Mumbai ITAT: Security Charges Are Not Liable to TDS U/S 194C

Security expenses are not entitled to Tax Deduction at Source under Section 194C of the Income Tax Act of 1961, according to the Mumbai bench of the Income Tax Appellate Tribunal (ITAT).

The assessee, M/s ATC Telecom Infra P Ltd, works with telecom operators to provide passive infrastructure. Prior to that, it went under the name Wireless TT Info Services Ltd. (WTTIL). WTTIL was an entirely owned subsidiary of M/s Tata Teleservices Ltd. (TTSL).

Following the evaluation process The assessing officer increased the additions made under section 40(a)(ia) of the Income Tax Act of 1961 and the security charges as per section 194C of the income tax act 1961 without taking the assessee’s arguments into account. An aggrieved assessee appealed to the Commissioner of Income Tax Appeal (Appeal) CIT (A).

However, CIT (A) affirmed the assessing officer’s judgment. The assessee appealed to the ITAT in opposition to the order.

According to Section 194C of the Income Tax Act of 1961, any money paid to a resident or nonresident contractor pursuant to a contract that was intended to pay for services performed by them is subject to deduction.

Section 40(a)(ia) of the Income Tax Act of 1961 states that if a person fails to deduct tax at source or fails to pay the tax deducted at source on specified amounts paid to residents, the full amount of expenditure sought for tax deduction is denied under section 40(a)(ia) Income Tax Act 1961.

J. Pardiwalla, counsel for the assessee, contended that the provisions of Section 194C are only applicable if work is being carried out. Even if the supply of labourers is included under section 194C, the supply must be for carrying out any task. Furthermore, the security personnel did not perform “any job” as defined in Section 194C of the Income Tax Act of 1961, hence the Tax Deducted at Source(TDS) rules will not apply to the taxpayer.

The judgment made by the assessing officer on this matter was backed by Sandeep Raj, counsel for the revenue. The division bench of ITAT made up of Kavitha Rajagopal (Judicial Member) and B.R. Baskaran (Accountant Member), accepted the arguments made by both parties and allowed the appeal submitted by the assessee. The division bench noted that the security charges only involved the supply of manpower and did not involve “carrying on of any work” as defined by Explanation III’s definition of the term.

Therefore, costs claimed as “security charges” are not subject to the rules of sec. 194C. The supply of manpower might not be governed by section 194J’s “professional fees” rules.