ITAT Delhi in its recent order has ruled that remuneration/consultation fee paid to highly experienced technocrats/consultants which could not be engaged on full time basis as regular employees due to high remuneration and temporary requirement of the assessee company can not be considered as employee under employer-employee relationship and hence these payments are liable to TDS u/s 194J and not u/s 192.

Case Details:
I.T.A.No.3454/Del/2013 Assessment Year : 2007-08
I.T.A.No.3455/Del/2013 Assessment Year : 2007-08
Parties: DCIT (Appellant) vs Consulting Engineering Services (India) Pvt. Ltd. (Respondent)
Coram: Shri N.K. Saini, Accountant Member and Shri Chandra Mohan Garg, Judicial Member
Date of Order:05-08-2015

Grounds of Appeals:
1. The Ld. CIT(A) erred on facts and in law in holding that the taxes have been correctly deducted u/s 194J of the LT. Act, even though there was employer- employee relationship between payer and payee of the sum liable for deduction at source.
2. The Ld. CIT (A) erred on facts and in law in holding that the liability of the deductor u/s 201(1) of the IT. Act cease after 4 years.

Case Laws Relied upon:
Hindustan Coca Cola Beverage (P) Ltd. Vs CIT (2007) 293 ITR 226(SC)
DCIT(TDS) Chandigarh vs Ivy Health Life Sciences (P) Ltd (ITAT Chandigarh)

Facts of the Case:
The assessee company was engaged in providing technical and professional consultancy for engineering project. On 21.1.2011, a TDS survey was carried out by the Income Tax Department wherein it was observed that the assessee had a large number of employees who were termed as consultants and tax on their remuneration was deducted u/s 194J instead of section 192 of the Act.

The Assessing Officer, re-characterised the consultant engaged into employer-employee relationship and held that the assessee is an assessee in default u/s 201(1)/201(1A) for deducting tax u/s 194J as fee for professional/technical services  and not as salary u/s 192 of the Income Tax Act, 1961. Consequently, the AO raised a demand of Rs.2,05,94,240 u/s 201(1)/201(1A) for both the financial years namely FY 2007-08 and 2008-09, being the difference in tax deductible u/s 192 and 194J on payments made to consultants.

On appeal, CIT(A) granted relief for the assessee and directed the AO to delete the impugned demand for both the FYs. The aggrieved revenue contested the order of first appellate authority before ITAT

The assessee contended that there was no relation of employer and employee between the consultant and the assessee company and therefore, the assessee company rightly deducted TDS u/s 194J of the Act which was also on the higher side in comparison to deduction u/s 192 of the Act. It was further contended that it was not possible for the assessee company to engage on a continuous full time basis such highly qualified and experienced professionals at their pre or post superannuation age because there would be high employment cost, service of such technocrats not being required continually on a full time basis and the technocrats themselves being averse to work on full time basis with one company, therefore, the assessee company had to engage and tap the experience and knowledge of such technocrats as consultants on part time and temporary basis. Also where the payee has already paid taxes due on the payments received by it from the assessee, then recovery of tax cannot be made once again for the tax deductor.

Excerpts from the ITAT Order:

We may further point out that ld. DR could not demolish the analysis submitted by the assessee from the return of income filed by the consultants on sample basis for both the FYs which clearly shows that the amount of TDS deducted by the assessee company u/s 194J of the Act is on the higher side in comparison to TDS deductible u/s 192 of the Act at average rates. We further observe that as per details of consultants/technocrats submitted by the assessee before the authorities below, it is vivid that the age of all consultants/technocrats is more than 60 years and in a number of cases, the age is 70 and 80 plus which clearly shows that these persons are highly experienced and knowledgeable technocrats who are rendering their service to the assessee company as a specialist technocrat and not as an employee. Although from the order of the AO we note that the AO dismissed submissions and contentions of the assessee and recharacterised the transaction between the assessee company and the said consultants/technocrats as employer or employee relationship but this recharacterisation cannot be held as justified under the facts and circumstances of the present case. We further note that the amount of TDS deducted by the assessee company u/s 194J of the Act shows that the assessee was cautious about the provisions of the TDS and he deducted higher amount under the said provision in comparison to the expectation of the AO wherein the AO alleged that the assessee company should have deducted TDS from these payments u/s 192 of the Act. At the same time, we further note that from the analysis submitted by the assessee, it is also clear that the payee consultants/technocrats have already paid taxes on the income, then even if there was a short deduction of tax at source, further recovery of tax cannot be made once again from the tax deductor.

When we consider the facts and circumstances of the present case, we are inclined to hold that the AO re-characterised the relation between the assessee company and the consultant/technocrat and relation of employer and employee but we are unable to see any basis or allegation supporting this recharacterisation and action of the AO to treat the payments by the assessee company to these consultants/technocrats as salary instead of remuneration/consultation fee and expecting the assessee to deduct TDS u/s 192 of the Act instead of remuneration/consultation fee and expecting the assesse to deduct TDS u/s 192 of the Act instead of 194J of the Act. Per contra, from the explanation, details and evidence submitted by the assessee, we are satisfied that the payments made by the assessee company was not salary and the same was remuneration/consultation fee paid to the highly experienced technocrats/consultants which could not be engaged on full time basis as regular employees due to high remuneration and temporary requirement of the assessee company. We cannot ignore this fact that all technocrats and consultants are more than 60 years of age and are in post retirement/superannuation life cycle and we cannot expect them to work as regular employees unless there is an exceptional case. We may further note that the AO has not demolished this contention of the assessee that the said consultant/technocrat had filed their income tax return with the department which were also submitted before the AO and they have paid tax thereon, therefore, respectfully following the ratio laid down by the Hon’ble Supreme Court in the case of Hindustan Coca Cola (supra), there was no need of expecting the assessee deductee to again pay the tax on the said payment on account of short deduction of TDS, specially when the TDS deducted by the assessee company u/s 194J of the Act was on the higher side as deductible u/s 192 of the Act.

In view of above, we are unable to see any infirmity, perversity or any other valid reason to interfere with the order of the CIT(A).

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