2008 (2) TMI 515 - AT - Income Tax

Liability to deduct tax at source u/s 194J - Services rendered by SBI - Payments toward MICR charges is Managerial/Technical Services as per Explanation (b) of section 194J r/w Explanation 2 to section 9(1) or Not ? - HELD THAT - The definition of fees for technical services is very wide. It in our opinion covers within its ambit any managerial technical or consultancy services rendered by a person. Since other banks pay to the State Bank of India charges for the MICR facilities regarding identifying reading and clearing cheques through its special kind of machines the same in our view is in the nature of fees for technical services and therefore will be liable for TDS. The service of this nature in our opinion involves human skills as well as computerized machines. It is not automatic. In that sense it is no hiring/leasing or making available the technical equipment working on its own. But it is fully supported by services of Personnel and requires human application of mind along with technical equipments. Therefore the State Bank of India was managing and clearing of the cheques through MICR Centre by rendering managerial services which falls within the definition of technical services. We thus do not find any illegality or infirmity in the order of the CIT(A) holding that the assessee is liable to deduct the tax at source as the provisions of section 194J in our opinion were clearly applicable. In the result the cross objections are dismissed.

Summary

Issues Involved:
1. Whether the MICR Centre managed by SBI was providing Managerial/Technical Services as per Explanation (b) of section 194J read with Explanation 2 to section 9(1) of the Income-tax Act.
2. Whether the appellant was liable to make TDS under section 194J of the Income-tax Act.
3. Whether TDS was required to be made in respect of reimbursement of expenses.

Issue-wise Detailed Analysis:

1. Managerial/Technical Services under Section 194J:

The primary issue was whether the MICR Centre managed by SBI was providing managerial or technical services, thus necessitating TDS under section 194J. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] both concluded that the services provided by the MICR Centre fell under managerial services. The MICR Centre managed the entire cheque processing system, from procurement of paper to the completion of clearing cheques. The CIT(A) emphasized that the MICR Centre's operations involved significant managerial oversight, including accounting settlements and monitoring clearing house operations, which constituted managerial services under section 194J.

2. Liability to Deduct TDS under Section 194J:

The assessee contended that the MICR Centre did not provide professional or technical services within the meaning of section 194J. They argued that the Centre merely facilitated mechanized cheque processing, which did not amount to technical or professional services. However, the CIT(A) rejected this argument, noting that the MICR Centre's activities involved managerial functions, which were taxable under section 194J. The Tribunal upheld this view, stating that the MICR Centre's services involved human skills and computerized machines, thus qualifying as technical services requiring TDS deduction.

3. TDS on Reimbursement of Expenses:

The assessee argued that no TDS was required on reimbursements of expenses. The CIT(A) and the Tribunal did not specifically address this argument in detail, focusing instead on the broader issue of whether the services provided by the MICR Centre were managerial or technical. However, the Tribunal implicitly rejected the argument by upholding the AO's decision that TDS was required under section 194J for the payments made to the MICR Centre.

Conclusion:

The Tribunal concluded that the services provided by the MICR Centre managed by SBI were managerial/technical services under section 194J, and thus, the appellant was liable to deduct TDS. The Tribunal dismissed the cross objections, affirming the CIT(A)'s decision. The Tribunal also noted that while the State Bank of India had directed member banks to deduct TDS, the assessee had failed to do so, thereby justifying the AO's and CIT(A)'s actions.