TDS not deductible on service tax portion – Rajasthan HC

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HIGH COURT OF JUDICATURE FOR RAJASTHAN

BENCH AT JAIPUR

D.B. INCOME TAX APPEAL NO.235/2011,

D.B. INCOME TAX APPEAL NO.222/2011,

D.B. INCOME TAX APPEAL NO.238/2011,

D.B. INCOME TAX APPEAL NO.239/2011

Commissioner of Income Tax (TDS)

Versus

M/s. Rajasthan Urban Infrastructure

Date of Pronouncement : 01.07.2013

 

The assessee, Rajasthan Urban Infrastructure Development Project(in short ‘RUIDP’), 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 project is financially assisted by the Loan from the Asian Development Bank through the Government of India. The project is working under the Urban Development Department of the Government of Rajasthan. The accounts are maintained on cash basis of accounting and also audited by the Chartered Accountant as per the requirement of the Asian Development Bank and also audited by the Department of Accountant General of Rajasthan. The RUIDP appoint the technical and project consultants on open tender basis and the limited companies as well as corporate consulting firms of repute are selected and appointed as per the laid down procedure. The assessee deduct the incometax at source from the payments made by it and deposit the same as per the relevant provisions of the Income Tax Act and the return for the same is filed in due time. It appears that main consultants are charging the service tax at the prevailing rates on the amount of fee payable as per the agreement and the same is paid by the assessee/RUIDP. The tax is deducted on fees and other payments of expenses as being part of contract, however, no TDS has been deduced on service tax in view of the term of contract.

The dispute relates to a point as to whether TDS is to be deducted on the amount payable on account of service tax or not? The Tribunal has considered the agreement and recorded a finding that as per the term of contract, the amount of service tax was to be paid separately, therefore, the same was not subject to TDS.

On Appeal Honurable High Court has held as follows :-

We have considered the provisions of Section 194J of the Income Tax Act, in the light of Circulars dated 28.04.2008 and 30.06.2008. The words, “any sum paid”, used in Section 194J of the Act, relate to fees for professional services, or fees for technical services. As per the terms of agreement, the amount of service tax was to be paid separately and was not included in the fees for professional services or fees for technical services. In these circumstances, we are satisfied that the orders passed by the Appellate Authority as well as the Appellate Tribunal, are in accordance with the provisions of Section 194J of the Income Tax Act. The service tax was to be paid separately or not, is purely a question of fact and as per the agreement entered in the present case, it was to be paid separately and there is a finding of fact in this regard, recorded by the Appellate Authority as well as the Appellate Tribunal also. Even if the Circular dated 28.04.2008, is held to be not applicable in the present case, we find that the orders passed by both the authorities below, are in accordance with the provisions of Section 194J of the Income Tax Act, looking to the facts and circumstances of the present case.