I. Supply of Food Packets Subject to GST Not Contract for TDS under Section 194C.
Issue: Is an assessee liable to deduct Tax Deducted at Source (TDS) under Section 194C of the Income-tax Act, 1961, on expenditure incurred for the supply of food packets to its employees, leading to a disallowance of 30% of such expenditure under Section 40(a)(ia) for non-deduction?
Facts:
- The assessee incurred catering expenditure for the purpose of supplying food packets to its employees during the assessment year 2021-22.
- The Assessing Officer (AO) held that this expenditure was subject to TDS under Section 194C, considering it a contractual payment. Consequently, the AO disallowed 30% of the catering expenditure under Section 40(a)(ia) for the assessee’s failure to deduct TDS.
- The assessee contended that the transaction was for the supply of food packets, which was subject to Goods and Services Tax (GST), and should not be considered a contract for the purpose of Section 194C.
Decision: The court held in favor of the assessee. It reasoned that while catering services would typically fall under the purview of Section 194C, the present case involved the supply of food packets, which was subject to GST. Therefore, it would not be considered a contract under Section 194C, and the provisions of the said section would not apply.
Key Takeaways:
- The supply of goods, even if related to food, may not be considered a contract for the provision of services under Section 194C, especially when the transaction is primarily a sale subject to GST.
- The nature of the transaction is crucial in determining the applicability of TDS provisions. A distinction exists between a contract for catering services and a transaction involving the supply of food items.
- Disallowance under Section 40(a)(ia) for non-deduction of TDS is contingent on the applicability of the relevant TDS provisions in the first place.
II. Hotel Room Booking Expenses Not Subject to TDS under Section 194C.
Issue: Is an assessee-company liable to deduct TDS under Section 194C of the Income-tax Act, 1961, on business promotion expenses, specifically payments related to hotel room bookings, incurred to promote business and as rewards to employees for achieving work targets?
Facts:
- The assessee-company incurred business promotion expenses, including payments for hotel room bookings. These expenses were aimed at promoting business and rewarding employees for achieving work targets during the assessment year 2021-22.
- The Assessing Officer (AO) held that the assessee was liable to deduct TDS under Section 194C on these business promotion expenses.
- The assessee argued that payments for hotel room bookings do not constitute ‘work’ as defined under Section 194C.
Decision: The court held in favor of the assessee. It stated that the facilities and amenities provided by a hotel to its customers do not constitute ‘work’ within the meaning of Section 194C. Consequently, hotel room booking expenses incurred by the assessee were not liable to TDS under Section 194C. Therefore, the assessee was not obligated to deduct TDS on these business promotion expenses.
Key Takeaways:
- The term ‘work’ under Section 194C has a specific connotation related to carrying out a task or project. The provision of accommodation and related amenities by a hotel does not typically fall within this definition.
- Payments made for availing facilities like hotel rooms are generally considered to be in the nature of availing services rather than a contract for carrying out ‘work’.
- Business promotion expenses, when they relate to availing services that do not constitute ‘work’ under Section 194C, are not subject to TDS under this section.
IN THE ITAT JAIPUR BENCH ‘B’
Infoobjects Software India (P.) Ltd.
v.
Deputy Commissioner of Income-tax
Dr. S. Seethalakshmi, Judicial Member
and RATHOD KAMLESH JAYANTBHAi, Accountant Member
and RATHOD KAMLESH JAYANTBHAi, Accountant Member
IT Appeal No. 1499 (JP) of 2024
[Assessment year 2021-22]
[Assessment year 2021-22]
APRIL 28, 2025
Naman Maloo, CA for the Appellant. P.P. Meena, CIT for the Respondent.
ORDER
Rathod Kamlesh Jayantbhai, Accountant Member.- By way of present appeal, the assessee – appellant challenges the order of assessment passed on 23.10.2024 by Income Tax Faceless Assessment Unit [for short AO] as per provision of section 143(3) r.w.s. 144C (13) r.w.s. 144B of the Income Tax Act, 1961 [for short Act] for the assessment year 2021-22. That order of assessment was passed after considering the direction of Dispute Resolution Panel [in short “DRP’] passed under Section 144C(5) of the Act dated 27.09.2024.
2. In this appeal, the assessee has raised the following grounds: –
“Ground No. 1: In the facts and circumstances of the case and in law, Id. AO has erred in not following the directions issued by Id. DRP and in making disallowance of Rs.22,54,737/- to the income of the assessee u/s 40(a)(ia) on account of non-deduction of TDS even though assessee has submitted Form 26A before both the lower authorities, in terms of Section 201 of the Income tax act. The action of the Id. AO is illegal, unjustified, arbitrary and against the facts of the case. It is, therefore, prayed that the entire disallowance of Rs.22,54,737/-made to the income of the assessee be deleted.
Ground No. 2: In the facts and circumstances of the case and in law, Id. AO has erred in not following the directions issued by Id. DRP and in making disallowance of Rs.2,09,794/- to the income of the assessee u/s 40(a) (ia) on account of non-deduction of TDS on business promotion expense. The action of the Id. AO is illegal, unjustified, arbitrary, contrary to the facts of the case. It is, therefore, prayed that the entire addition of Rs. 2,09,794/- made to the income of the assessee be deleted.
Ground No. 3: In the facts and circumstances of the case and in law, Id. DRP has erred in not providing specific directions to the Id. TPO/AO, as required under Section 144C, and leaving it to the Id. AO to ascertain the disallowance based on the evidence which were already presented before Id. DRP. The action of the Id. DRP is illegal, unjustified, and arbitrary, contrary to the legal position as set out in Section 144C of the Income Tax Act, 1961.”
3. Succinctly, the facts as culled out from the records related to the dispute carried in this appeal are that the assessee-appellant filed return of income for the AY 2021-22 on 26.02.2022 declaring total income of Rs.1,30,97,060/-. Assessee company since 2005 engaged in technology service provider in the bay area which provides a full range of technology-driven business solutions which include consulting and IT services to clients globally. During the F.Y. 2020-21, the company has entered a number of international transactions with its Associated Enterprises (“AEs”). The case was selected for Complete Scrutiny assessment under CASS on the reasons of large value of international transactions in services including transactions u/s. 92B(2) in comparison to revenue from sale of services for ITES and low profitability as is evident from the record that in the present the issue raised is different as discussed here in subsequent paras.
3.1 While scrutiny of records ld. AO noted that the assessee had incurred catering expenditure for an amount of Rs. 75,15,792/- for purpose of supply of food packets for their employees from M/s Ganesh Lal Yadav HUF where the assessee was liable to deduct TDS but had not deducted TDS on the payment. The company paid business promotion expenditure of Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets where the assessee was liable to deduct TDS but had not deducted TDS on the payment. The assessee stated that it had incurred for catering expenditure for Rs.75,15,792/- for purpose of supply of food packets for their employees from M/s Ganesh Lal Yadav HUF and that the company did not enter into any agreement with M/s Ganesh Lal Yadav HUF. The assessee submitted that the company was dealing with vendors in principle-to-principle capacity not as per principal to contractor capacity. Therefore, the company was not liable to deduct TDS under the provisions of section 194C of the Act. Ld. AO did not consider the contention of the assessee and held that the assessee is liable to deduct TDS under the provisions of section 194C of the I.T. Act, 1961 as this falls under contractual payment. Hence, 30% of the catering expenditure of Rs.75,15,792/- was disallowed u/s 40(a)(ia) of the Act.
3.2 The company also paid business promotion expenditure of Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets. The company was not liable to deduct TDS on such expenses. The contention of the assessee is that the expenses are the incentives provided to the best employees to achieve work targets. However, it is not so. Perusal of documentary evidence submitted by the assessee reveals that the said expenses are the hotel bills in respect of the various persons, evoucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. No supporting evidence as to whether the said persons are its employees have been furnished by the assessee. Further, even if these were the incentives to employees the same would be under head “Employees Benefit Expenses”. The Auditor also has shown these expenses under Business Promotion Expenses. Thus, in view of the facts stated above, the contention of the assessee was not considered. Hence, 30% of the Business Promotion Expenses amount to Rs. 6,99,314/- was disallowed u/s 40(a)(ia) of the Act.
4. Accordingly, the draft order was passed as per the provisions of section 144C read with section 144B of the Income Tax Act, 1961 dated 28.12.2023. The assessee filed an objection before the Hon’ble Dispute Resolution Panel [for short DRP] against the draft order. After considering the submission of the assessee, the Hon’ble DRP has passed order vide dated 27.09.2024 giving the following direction to the ld. AO;
10.2 The matter has been considered. The Panel is of the view that the impugned transaction with the catering service provider was covered under section 194C of the Act and hence, assessee was liable to deduct the TDS. Assessee has claimed that its case is covered under the second proviso to section 40(a)(ia) of the Act wherein disallowance is not to be made in the hands of the TDS deductor if deductee has offered the corresponding income to tax in ROI u/s 139(1) of the Act and paid the due taxes etc. Being a factual issue, AO is hereby directed to verify averment of the assessee and decide accordingly as per law.
11.2 The matter has been considered. Assessee has pointed out that TPO has not specified the section under which assessee was liable to deduct the TDS. Upon consideration of the nature of transaction, prima-facie, the Panel is of the view that same cannot be treated as perquisite to employees but is in the nature of business promotion expenditure. Being factual, the TPO is hereby directed to re-verify the evidence already furnished during the assessment proceeding in connection with this expenditure and decide accordingly as per preliminary findings of the Panel. This ground is disposed of accordingly.
5. On the both the direction ld. AO has passed an order giving his comments and the reads as under:
AO’s comments: The contention of the assessee is not acceptable as the assessee was in fact liable for TDS under the provisions of section 194C of the I.T. N Act, 1961 as this falls under contractual payment. It is seen that the said expenditure was related to supply of food packets and not purchases and the assessee has also shown it as Catering Expenses. Even the invoices furnished by the assessee shows the expenses under the head-supply of food packets which clearly shows that M/s Ganesh Lal Yadav HUF prepares food and supplies the same to the assessee company as per the requirements of the assessee company. Thus, these are not purchases and are in fact Catering Expenses which has been rightly shown by the Auditor under the head Catering Expenses in the P&L Account. Further, on perusal of ITR of deductee and computation of income, it is seen that deductee has not shown the corresponding income in his ITR u/s 139(1) of the Act. Hence, assessee was liable to deduct TDS under the provisions of section 194C of the I.T. Act, 1961 as this falls under contractual payment. Thus, the assessee was liable to deduct TDS under section 194C of the IT Act, 1961. Hence, 30% of the catering expenditure of Rs.75,15,792/-amounting to Rs.22,54,737/-is being disallowed u/s 40(a)(ia) of the IT Act, 1961. Penalty u/s 270A of the IT Act, 1961 for under reporting of income is also being initiated separately.
AO’s comments: The contention of the assessee is not acceptable as the assessee was in fact liable for TDS under the provisions of section 194C of the I.T. Act, 1961 as the expenditure is the nature of the business promotion expenses which was already mentioned at Point no. 4 (at 3rd para of conclusion drawn in draft para passed 28.12.2023).
Further, on perusal of documents in connection with this expenditure submitted by the assessee during the assessment proceedings, it is found that the said expenses are the hotel bills in respect of the various persons, e-voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. No supporting evidences as whether the said persons are its employees has been furnished by the assessee. Further, even if these were the incentives to employees the same would be under head “Employees Benefit Expenses”. The Auditor also has shown these expenses under Business Promotion Expenses. Thus, in view of the facts stated above, the contention of the assessee is not acceptable. Hence, 30% of the Business Promotion Expenses of Rs. 6,99,314/- amounting to Rs. 2,09,794/-is being disallowed u/s 40(a)(ia) of the IT Act, 1961, as no TDS has been deducted on these payment. Penalty u/s 270A of the IT Act, 1961 for under reporting of income is also being initiated separately.
6. Aggrieved from the above observation of the assessing officer while making the addition, assessee preferred the present appeal before this tribunal challenging that finding of the ld. AO. To support the grounds raised by the assessee, ld. AR of the assessee, has filed the written submissions which is reproduced herein below:
Assessee company was founded in 2008 and is a leading technology service provider which provides a full range of technology-driven business solutions which include consulting and IT services to client globally. During the year under consideration, the case of the assessee company was opened for assessment and was also referred to ld. TPO. However, no adjustments were upheld by Hon’ble DRP in relation to TP. Further, during the course of DRP proceedings, there were two disallowances for non-deduction of TDS which were proposed by ld. AO and in regarding to same, we would like to most humbly submit before your goodself as under:
Ground no. 1: Rs. 2254737 i.e. 30% of food packets expense of Rs. 7515792 is being disallowed u/s 40(a)(ia) of the IT Act, 1961.
| i. | During the year under consideration, assessee company had incurred expenditure of Rs.75,15,792/- for the purpose of purchase of food packets for their employees from M/s Ganesh Lal Yadav HUF. |
| ii. | Also, assessee company was dealing with vendor on principal to principal business and not in principal to contractor capacity. Ld. AO in his draft order disallowed 30% of expenditure of Rs.75,15,792/- amounting to Rs. 22,54,737/-considering it as catering service and stated that assessee company is liable to deduct TDS under section 194C of the Act. However, assessee company did not enter into any contract/ agreement with Ganesh Lal Yadav HUF, it is only supply of food packets on order basis hence as per assessee it was not liable for TDS deduction. |
| iii. | Further, during the course of assessment proceedings and DRP proceedings the expense incurred by assessee was accepted and no question was raised regarding the same and considering the nature of activity TDS was not required to be deducted on such transaction. |
| iv. | Without prejudice to above, during the course of lower authority proceedings assessee company had furnished a certificate as required under provision of section 40(a)(ia) r.w.s. 201(1) of the Act along with ITR V and computation of deductee wherein the provision states that if the deductor proves that the deductee has included such amount in his income and paid tax on same, then the deductor will not be considered as assessee in default and no disallowance will be made to the income of deductor. Relevant extract of the provision is as under: |
Proviso of section 40(a)(ia)-
“Where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. “
Proviso of section 201 (1)-
“Any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee—
| (i) | has furnished his return of income under section 139; |
| (ii) | has taken into account such sum for computing income in such return of income; and |
| (iii) | has paid the tax due on the income declared by him in such return of income” |
| v. | Assessee had although submitted the said documents before ld. AO before issuing draft assessment order and also before Hon’ble DRP, and ld. DRP had directed ld. AO that if assessee has provided required documents, then assessee company shall not be considered as assessee in default and accordingly the certificate along with it’s annexures proves that deductee has filed income tax return, after taking into account such sum received from deductor in computation and has paid due tax on same. However, ld. AO has erred in not fully following the directions issued by Hon’ble DRP and stating that corresponding income was not shown in the ITR of deductee, although the same is highlighted in the computation of income attached with Form 26A and ld. AO passed his final order stating that the above expenditure is in relation to catering expenses was liable for TDS u/s 194C of the Act and disallowed 30% of the said expenditure. |
| vi. | Hence, we would like to conclude by stating that as per the proviso of section 40(a)(ia) read with section 201(1) of the Act, if deductee has taken into account the corresponding income and has paid the tax due on the such income, then, assessee company shall not be considered as assessee in default and it shall be deemed that the assessee company has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee. Hence, we would humbly request before your good self to kindly delete the disallowance made on the income assessee company otherwise it will result in double taxation and oblige. |
Ground no. 2: Rs.209794 i.e. 30% of business promotion expenses of Rs.6,99,314/- is being disallowed u/s 40(a)(ia) of the IT Act, 1961.
| i. | During the year under consideration, assessee company incurred business promotion expense of Rs. 6,99,314/- to promote business which includes expenditure to attend conferences by employees and coupons to employees to rewards for their performance. |
| ii. | During the course of assessment proceedings, ld. AO in his draft order stated that assessee company was liable to deduct TDS on such expense under the provisions of 194C of the Act and disallowed 30% of expenditure of Rs.6,99,314/- amounting to Rs. 2,09,794/-. However, no explanation was provided as to how such expense were covered under the provisions of section 194C of the Act. |
| iii. | Further, during the course of hon’ble DRP proceedings, Hon’ble panel had directed ld. AO to re-verify the claim of such expense and had mentioned that such expense cannot be considered as expense for employees and is a business related expense but ld. AO has erred in not following the directions issued by Hon’ble DRP and passed his final order stating that the above expenditure is in relation to business promotion expenses and assessee company was liable to deduct TDS u/s 194C of the Act. |
| iv. | Further, the above expenditure includes expense for attending 2nd predictive analytics Asia summit 2020, hotel bills and e-voucher of amazon. All these expenses were incurred on the business promotion of the assessee company. |
Details of expenses incurred:
| Particulars | Amount | Total amount | Remarks |
| Hotel booking | 187740 | Not liable for TDS under 194C as per case law | |
| Hotel booking | 300000 | 487740 | Not liable for TDS under 194C as per case law |
| Reimbursement of virtual conference to employee | 15000 | Reimbursement to employee and not liable to TDS | |
| Reimbursement of virtual conference to employee | 16574 | 31574 | Reimbursement to employee and not liable to TDS |
| Amazon vouchers | 180000 | 180000 | Purchase of vouchers and not liable to be covered under 194C |
| Total | 699314 |
As per the judgement of Hon’ble Bangalore Tribunal in case of Ratnagiri Impex (P.) Ltd. v. Deputy Commissioner of Income-tax (Bangalore – Trib.) payment for hotel booking not covered under 194C of Act.
| v. | Accordingly, none of the expenses being incurred were falling within the definition of work as mentioned under section 194C of the Act and accordingly not liable for TDS. Relevant extract of section 194C of the Act is as under: |
“Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor 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,
….
…..
| (iv) | “work” shall include— |
| (a) | advertising; |
| (b) | broadcasting and telecasting including production of programmes for such broadcasting or telecasting; |
| (c) | carriage of goods or passengers by any mode of transport other than by railways; |
| (d) | catering; |
| (e) | manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.” |
| vi. | Further, as per circular no. 5 of 2002 read with circular no. 715 of 1995 it has been held that such hotel expense are not liable for TDS on rent. Hence, these expenses are not covered under the provisions of section 194C, so not liable to deduct TDS. Hence, we would humbly request before your good self to kindly delete the disallowance made on the income assessee company and oblige.” |
7. To support the contention so raised in the written submission reliance was placed on the following evidence / records :
| S. No. | Particulars | Page No. |
| 1 | Form 26A of Supplier of Food Packets (Ganesh Lal Yadav HUF) | 1-9 |
| 2 | Invoices of Catering Expenses | 10-21 |
| 3 | Ledger and Invoices of Business Promotion Expenses | 22-28 |
8. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee when it is clear case of the assessee that there is contract, and it is bill of supply the provision of section 194C are not attracted. As regards the other obligations for TDS as there was room rent paid is not subjected to TDS as held by coordinate bench of Bangalore ITAT in the case of Ratnagiri Impex P. Ltd.
9. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). As regards the Hotel bill ld. DR relied upon the circular no. 715 dated 8.8.1995 question no. 20 and stated that the said payment hits the provision of section 194C of the Act. As regards the food service there was continuous supply of foods and covered by the provision of section 194C of the Act and therefore, relied on the orders of the lower authorities.
10. We have heard the rival contentions and perused the material placed on record. Vide ground no. 1 the assessee challenges the disallowance of Rs.22,54,737/- to the income of the assessee u/s 40(a)(ia) on account of non-deduction of TDS on the foods supply bills. The brief facts since already repeated herein above in earlier paras we directly deal with the issue. From the record ld. AO noted that the assessee had incurred catering expenditure for an amount of Rs. 75,15,792/- for purpose of supply of food packets for their employees from M/s Ganesh Lal Yadav HUF where the assessee was liable to deduct TDS but had not deducted TDS on the payment and therefore, he proposed disallowance in the draft order. When the matter carried before DRP, DRP hold that the impugned transaction with the catering service provider was covered under section 194C of the Act and hence, assessee was liable to deduct the TDS. But at the same time on the alternative plea of the assessee that the other party has paid the tax the assessee should not be treated as an assessee in default and therefore, the matter was set aside to the file of the ld. AO. Ld. AO has not discussed that issue and directly taken a view that since the assessee has not recorded purchase and debited the said as expenses and therefore, he ordered for disallowance.
Before us on this issue ld. AR invited our attention to the invoice [page 10-21] which are of the nature supply of foods packets and not of the catering service. Had been a case of catering service the provision of section 194C shall apply but in this case this being the case of supply of foods and the same being subjected to GST the same shall not be considered as contract and therefore, the provision of section 194C shall not apply on those transaction entered into by the assessee in the case of M/s. Ganesh Lal Yadav-HUF. Considering that aspect of the matter ground no. 1 raised by the assessee is allowed.
11. Vide ground no. 2 the assessee challenges disallowance of Rs.2,09,794/- to the income of the assessee u/s 40(a) (ia) on account of non-deduction of TDS on business promotion expense for Rs. 6,99,314/- to promote business and rewards to employees to achieve work targets. Ld. AO noted that the company was liable to deduct TDS on such expenses. The contention of the assessee is that the expenses are the incentives provided to the best employees to achieve work targets. Ld. AO noted from the invoices that the said expenses are the hotel bills in respect of the various persons, e-voucher Amazon and of attendance at 2nd Predictive Analytics Asia summit 2020. The bench noted from the ledger account of Business promotion expenses that out of total expenditure claimed Rs. 6,99,314/-, Rs. 6,67,740/- relates to the Hotel Room booking amount and Rs. 15,000/- and Rs. 16,574/- for conference. That conference fees being below the threshold in section 194C the same cannot be considered as liable for TDS and coming to the balance amount of Rs. 6,67,740/- the bench noted that the said payment relates to hotel room booking payment and the same supported by three separate invoices of Hotel having value of Rs. 3,00,000/-, Rs. 1,87,740/- and Rs. 1,80,000/. All these invoices were in the name of the assessee company. When the matter carried by the assessee before DRP, assessee contended that the ld. AO has not specified under which section he made applicability of TDS on the business promotion expenses or perquisite to employee. DRP held that the expenditure are in the nature of business promotion and therefore, he directed the ld. AO to verify the record and decided the issue. Ld. AO in the final order hold that the payment is liable to TDS as per provisions of section 194C of the Act and accordingly he disallowed Rs. 2,09,794/-.
Before us ld. AR of the assessee cited the decision of co-ordinate bench of ITAT Bangalore in the case of Ratnagiri Impex Private Limited (supra) The bench noted that ITAT Bangalore decision refers the Bombay high court decision in the case of East India Hotels Ltd. v. CBDT ITR 526 wherein the court held that ;
20. It is true that the word ‘work’ in section 194C is not restricted to ‘works contract’ only as held by the Apex Court in the case of Associated Cement Co. Ltd. (supra). However, as held by the Apex Court in the case of Birla Cement Works (supra) the word ‘work’ in section 194C has to be understood in a limited sense and would extend only to the service contracts specifically included in the said section by way of Explanation III. Therefore, the argument of the revenue that the service contracts between the petitioner No. 1 hotel and its customers is covered under section 194C of the Act cannot be accepted because, neither such a contract constitutes ‘work’ within the meaning of section 194C of the Act nor those contracts are covered under service contracts specifically included by way of Explanation III to section 194C of the Act.
21. If the contention of the revenue that the words ‘any work’ in section 194C is very wide enough to include all types of work is accepted, then it would mean that even the hair cutting work done by a barber would be a ‘work’ covered under section 194C and the person making payment to the barber would be covered under section 194C. Such a wider interpretation is uncalled for, especially when the revenue itself had considered since inception that section 194C is restricted to the works done by contractors/sub-contractors. Apart from the above, the CBDT by its Circular No. 715, dated 8-8-1995 has clarified that the payments made by persons other than individuals and HUF’s for hotel accommodation taken on regular basis will be in the nature of ‘rent’ subject to TDS under section 194-I of the Act. Thus, there is inconsistency in the stand of the CBDT as to whether the services rendered by a hotel to its customers is covered under section 194C or under section 194-I of the Act.
22. In the present case, we are concerned with the question as to whether the services rendered by the petitioner hotel to its customers is covered under section 194C of the Act?
23. As noticed above, the facilities/amenities made available by the petitioner No. 1 hotel to its customers do not constitute ‘work’ within the meaning of section 194C of the Act. Consequently, the Circular No. 681, dated 8-3-1994 to the extent it holds that the services made available by a hotel to its customers are covered under section 194C of the Act must be held to be bad in law.
24. For all the aforesaid reasons, the petition is allowed by quashing the Circular No. 681, dated 8-3-1994 to the extent it holds that section 194C of the Income-tax Act applies to payments by the customers to the petitioner No. 1 hotel for availing the facilities/amenities made available by the petitioners.
25. The rule is made absolute in the above terms with no order as to costs
Respectfully following the judgement as referred herein above direct the ld. AO to delete the addition of Rs. 2,09,794/-.
12. Since we have considered ground no.1 & 2 on merits of the issue ground no. 3 being the technical ground becomes academic.
In the result, the appeal of the assessee is allowed.