ATDS breather on service tax portion
The Rajasthan High Court, in the case of Rajasthan Urban Infrastructure Development Project, ruled that no tax need be withheld under Section 194J on the service tax payable on professional/ technical fees.
Interestingly, the Central Board of Direct Taxes had in an earlier circular held that the scope of withholding tax under Section 194J includes 'any sum' by way of professional/ technical services, and withholding tax applies on the service tax component as well.
However, the High Court ruled that if service tax is payable in addition to professional/ technical fees under the contract, the withholding tax will be restricted to the fees, thereby highlighting that examination of contract terms is imperative.
This ruling may also be relevant in the context of other similarly worded withholding tax provisions.