The judgment of the court was delivered by
J. K. RANKA I.-Instant Income-tax appeal under section 260A of the Income-tax Act, 1961 (for short "Act"), is directed against the order dated February 13, 2015, passed by 1;he Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, "Triounal"), and is relevant for the assessment year 2009-10.
Brief facts relevant for disposal of the appeal are that the respondent is a private limited company promoted by the Government of Rajasthan, Maharashtra Knowledge Corporation Limited (MKCL), Pune, Rajasthan University, Jaipur, Maharana Pratap University of Agriculture and Technology, Udaipur, Vardhman Mahaveer Open University, Kota, Rajcomp, Jaipur and Centre for E-governance, Jaipur mainly imparting computer education to Government employees and students and other persons in the State of Rajasthan through its business franchisee network, i.e., District lead centres (DLCs), and I. T. Gyan Kendra (ITGK) through its programme support agency (PSA) and is running technical courses namely; RS-CIT, a basic computer literacy course along with other courses like RS-CFA, RSCEL, RS-CRM and RS-CBFSI. These agencies/centres have been entrusted with imparting computer training and these agencies and centres are being paid for their services/jobs by the respondent-company. According to the Assessing Officer (for short, "AO"), the IT Gyan Kendras collects Rs. 2,300, per student for the course and sends the full amount to the respondentRKCL which in turn after keeping Rs. 850 with itself sends back Rs. 1450 toiI. T. Gyan Kendras as their share. Out of this amount of Rs. 850, the respondent M/s. RKCL pays Rs. 100 per student to programme support agencies and Rs. 75 per student to District lead centres (DLCs) on which the company is deducting tax at source. On verification of the records, it came to the notice of the Assessing Officer (Revenue) that the respondent RKCL is not deducting tax at source on the amount of Rs. 1,450 paid to IT Gyan Kendras by it for each student and noticing certain irregularities in non-deduction of tax at source, a show-cause notice was issued and the respondent-RKCL was directed to clarify the situation as to why the tax was not being deducted at source. According to the Assessing Officer, the assessee was liable to deduct tax at source on the said amount.
The assessee, in response to the show-cause notice, contended that the amount of Rs,. 2,300 collected by the respondent was shared between three stakeholders namely; IT Gyan Kendras, the respondent-RKCL and VMOU in the ratio of Rs. 1,450, Rs. 750 and Rs. 100 respectively and it was contended that the share of revenue/fee amongst various stakeholders has been adopted just for administrative purpose/convenience to maintain check/control over the aggregate .receipt, number of registration, timing of receipt etc., so that all stake holders who are collaborative partners receive their respective share correctly and on time along with the entire information about the learners registration. Accordingly, it was contended that it being in the nature of sharing of the fee, no liability towards tax deduction at source arose. It was also contended by the respondent-assessee that wherever tax was liable to be deduyted, it was deducted. However, the Assessing Officer was, pot satisfied with the. explanation so offered and held that the respondent company was under statutory obligation to deduct tax at source on fee payments and thus held that the respondentassessee was liable for deduction of tax at source and demand along with interest at Rs. 23,32,708 was created.
4 The matter was carried in appeal before the Commissioner of Income- tax (Appeals), who after analy.sing various material on record and provisions of law, accepted the contention of the respondent-assessee. The matter was carried in appeal by the Revenue before the Tribunal and the Tribunal also upheld .the finding of the Commissioner of Income-tax (Appeals) and thus dismissed the appeal of the Revenue.
S Learned counsel for the appellant-Revenue contended that provisions of section 194J is quite clear and on perusal of the provisions of section 194J, it is abundantly clear that whatever amount was paid by the respondent to the recipients was liable for deduction of tax at source and contended that these agencies and centres are being paid for their services/jobs by the respondent-RKCL and it is under obligation to deduct tax at source on these technical work payments under different sections of the Income-tax Act, 1961. He further contended that these ITGKs also take their own separate activities of business such as ; computer basic typing work, photostat work, etc., etc., and the assessee-company has also not paid any salary to any members of these centres so, it can be held that these Gyan Kendras are not purely branches of the respondent- RKCL only and the respondent RKCL has made payment to IT Gyan Kendras per held/person of technical education of these Kendras. He also contended that when tax is required to be deducted at source, then interest under section 201(1) and 201(lA) was also required to be levied, it being automatic. He thus contended that provisions of section 194J are squarely applicable and both the appellate authorities were unjustified in coming to the said finding which is perverse and substantial question of law arise out of the order of the Tribunal.
6 We have considered the arguments advanced by learned counsel for the Revenue, we have already noticed that the respondent was promoted by the State of Rajasthan to impart computer education program for the benefit of students and their own staff. We have also noticed earlier the amount to be shared by the three entitieS. It may be appropriate to mention that in so far as payment of Rs. 850 is concerned, taX was being deducted at source and the only dispute raised by the Revenue was on account of Rs. 1A50 which was being paid to ITGKs by the respondent. Admittedly, the amount has been shared by the respondent amongst various agencies referred to herein above. Both the appellate authorities have taken into consideration the agreement entered by and between the parties/stakeholders and the dominant intention of the parties was to conduct the business of providing specific e-Iearning courses in the State of Rajasthan and share the revenue generated by way of fees received from the learners. Admittedly, in the revenue sharing model, the entry fees (course fee/exam fee), collected from the learners have been received by the respondent, which in turn redistributed it to be shared with the ITGKs and VMOU as per the agreement. For instance, the aggregate revenue of Rs. 2,300 for RS-CIT course, which is received by the ITGK from the learner, is transferred to the respondent which is shared among the three stakeholders. In our view, the transaction between the ITGK and RKCL and VMOU are not of a service provider or service receiver. The relation between these stakeholders is one of collaborators as per the agreement made and the revenue shared cannot be said to be payments for technical services .rendered by ITGKs and VMOU to RKCL as held by the Assessing Officer.
Section 194J of the Income-tax Act provides as under .:
“194J. Fees for professional or technical services.-(l) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of-
(a) fees for professional services, or
(b) fees for technical services, or
(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or
(c) royalty, or
(d) any sum referred to in clause (va) of section 28,
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent. of such sum as income-tax on income comprised therein: ...
Explanation-For the purposes of this section,-
(a) 'professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
(b) 'fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;"
8 On perusal of section 194J with facts of instant case, it shows that the
amount paid in the instant case is neither in the nature of professional or technical services rendered by the respondent-assessee to the stakeholders/ collaborators or vice versa. It is merely sharing of the fee in the manner agreed to by and between them. Though we do not have the benefit of agreements, however, the appellate authority has taken into consideration the salient features of the agreements as under:
"(i) The appellant i.e. RKCL has entered into agreements with PSAs (programme support agency), VMOU (Vardhman Open University Kota), DLCs (District Lead Centres) and ITGKs (Information Technology Gyan Kendras) through the programme support agencies for implementation of various programmes relating to e-Leaming (RS-CIT and other courses) in which specific responsibilities of the parties and the modalities of the sharing of revenue by them have been laid out."
9 It would be appropriate to refer to the functional structure of three stakeholders which provides as under :
On perusal of the above, in our view, it is npthing more than sharing of the revenue and it cannot be said to fall as fees for professional or technical courses.
An identical situation arose in a case decided by the High. Court of Delhi in the case of CIT v. NIIT Ltd. [2009] 318 ITR 289 (Delhi). where the fact found by the High Court was that the respondent -was a public limited company, inter alia, engaged in the business of providing computer education and training and during the assessment years, it was providing computer education and training through its own centres and also through franchisees who are providing NUT courses under licence from respondent. One of the models being adopted by the respondent ,to run its business mainly in big cities was metro centre. Under the agreement the franchisees were providing NIIT courses under the licence from the respondent and the respective franchisees were to bring together their resources for the purposes of providing computer education to the students. The franchisees were required to provide the infrastructure facilities like classroom facility, equipment, furniture, fixture, administrative set up, etc., and it was the obligation of the franchisee to operate and manage the education centre on day-to-day basis. The respondent as the owner of the technical information was to provide the relevant course were for providing education to the students. Since the education centre was to run under the brand name of the respondent and the respondent was providing its valuable technical know-how and other intellectual rights to the franchisees, it was necessary on the part of the respondent to put in place certain restrictions on the running of the education centre in its name, brand, value, intellectual property rights as also the interest of students were protected.
11.1. Under the model fees collected from the students was deposited in the account of the respondent and then the fees collected was shared with the franchisees in accordance with the terms of the franchisees/licence agreement. To ensure that the franchisees delivered the services in accordance with the methods and process provided by the respondent, it was essential that the respondent collected the fee and paid to the franchisees' share on milestone basis. In the aforesaid case, the claim of the Revenue was that the amount paid by the respondent to the franchisee was in the nature of rent and under section 194-1, it was liable to deduct tax at source on the said amount paid because according to the Revenue, the franchisees were using resources, building and other infrastructure provided by the respondent to the franchisee. However, the High Court, after noticing the agreements, held that the agreement was in fact a franchisee agreement and it cannot be said that by the agreement rent in fact was being paid by the respondent-assessee to the licensee. No .doubt, ,the charges have been broken up under two heads, viz., marketing claim and infrastructure claim. However, the agreement is an agreement as a whole and such a composite agreement cannot be broken up as was sought to be done by the Revenue. The share of the revenue with the franchisee is on account of composite services provided by the franchisee and on such facts, it was held that the broad objective of the agreement between the assessee and the franchisee was to share the revenue and certainly it was not hiring the premises provided by the assessee and thus held that the provision of section 194-1 of the Act does not apply. In our view, the facts are pari materia with that of the above case because in the present case also, though the claim of the Revenue is about section 194~J but the· dominant intention in the present facts is that the fees is being shared based on the agreement as noticed earlier.
12 The High Court of Delhi in the case of CIT v. Career Launcher India Ltd. [2012] 20 taxmann.com 637 (Delhi) ; [2013] 358 ITR 179 (Delhi) had also an occasion to consider a case where though it related to applicability of section 40(a)(ia) of the Act as according to the Revenue in that case provisions of section 194C got attracted as the assessee did not deduct tax at source on the payments made to the various franchisees throughout the country of an amount having been debited to the extent of Rs. 6,38,64,018. The facts found were that the respondent-assessee in that case was a limited company engaged in providing education and training for various preparatory examinations like IIM, IIT, fashion designing courses, etc., and these services were provided across the country through various education centres run by the assessee itself owned by its franchisees and according to the Revenue, such payment came within the purview of carrying out a work in pursuance of a contract and accordingly was liable for deduction of tax at source under section 194C and since the assessee in that case did not deduct tax at source, accordingly by invoking provisions of section 40(a)(ia), disallowed the amount of Rs. 6,38,64,018. The High Court found that the agreement for permitting the payee to utilise the name and copy right of the assessee in the study material and in running coaching centres, were mutual rights, duties and obligations envisaged by the agreement, that a holistic appraisal of the agreement would show that it is a business arrangement and contemplates a sharing of the profits from the business between the assessee and the franchisee, that the franchisee was neither a contractor nor a sub-contractor for carrying out any work for the assessee. It further found that the preamble narrates that the assessee is engaged in the business of offering professional learning to the members of the public for becoming proficient in competitive. entrance examinations, personality development related programmes as per norms and methods developed by it and that the assessee also owns,or 'has access to various copyrighted material, preparatory information and substantial body of technical knowhow relating to the location, design ,and operation of professional learning centres. It further observed that the. assessee (licensor) has established a high position regarding quality of services available at the learning centres run by it and recognises the benefit to be run. The licensee or the franchisee, it is further stated in the preamble, "recognises the benefit to be derived from being identified with. and licenses by the licensor and being able to utilise the trade names, designs and copyrighted material, which the licensor is in possession" and that the "licensor wishes to make its learning commercially available to the public at large". It found that the parties proceeded to enter into a business arrangement between themselves for their mutual benefit and the methodology adopted was to exploit the know-how and copyrighted material available with the assessee by running learning centres in different parts of the country and after examining the other clauses of the agreement in extenso, came to the conclusion that the Revenue has not been, able to show clearly as to how the contract between the assessee and the franchise can be interpreted to be one for carrying out any work by the licensees and accordingly held that provisions of section 194C were not applicable as it was merely a fee sharing between the parties. The facts, as noticed earlier in the instant case, are also identical except that in the present case, the Assessing Officer has invoked provisions of section 194J whereas in the cases before the Delhi High Court, one related to the provisions of section 194-1 (CIT v. NUT Ltd.) and in another case (CIT v. Career Launcher India Ltd.) it was provisions of section 194C but by and large in all the three cases including the instant matter, the dominant purpose is to share the fee based on the agreements between the parties.
The hon'ble apex court in the case of CGT v. N. S. Getti Chettiar [1971] 13 82 ITR 599 (SC) elucidated the function of an inclusive definition in the following words (page 605) :
"As observed in Craies on Statute Law (sixth edition, page 213), an interpretation clause which extends the meaning of a word does not take away its ordinary meaning. An interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject matter to the contrary, to be applied to some things to which it would not ordinarily be applicable."
14 The Commissioner of Income-tax (Appeals) .as well as the Tribunal have also alternatively relied upon the judgment rendered by the hon'ble apex court in the case of Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007] 293 ITR 226 (SC) to contend that where the deductee, recipient of income has already paid taxes on amount received from the deductor, the Revenue once again cannot recover tax from the deductor on same income by treating the deductor to be assessee-in-default for shortfall in its amount of tax deducted at source. In our view, when we have already come to the conclusion that provisions of section 194J on facts are inapplicable, then question of tax having been paid by the recipient of income, loses significance.
15 Taking into consideration the above factors, in our view, no substantial question of law can be said to arise out of the order passed by the Tribunal as it is based essentially on finding of facts.
16 Consequently, the appeal, being devoid of merit, is hereby dismissed.