2008] DY. CIT v. PARASRAMPURIA SYNTHETICS LTD.

(DELHI) 248

[2008] 20 SOT 248 (DELHI)

IN THE ITAT DELHI BENCH ‘H’
Deputy Commissioner of Income-tax, Circle 51(1), New Delhi
v.
Parasrampuria Synthetics Ltd.*
N.V. VASUDEVAN, JUDICIAL MEMBER
AND DEEPAK R. SHAH, ACCOUNTANT MEMBER
IT APPEAL NO. 1354 (DELHI) OF 2005
[ASSESSMENT YEAR 1999-2000]
NOVEMBER 30, 2007

Section 194J read with section 194C of the Income-tax Act, 1961 - Deduction
of tax at source - Technical services fee - Assessment year 1999-2000 -
Whether rendering services by using technical knowledge or skill is different
than charging fees for technical services inasmuch as in latter case technical
services are made available due to which assessee acquires certain right
which can be further used - Held, yes - Assessee made certain payment to a
contractor in respect of inspection and maintenance support agreement,
fabrication of chilled water line, work order for thermal insulation/erection,
conversion of Partially Oriented Yarn (POY) into polyester textured yarn

*In favour of assessee.

249 SELECTED ORDERS OF ITAT [Vol. 20
and twisted yarn - Whether such payment could not be treated as ‘fees for
technical services’ as technology or technical knowledge of persons were
not made available to assessee, but only by using such technical
knowledge, services were rendered to assessee - Held, yes - Whether
therefore assessee would not be liable to deduct tax at source as per
provisions of section 194J, on such payments - Held, yes
Words and Phrase : ‘fees for technical services’ as appearing in
Explanation (6) to section 194J
FACTS

During the relevant previous year, the assessee-company made certain

payment to a contractor in respect of inspection and maintenance support
agreement, fabrication of chilled water line, work order for thermal
insulation/erection, conversion of Partially Oriented Yarn (POY) into
polyester textured yarn, and twisted yarn, and deduced tax at source as per
the provision of section 194C. The Assessing Officer held that the payment
in question amounted to payment of fees for technical services and not
merely payment to a contractor and, therefore, the assessee should have
deducted tax at source as per provisions of section 194J. He, therefore,
treated the assessee as assessee-in-default under section 201(1) and also
levied interest under section 201(1A) upon it.
On appeal, the Commissioner (Appeals) held that the amount paid in
question was not towards professional services or fees for technical
services. He, therefore, set aside the order passed by the Assessing Officer.
On revenue’s appeal :
HELD

The term ‘fees for technical services’ as per Explanation (b) to section 194J
means as defined in Explanation 2 below clause (vii) of sub-section (1) of
section 9.
As per said Explanation ‘fees for technical services’ means any
consideration (including any lump sum consideration) for the rendering of
any managerial, technical or consultancy services (including the provision
of services of technical or other personnel), but does not include
consideration for any construction, assembly, mining or like project
undertaken by the recipient chargeable under the head ‘Salaries’. The
Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT
[2001] 251 ITR 53 has held that the installation and operation of sophisticated
equipments with a view to earn income by allowing customers to avail of the
benefit of the user of such equipment does not result in the provision of
technical service to the customer for a fee. In the instant case, there might be
use of services of technically qualified persons to render the services, but that
itself did not bring the amount paid as ‘fees for technical services’ within the
meaning of Explanation 2 to section 9(1)(vii). The amount paid was towards
annual maintenance contract of certain machinery or for
2008] DY. CIT v. PARASRAMPURIA SYNTHETICS LTD. (DELHI) 250
converting POY into textured/twisted yarn. The technology or the technical
knowledge of the persons were not made available to the assessee but only
by using such technical knowledge, services were rendered to the assessee.
Therefore, it could not be said that the amount was paid as ‘fees for
technical services’. Further, rendering services by using technical
knowledge or skill is different than charging fees for technical services. In
the latter case, the technical services are made available due to which the
assessee acquired certain right which can be further used. In the instant
case, it was not so. The persons rendering services had only maintained
machinery or converted yarn, but that knowledge was not now vested with
the assessee by which itself it could do research work. Therefore, the
amount paid in question could not be considered as fees for technical
services within the meaning of section 194J. [Para 5]
CASE REFERRED TO

Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496
(Mad.) (para 2).
M.P. Singh for the Appellant.
ORDER

Deepak R. Shah, Accountant Member. - This appeal by revenue is directed

against the order of learned CIT(A)-XXX New Delhi dated 14-1-2005 for
assessment year 1999-2000 in appeal against order under section 201(1) of
the Act treating the assessee as assessee in default. The Assessing Officer is
of the opinion that the assessee should have deducted tax in respect of the
payments made as per provisions of section 194J of the Act as against
provisions of section 194C applied by the assessee and deducted tax under
section 194C.
2. The Assessing Officer held that the amount paid by the assessee in
respect of maintenance support agreement, fabrication of chilled water
line, work order for thermal insulation/erection, conversion of partially
oriented yarn (POY) into polyester textured yarn and twisted yarn amounts
to payment of ‘fees for technical services’ and not merely payment to a
contractor. Thus, the Assessing Officer held that for all these payments
made the assessee should have deducted tax at source under section 194J
and not under section 194C. Thus, for the differential amount the assessee
was treated as assessee in default under section 201(1) of the Act. Interest
under section 201(1A) was also levied. Learned CIT(A), after considering
the judgment of Hon’ble Madras High Court in the case of Skycell
Communications Ltd. v. Dy. CIT [2001] 251 ITR 531 and Circular No. 751
dated 8-8-1995 [215 ITR (St.) 12] held that the amount paid is not towards
professional services or fees for technical services. The revenue is in
further appeal before us wherein following ground has been raised:

1. 119 Taxman 496.

251 SELECTED ORDERS OF ITAT [Vol. 20
“On the facts and in the circumstances of the case, the ld. CIT(A) erred in
holding that the payments made for conversion of partially oriented yarn into
polyester textured yarn, fabrication of chilled waterline and thermal insulation
for PPLoy project and inspection and maintenance support agreements were
not for technical services entailing deduction of tax at source under section
194J of the Income-tax Act, 1961.”
3. The learned DR Shri M.P. Singh submitted that the work was carried out
by the payees using sophisticated equipment and skilled labour. The work
requires technical skill, i.e., by mechanical and electrical engineers or that
the work requires special knowledge or know how for the same.
Accordingly, the order of learned CIT(A) may be set aside and that of the
Assessing Officer may be restored.
4. None was present on behalf of the assessee.
5. We have considered rival submissions. The term ‘fees for technical
services’ as per Explanation 2 to section 194J means as defined in
Explanation 2 below clause (vii) of sub-section (1) of section 9, extracted
herein:
“For the purposes of this clause, ‘fees for technical services’ means any
consideration (including any lump sum consideration) for the rendering of any
managerial, technical or consultancy services (including the provision of
services of technical or other personnel) but does not include consideration for
any construction, assembly, mining or like project undertaken by the recipient
chargeable under the head ‘salaries’.”
Hon’ble Madras High Court in the case of Skycell Communications Ltd.
(supra) observed thus:
“In the modern day world almost every facet of one’s life is linked to science
and technology inasmuch as numerous things used or relied upon in every day
life is the result of scientific and technological development. Every instrument
or gadget that is used to make life easier is the result of scientific invention or
development and involve the use of technology. On that score, every provider
of every instrument or facility used by a person cannot be regarded as
providing technical service.”
“When a person hires a taxi to move from one place to another, he uses a
product of science and technology, viz., an automobile. It cannot on that
ground be said that the taxi driver who controls the vehicle and monitors its
movement is rendering a technical service to the person who uses the
automobile. Similarly, when a person travels by train or in an aeroplane, it
cannot be said that the railways or airlines is rendering a technical service to
the passenger and, therefore, the passenger is under an obligation to deduct
tax at source on the payments made to the railway or the airline for having
used it for travelling from one destination to another. When a person travels by
bus, it cannot be said that the undertaking which owns the bus services
rendering technical service to the passenger and, therefore, the passenger must
deduct tax at source on the payment made to the bus service provider for
having used the bus. The electricity supplied to a consumer cannot, on the
ground that generators are used to generate electricity, transmission lines to
carry the transformers to regulate the flow of current, meters to measure the
2008] DY. CIT v. PARASRAMPURIA SYNTHETICS LTD. (DELHI) 252
consumption, be regarded as amounting to provision of technical services to
the consumer resulting in the consumer having to deduct tax at source on the
payment made for power consumed and remit the same to the revenue.
Installation and operation of sophisticated equipments with a view to earn
income by allowing customers to avail of the benefit of the user of such
equipment does not result in the provision of technical service to the customer
for a fee.
When a person decides to subscribe to a cellular telephone service in order to
have the facility of being able to communicate with others he does not contract
to receive a technical service. What he does agree to is to pay for the use of the
airtime for which he pays a charge. The fact that the telephone service
provider has installed sophistical technical equipment in the exchange to
ensure connectivity to its subscriber, does not on that score, make it provision
of technical service to the subscriber. The subscriber is not concerned with the
complexity of the equipment installed in the exchange or the location of the
base station. All that he wants is the facility of using the telephone when he
wishes to, and being able to get connected to the person at the number to
which he desires to be connected. What applies to cellular mobile telephone is
also applicable in fixed telephone service. Neither service can be regarded as
‘technical service’ for the purpose of section 194J of the Act.”
In the present case, it is seen that there may be use of services of
technically qualified persons to render the services but that itself do not
bring the amount paid as ‘fees for technical services’ within the meaning of
Explanation 2 to section 9(1)(vii). The amounts paid are towards annual
maintenance contract of certain machinery or for converting POY into
textured/twisted yarn. The technology or the technical knowledge of the
persons is not made available to the assessee but only by using such
technical knowledge services are rendered to the assessee. In such a case, it
cannot be said that the amount is paid as ‘fees for technical services’.
Rendering services by using technical knowledge or skill is different than
charging fees for technical services. In a latter case, the technical services
are made available due to which the assessee acquired certain right which
can be further used. In the present case, it is not so. The persons rendering
certain services has only maintained machinery or converted yarn but that
knowledge is not now vested with the assessee by which itself it can do
research work. In the circumstances, the amount paid cannot be
considered as fees for technical services within the meaning of section 194J
of the Act.
6. In the result, the appeal is dismissed.
„„