ITAT to examine AMCs to find out whether TDS is required to be deducted under Section 194C or 194J
In a recent judgment, Hon’ble Bombay High Court remanded case for re-examination of the AMCs to find out whether TDS ought to have been deducted under Section 194C or 194J of the Income Tax Act, 1961.
ABCAUS Case Law Citation:
4752 (2025) (09) abcaus.in HC
The Revenue was inter alia aggrieved by the ITAT decision to hold that section 194C was applicable, instead of section 194J for deduction of tax at source from payment towards Annual Maintenance Contracts (AMC) in respect of various hospital equipments.
The respondent assessee was a Trust, which was engaged in the business of running a hospital. The Assessing Officer also observed that the hospital was paying Annual Maintenance Contract (AMCs) charges in respect of the maintenance of various medical equipments like XRay machines, HD Dialog dialysis machine, CT Scanners, Olympus endoscopes, MRI scanners, Magnetom Symp/Somantom Sense, Axiomoarties FC, etc. However, the TDS was deducted u/s 194C of the Act.
The AO was of the view that these services required human intervention and superior technical skills. Accordingly, after a detailed analysis of the nature of services provided, the Assessing Officer held that the services rendered are “technical services”, and therefore, TDS should have been deducted under Section 194J, instead of Section 194C.
In other words, the AO was of the view that payments made under the AMCs were not in the strict sense as payments to contractors as contemplated under Section 194C, but were fees for “technical services”, and therefore, Section 194J was attracted for the purposes of deduction of TDS.
The CIT(A) noted that the assessee Trust had entered into various AMCs with various vendors to maintain the equipment and machines supplied by them to the Hospital wherein the vendors have agreed to render various services by carrying out any work, including supply of labour necessary to fulfill their obligations under the AMCs.
The CIT(A) examined the contracts with different parties and thereafter came to a factual finding that all these contracts were for periodical inspection and routine maintenance work along with supply of spare parts. The CIT(A) also noted that the payments to these vendors (under the AMCs) were duly disclosed by the assessee in the Profit and Loss Account under the head “Repairs and Maintenance Charges” and not as “Professional Fees”. Looking at all the facts and circumstances of the case, the CIT(A) came to the conclusion that payments under the AMCs were covered under Section 194C of the Act and the assessee had correctly deducted tax under the said provision.
The CIT(A) relied upon the judgment of the ITAT Ahmedabad which held that the entire operation and maintenance of the power plant under a comprehensive contract could not be treated as payment of fees for “Professional Services” as contemplated in Section 194J. It was also held by the another bench of ITAT that repairs and AMCs for computers do not fall under services of a technical nature so as to be assessable as fees for technical services.
However, for one Assessment Year, the CIT(A) came to the conclusion that the AMCs entered into with three parties were in the nature of providing “technical and professional services” and TDS ought to have been deducted under Section 194J instead of Section 194C of the Act.
The CIT(A) analysed the nature of all the AMCs and held that the AMCs were of a routine nature and TDS was rightly deducted under Section 194C except for three AMCs which were of a specialized nature which required deduction of TDS under Section 194J.
The Hon’ble High Court observed that the Tribunal only reproduced findings of CIT(A) and had not independently analyzed the AMCs which were the subject matter of the Appeals.
The Hon’ble High Court observed that ITAT is the last factfinding authority and ought to have independently examined the AMCs and thereafter come to the conclusion whether each of those AMCs were such where “technical” or “professional” services were being rendered to the Trust, or otherwise. It was only once this analysis was done could the Tribunal come to the conclusion whether TDS ought to have been deducted under Section 194C or 194J of the Act.
The Hon’ble High Court opined that ITAT needed to be set aside and the matter remanded to the ITAT for fresh consideration.
Accordingly, the Hon’ble High Court quashed the order of the ITAT and set aside it, the matter was remanded to the ITAT for re-examination the AMCs and thereafter give a finding whether TDS ought to have been deducted under Section 194C or 194J of the Act.
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