sections 194C and 194J refer to any sum paid. Thus as TDS is to be deducted on `any sum paid'; hence it does not make any difference as to whether the sum is paid as a reimbursement or as a payment for rendering services for establishing TDS liability. Thus reimbursements cannot be deducted out of the bill amount for the purpose of tax deducted at source. In the case of Arthur Andersen & Co. [94 TTJ 736 (Mum.)] the Mumbai Tribunal held that where the cost of services is charged and recovered by way of reimbursement, even without any profit element, TDS will be applicable. In case of Cochin Refineries (1996) 222 ITR 354 (Ker.), HNS VSAT Inc 95 ITD 157 (Del ITAT) and Hindalco 94 ITD 242 (Mum) also this was held that TDS is applicable on mere reimbursement of expenses also. So objection of the assessee cannot be accepted.