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The central dispute between the Petitioner and the Income Tax Department is the question of deduction of tax at source while the Petitioner company makes the payments to the agencies for such services provided. According to the Petitioner, the deduction of tax at source would be made in terms of Section 194C of the Income Tax Act, 1961 ('the Act' for short) as payments to the contractors. The department contends that such deduction should have been made as provided under Section 194J of the Act by way of professional or technical services.

Shanti Prime Publication Pvt. Ltd.

Section 260A of the Income Tax Act, 1961 — Appeal — Appeal to High Court — By suggesting that the Petitioner is already engaged in the same business and therefore would be aware about intrinsic nature of services rendered, is begging the question and in plain terms, the impugned orders cannot survive the test of following principles of natural justice, in the result, the orders are quashed only on this ground.[2019] 51 ITCD 33 (BOM)
Facts: The Petitioner a Private Limited Company has challenged the three orders, all dated 31st May, 2019 passed by the Income Tax Officer (TDS), Mumbai, copies of which are produced at Annexures-A, B and C to the Petition. By such orders, the said authority held that the Petitioner has short deducted / not deducted the tax at source to tune of Rs. 33.14 Crores for the assessment year 2017-18, to the tune of Rs. 26.49 Crores for assessment year 2018-19 and to the tune of Rs. 31.46 Crores for assessment year 2019-20, totaling into Rs. 91.10 Crores. Bulk of these sum comprises of the requirement of deducting the tax at source, which the Petitioner had done in terms of Section 194C, whereas the department argues that the same should have been under Section 194J. We notice that a small portion of these amounts comprises of a sum of payment on which the Petitioner did not deduct the tax at source contending that there was no accrual of liability and that therefore the payment was not to be made during the relevant period. The Petitioner is strongly resisted by the department on the ground of availability of alternative statutory appellate remedy, as also on merits.
Held, that the claim of the assessee company that these payments are covered under circular No.715 dated 08.08.1995 is not acceptable as the assessee company itself makes TDS at the rate of 2% on these payments to web portals/digital service providers. Further, the Circular was dated 08.08.1995 and the web portals like Google and Facebook were available for use at that point of time and hence not applicable in the case of payments to digital platforms. Clearly thus, the Income Tax Officer (TDS) had referred extremely to indepth research carried out by him on the internet to make the above noted observations. There is nothing in the impugned orders to suggest that he shared such research with the Petitioner before he passed the final orders. The stand of the Income Tax Officer (TDS) is that the Petitioner doing the same business, was well aware about the nature of the services being rendered. In short, therefore the stand of the Income Tax Officer (TDS) is that the Petitioner being well aware of the nature of the services, it was futile to share with the Petitioner the research that he carried out. In clear terms, the Income Tax Officer (TDS) has collected extensive material, which is attributable to his own research, never put such material to the Petitioner for its comments and most importantly his entire orders are founded on such research material. We do not grudge, the Income Tax Officer (TDS) carrying out such research, devoting time and energy in doing so nor do he find anything objectionable about his final order based on such information which he may from reliable and legitimate sources collect. Nevertheless, none of this would be permissible without following the principles of natural justice. The least that he was expected to do was to share such material with the Petitioner giving an opportunity to rebut the same if so desired by the Petitioner. By suggesting that the Petitioner is already engaged in the same business and therefore would be aware about intrinsic nature services rendered, is begging the question. In plain terms, the impugned orders cannot survive the test of following principles of natural justice. In the result, the orders are quashed only on this ground. Since the declaration of non deduction on payments, which according to the Petitioner had not accrued is in any case small element of the entire amount, we have not expressed any opinion on the same. However, the impugned orders being composite, it would be pointless to split it in two parts, first part for enabling the Petitioner to file Appeal and the other part remanding for fresh consideration.Under the circumstances, the impugned orders to the Petition, are set aside. The entire issue is placed back before the Income Tax Officer (TDS).