Big TDS Relief: ITAT Says AMC Is Not Fee for Technical Services Under Section 9(1)

The Income Tax Appellate Tribunal (ITAT), Delhi has set aside an order passed under sections 201(1) and 201(1A) of the Income Tax Act, ruling that the services provided for Annual Maintenance Contracts (AMC) do not qualify as managerial, technical, or consultancy under section 194J or Fee for Technical Services (FTS) under section 9(1)(vii).

The assessee company, Orbit Resorts Ltd., had made payments of Rs 2,16,44,982 for the AMC of computers, DG sets, elevators, internet telecommunication services, etc. Toward this payment, the company had deducted TDS (Tax Deducted at Source) at the rate of 2% under section 194C of the Act.

After a survey conducted at the assessee company’s premises by the Income Tax Department, the Assessing Officer (AO) claimed that these services were technical and professional services, and therefore, the company should have deducted TDS at 10% under section 194J of the Income Tax Act. Accordingly, the AO treated the company as an “assessee in default” and raised a demand of Rs 24,96,812 (including interest) in an order passed under section 201(1) and section 201(1A) of the Income Tax Act for the AY 2016-17.

The assessee approached the CIT(A), which provided partial relief to the assessee, treating the company as an assessee in default under section 201(1)/201(1A) for the short deduction of TDS under section 194J on payment of Rs 97,85,332. Therefore, the assessee approached the Income Tax Appellate Tribunal (ITAT).

The main issue before the ITAT was whether the payment made is for a ‘works contract,’ ‘professional service,’ or ‘technical service.’

The Tribunal observed that the service provided for the AMC is on an annual contract basis, where the service provider repairs or maintains the machinery periodically or whenever required.

Accordingly, the ITAT held that the services provided for AMC would qualify for TDS to be made under Section 194C and not Section 194J of the Income Tax Act.

“The services rendered for Annual Maintenance Contracts (“AMC”) of Computers, DG Set, Elevator, Internet Telecommunication Services maintenance do not qualify as rendering of any managerial, technical or consultancy services u/s 194J nor is within the purview of “fees for technical services” within the meaning of Explanation 2 to section 9(1)(vii) even though the personnel of the providers are technically qualified persons to render the services“, the Tribunal held.

Accordingly, the ITAT set aside the orders passed under Sections 201(1) and 201(1A) and directed the Assessing Officer to delete the addition.