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Chintan Shah (NA)     27 February 2010

TDS u/s 194C or 194J

Dear Collegues,

A company has given a contract for repairing of gear box and antisurge valve and polishing of interiors and exteriors of the valve to another company. Material will be provided by the contractee company to the contractor company. The contractor will work as per the specifications of the contractee company. Pls tell me whether tds will be deductible u/s 194C or 194J?

Does the act defines technical services anywhere? I know it defines 'fees for technical services" under Expl 2 to Section 9(1)(vii) but what does technical services mean? Again does just the use of technical knowledge for rendering services amounts to fees for technical services or technical knowledge has to be imparted to the payee company?

Thanks in advance..




 7 Replies

A V Vishal (Advocate)     27 February 2010


1 Like

AEJAZ AHMED (Legal Consultant/Lawyer)     27 February 2010

Dear Shah,

As per me the applicable section is 194C, because the Contract is a Service Contract and it is clearly explained the guidlines issued by the Board. (Kindly go through th following site : https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2008ITAct/Sec_194C.htm)


On going through the above portion of the Circular it is abundantly clear that the contracts for the sale of goods will not be covered within the ambit of section 194C but the contracts granted for processing of goods supplied by the Government or any other specified person where the ownership of such goods remains at all times with the Government or such person, will also fall within the scope of this section.


With regard to next query, it is not defined in the act about "Technical Services"; but it is observed by the Hon'ble Madras High court as follows:

 The Hon’ble Madras High Court in the case of Skyceli Communications Ltd. 251 ITR 53 (Mad) had an occasion to examine the definition of "fee for technical services" in the context of payment of fees by a cellular/Mobile phone subscriber to the operator of the cellular/mobile phone facility. 

The following were its observations:

Thus while stating that "technical service" would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute "technical' service to render it "technical service". The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques : technical terms (especially of a book or article; requiring special knowledge to be understood : a technical: report. 2. of involving, or concerned with applied and industrial sciences : an important technical achievement. 3. resulting from mechanical failure : a technical fault. 4. according to a strict application or interpretation of the law or the rules : the arrest was a technical violation of the treaty.


Having regard to the fact that the term is required to be understood in the context in which it is used, "fee for technical services" could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with "technical" is "involving or concerning applied and industrial science".

In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.

When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having use it for travelling from one destination to another.  When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus.  The electricity supplied to a consume" cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue.

The Court finally concluded as follows:

Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee.

When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service.  What he does agree to is to pay for the use of the airtime for which he pays a charge.  The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber.  The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station.  All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected.  What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical service" for the purpose of section 194J of the Act           

At the time the Income-tax Act was enacted in the year 1961, as also at the time when Explanation 2 to section 9(l)(vii) was introduced by the Finance (No. 2) Act, with effect from April 1, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient Section 194J, as also Explanation 2 in section 9(l)(vii) of the Act were not intended to cover the charges paid by the average house-holder or consumer for utilising the products of moder-technology, such as, use of the telephone fixed or mobile, the cable T.V., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of bein; regarded as technical service cannot become so when used by firms and companies.  The facility remains the same whoever the subscriber may be - individual, firm or company.


“Technical service” referred in section 9(1)(vii) contemplates rendering of a “service” to the payer of the fee.  Mere collection of a “fee” for use of a standard facility provides to all those willing to pay for it does not amount to the fee having been received for technical services.

See also the attached Judgment for "Techincal Services"

Attached File : 48 48 continental construction ltd vs commissioner of income tax 1 on 15 january 1992.pdf downloaded: 1268 times

Chintan Shah (NA)     27 February 2010

Ahmed Sir,

Thank You for the reply.... Considering that the consideration involved in my case above is Rs. 100000 for 1.5 days work, it seems that there is a component of technical knowledge or skill involved... Again the specifications given for the work by the contractee company are impossible for a layman to understand. It involves the repairing of a very sophisticated machine. The contract has been awarded by a very reputed private sector listed company to this engineering company..... Therefore the inference can be drawn that the contract is given for some work involving technical knowledge... Considering these i think TDS to be deducted on technical services u/s 194J/.... Pls confirm. thx in advance



Asha Pole (Legal)     02 March 2010

Yes you are absolutely correct Tds on technical fees are covered under sec 194J as per the Income Tax Act

Read the following link in detail


Vineet (Director)     02 March 2010

The application of section 194C or 194J depends upon the facts of the case and nature of agreement between the contracting parties.


As per details provided by you, the contractor has to work as per specifications provided by the contractee. Therefore apart from its specialisation in executing such kind of work, the contractor prima facie is not bringing in any  technical or professional knowledge as consultancy or value addition to the other party. Thus if the nature of agreement is award of contract to repair the machinery as per specifications provided by the contractee, TDs as per section 194C will be applicable. It is immaterial whether contractor is paid Rs 1 Lakh in 1.50 days. There may be umpteen number of reasons for such high consideration e.g. employment of sophisticated machines or highly skilled employees by the contractor etc.


I agree with Mr.A.V.Vishal .Sec 194 clearly says that the amount of contract paid by the contractee to the contractor. In the said case it is clear cut contract. in Sec 194J the definition of professional fee and fees for technical services has been mentioned. Even though the person who has involved is a technical person the main work is broadly catagarised as the payment to contractor and subcontractor as per the sec 194C. The definition for " fees for technical services " is clearly catagarised in sec 9 sub sec 1 (vii) of the I.T.Act 1961.

Ganesh babu (ARTICLE ASSISTANT)     11 May 2013

in my opinion 194j wil be applicable

as per

explanation 2 to clause 7 subsection1 of section 9

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