Section 194J –Technical Service vs Professional Service

1
Section 194J Technical Service v/s Professional
Service
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• Confusion hi confusion hain. Solution kuch pata
  nhi!
• As per section 194J (a) TDS on professional
  services is deducted _at_10. (b) TDS on technical
  services is deducted _at_2. There is great
  confusion in the definitions of technical
  services as well as professional services. As per
  clause (a) of explanation to section 194J,
  professional services means services rendered by
  a person in the course of carrying on legal,
  medical, engineering or architectural profession
  or the profession of accountancy or technical
  consultancy or interior decoration or advertising
  or such other profession as is notified by the
  Board for the purpose of section 44AA or of this
  section As per clause (b) of explanation to
  section 194J, fees for technical services shall
  have the same meaning as in Explanation 2 to
  clause (vii) of sub-section (1) of section 9 As
  per Explanation 2 to clause (vii) of sub-section
  (1) of section9fees for technical services
  means any consideration (including any lump sum
  consideration) for the rendering of any
  managerial, technical or consultancy services
  (including the provision of services of technical
  or other personnel) but does not include
  consideration for any construction, assembly,
  mining or like project undertaken by the
  recipient or consideration which would be income
  of the recipient chargeable under the head
  Salaries

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• The article is all about the confusion in both
  the definitions. If we read both the definitions,
  at first glance it seems overlapping because
  there is mention of technical consultancy in the
  definition of professional services as well as
  technical consultancy is also mentioned under
  definition of fees for technical services.
  These both definitions is creating lot of
  problems for the assessees, as they are confused
  whether TDS_at_2 will be deducted or TDS_at_10 will
  be deducted for technical services and there is
  no clarification available for this confusion
  till now. This confusion can result in deduction
  of TDS at lower rate or higher rate. 
• TO FINALLY KARNA KYA HAIN?? 
• For this confusion, the principal difference
  between the technical services and professional
  services needs to be understood. The intent that
  can be behind levying a higher TDS rate in the
  case of professional services is that there are
  higher margins in the case of a profession. In
  profession, one earns with the power of the mind,
  whereas in business there have to be much more
  overheads and infrastructure involved. Therefore,
  lower margins entailing lower TDS rates in case
  services are provided in the course of business.
  The percentage of profit in relation to turnover
  in business is much less than a profession.

4

• So we can differentiate the technical services
  and professional services with the help of
  definition of business and profession as
  per Income Tax Act. As per section 2(13) of the
  Income Tax Act, Business includes any trade,
  commerce, or manufacture or any adventure or
  concern in the nature of trade, commerce or
  manufacture. The word business is one of wide
  important and it means activity carried on
  continuously and systematically by a person by
  the application of his labour or skill with a
  view to earning an income. The expression
  business does not necessarily mean trade or
  manufacture only As per section 2(36) of the
  Income Tax Act, profession to include vocation,
  In general terms, the expression profession
  involves the idea of an occupation requiring
  purely intellectual skill or manual skill
  controlled by the intellectual skill of the
  operator. So if technical consultancy is provided
  in the course of the profession, it will be
  considered in the nature of professional
  services. If technical consultancy is not
  provided in the course of the profession, then it
  can be considered that they are provided in the
  course of business.

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• Lets understand this with an example Chintu a
  software engineer providing technical consultancy
  to ABC Ltd. for which he charged fees of Rs.
  35,000 from ABC Ltd. ABC Ltd. is confused whether
  the TDS is to be deducted at 2 or 10 as the
  technical consultancy comes under the definition
  of both technical services and professional
  services. As the Chintu is an individual and he
  is also a software engineer i.e. he is having
  certified degree providing technical consultancy
  in the capacity of the professional, in my
  opinion TDS_at_ 10 would be applicable. Lets take
  another example Chipmunk Ltd. is providing
  technical consultancy and employs various fields
  of professionals for rendering such services,
  then it cannot be considered as professional
  services because a company cannot provide these
  services in the course of a profession and will
  be eligible for lower rate of TDS
  i.e.2.

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• SYMPTOMS OF A PROFESSIONAL
• Can be an individual or group of individuals
  having certified degree of profession e.g.
  doctor, engineer, Chartered Accountant etc.
• Connected with a job that needs a high level of
  training and/or education.
• Individual who derives their income from his
  specific knowledge or experience.
• Individual who is engaged in one of the learned
  professions.
• Individual who works in a specified professional
  activity.
• TO AAIYEIN SHORT SUMMARY SE SAMAJHTE HAIN!!
• Technical consultancy provided under the scope of
  business than it will fall under the definition
  of technical services and TDS_at_2 will be
  deducted. If technical consultancy is provided
  under the capacity of professional, then it will
  fall under the definition of professional
  services and TDS_at_10 will be deducted.
  

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• Ms. Anushika Garg is a Senior Article Assistant
  and CA Rakesh Kedia is Partner in Direct Tax
  Department associated with M/s R Sogani
  Associates Chartered Accountants, situated at
  C-Scheme, Jaipur, Rajasthan. Written by Ms.
  Anushika Garg under guidance of CA Rakesh Kedia
  (E-mail anushikagarg.155_at_gmail.com,
  kedia_at_soganiprofessionals.com)
• DISCLAIMER
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  informational purpose. It does not constitute
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