In Skycell Communications Ltd vs DCIT (2001 119 Taxman 496), the Madras High Court ruled that use of equipment and machinery does not tantamount to receipt of technical services. This then rules out deduction of tax under Section 194J. But it appears that one cannot ignore the mandate of Section 194-I, which calls upon a user to deduct tax at source on payment of rent for use of equipments and machinery.

It appears that the CBDT has not come out with any specific circular on this issue. Therefore, everyone including individuals and HUFs coming under the purview of tax audit in terms of Section 44AB may have to deduct tax at source on payments such as the one described by you.

A partner renders consultancy service to the firm in which he is a partner for which he is separately remunerated. Does this form part of his salary in terms of Section 40(b)?

Joe and Wily, email

A partner can always receive amounts from the firm in which he is a partner in his individual capacity. For example, he might have given his property on rent to the firm. The rent payable by the firm in which he is a partner would now be taxable as his individual income and tax would have to be deducted by the firm from such rent if warranted by Section 194-I. But payment for services is a different kettle of fish. The assessing officer would view his consultancy fees as salary/remuneration because the limit on salary imposed by Section 40(b) can otherwise be easily circumvented by every firm. The department’s contention would be that when a working partner is paid, he is paid for his services, period, whether the services rendered are routine or esoteric. In the event, I strongly feel that even consultancy fees to a working partner would attract the limits of Section 40(b).

S. MURLIDHARAN

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