Facts of the Case

Lok Sewa Ayog, Allahabad (a Public Service Commission responsible for conducting recruitment examinations), made payments to various individuals such as paper setters, examiners, moderators, and interview board members in connection with conducting examinations and selection processes.

The Income-tax Department (TDS wing) held that these payments constituted fees for professional or technical services and therefore required deduction of tax at source under Section 194J of the Income-tax Act, 1961.

Issues Involved

  1. Whether payments made by a Public Service Commission to paper setters, examiners, moderators, and interviewers constitute fees for professional or technical services liable for TDS under Section 194J.
  2. Whether the Commission could be treated as an assessee in default under Sections 201(1) and 201(1A) for failure to deduct TDS on such payments.

Petitioner’s Arguments (Revenue / ITO-TDS)

  • The payments were made to qualified individuals for rendering specialized services.
  • Such services fall within the definition of professional or technical services under Section 194J.
  • Failure to deduct tax at source rendered the Commission liable as an assessee in default.

Respondent’s Arguments (Lok Sewa Ayog)

  • The payments were honoraria for participation in statutory examination processes, not contractual professional services.
  • Activities such as setting question papers, evaluating answer sheets, or participating in interview boards were part of sovereign/public functions.
  • There was no employer-employee or professional service relationship as contemplated under Section 194J.
  • Therefore, provisions relating to TDS on professional services were not applicable.

Court Order / Findings (ITAT Allahabad)

  • Lok Sewa Ayog is a statutory body discharging constitutional and public functions relating to recruitment.
  • Payments to paper setters, examiners, moderators, and interviewers are incidental to conducting examinations and are in the nature of honorarium rather than professional fees.
  • Such payments do not constitute professional or technical services within the meaning of Section 194J.
  • Consequently, the Commission was not required to deduct tax at source on these payments.
  • Since no TDS obligation existed, the Commission could not be treated as an assessee in default under Sections 201(1) and 201(1A).

Important Clarification

The decision is fact-specific and applies particularly to statutory examination bodies performing public functions. The Tribunal did not lay down a blanket rule for all honorarium payments; applicability of TDS provisions depends on the nature of services and relationship between parties.

Link to download the order –

https://itat.gov.in/public/files/upload/1616750016-ITA%20329,%2010,%20330%20and%2011%20Lok%20Sewa%20Ayog.pdf

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