We are sharing with you an important judgement of the Hon’ble Rajasthan High Court, in the case of Commissioner of Income Tax (TDS), Jaipur Vs. M/s. Rajasthan Urban Infrastructure [2013 (8) TMI 12 – RAJASTHAN HIGH COURT] on following issue:
Whether TDS is to be deducted on the amount of Service Tax charged on professional/ technical fees under Section 194J of the Income Tax Act, 1961?
Facts & Background:
M/s Rajasthan Urban Infrastructure Development Project (“the Respondent”or “the RUIDP”or “the assessee”) is a project of Government of Rajasthan for the Infrastructure Development and Civic Amenities in the specified areas/ cities in the state of Rajasthan. The RUIDP appoints the technical and project consultants and deducts income tax at source from the amount of fee payable as per the agreement and deposit the same as per the relevant provisions of the Income Tax Act, 1961 (“the Income Tax Act”) and subsequently files the return for the same within due time.
The Assessing Officer, vide its order dated 30.01.2009 raised a demand of Rs. 1,70,881/- alongwith interest thereon amounting to Rs. 44,776/-, on account of TDS on the amount paid as Service Tax pertaining to Financial Year 2005-06. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Jaipur which was allowed. Being aggrieved with the same, the Revenue filed an appeal before the Income Tax Appellate Tribunal, Jaipur but the same was dismissed. Hence the revenue preferred an appeal before the Hon’ble Rajasthan High Court.
It was held by the Hon’ble Rajasthan High Court that if Service tax is payable in addition to professional/ technical fees under the contract, the withholding tax will be restricted to the professional fees. Hence, examination of contract terms is imperative.
The Hon’ble Rajasthan High Court held that the words “any sum paid” used in Section 194J of the Income Tax Act, relate to “fees for professional services or fees for technical services”. In terms of the agreement, the amount of Service Tax was to be paid separately and was not included in the fees. Hence the orders passed by Appellate Authority as well as the Appellate Tribunal are in accordance with the provisions of Section 194J of the Income Tax Act.
Points to note:
The Central Board of Direct Tax (“the CBDT”) vide its Circular No. 4/2008, dated 28.04.2008 held that TDS under Section 194I of the Income Tax Act would be required to be made on the amount of rent paid/payable without including the Service Tax. However, the CBDT vide its Circular No. 275/73/2007-IT(B), dated 30.06.2008 decided not to extend the scope of Circular No. 4/2008 to payment made under Section 194J of the Income Tax Act since it covers any sum paid.
Therefore, it remains to be seen that whether the Revenue files another appeal before the Hon’ble Supreme Court or accepts the above judgment of the Hon’ble Rajasthan High Court and gives relief to assessees.
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