TMI Blog2008 (2) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. - Member(s) : P. K. BANSAL., MAHAVIR SINGH. ORDER Per P.K. Bansal, Accountant Member.-These four cross objections have been filed by the assessee directed against the common order passed by the Commissioner of Income-tax (Appeals)-I, Surat ['the CIT(A)' for short] dated 16-4-2007 for assessment years (AYs.) 2003-04 to 2006-07. The following three common effective grounds have been raised by the assessee: 1.1 The ld. CIT(A)-I, Surat has erred in law and/or on facts in confirming that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing of cheques leading to speedier clearance of cheques and does not provide any technical or professional services. (iii) The MICR Centre is a mutual concern (AOP) of member banks and hence it is not liable to tax and, therefore, the member banks were not required to deduct any TDS from the payments made to the MICR Centre. (iv) If the department holds the services as managerial services within the meaning of section 194J of the Income-tax Act and even if the tax was required to be deducted by the member banks, still the SBI would have included the entire receipts in its P L A/c. and, therefore, no tax or interest should be charged from the assessee-bank in view of the provisions of section 191 of the Income-tax Act as well as in view of the following decisions: "(i) CIT v. Rishikesh Apartment Cooperative Housing Society [2002] 253 ITR 310 (Guj.) wherein the Hon'ble Gujarat High Court has stated that if the revenue is permitted to levy interest under the provisions of section 201(1A) even in the case where the deductee has paid the tax then the revenue would derive undue benefit or advantage by getting interest on the amount of tax which has already been paid on the due dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If there is a surplus in charges account, it is transferred to our Local Head Office (LHO) at monthly intervals. At the LHO, this amount is credited to Commission-C I Account. The balance in this account is transferred to the Bank's P L account, which is maintained by the Corporate Centre, Mumbai. The surplus in the P L Account is offered by taxation after complying with various statutory provisions. (iv) As mentioned above, the balance in the above accounts are taken to P L accounts. (v) We have not applied to the ITO TDS in Surat under section 197 read with Rule 128 in Form No. 13 for no deduction of tax at source in respect of these receipts from the branches of various banks that are making payment in respect of the services provided under Regulation 19 mentioned above. (vi) Ledger account of each bank is not maintained separately in the accounting system, but the information is available bank-wise through a billing program attached to the MICR computers. Clearing house charges are calculated manually. This information is given at Annexure A (for MICR cheque processing charges) and Annexure B (for clearing house charges) for each of the bank mentioned in the Annexure to y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring Deptt., would (i) Receive fully encoded cheques from branches who have encoders. (ii) Provide encoding facilities to its branches who do not have the encoding machines. (iii) Place the various batches in trays one after the other and cross reference the audit trail of each batch and keep them in a separate cover. (iv) Add up the batch ticket figure and prepare a block ticket representing the aggregate claim of the bank as a whole, in respect of the day's outward clearing (The block ticket should be placed at the head of all batches), and (v) Sent the outward clearing to the cheque processing centre. (2) The cheque processing centre - Under the mechanized procedure the cheque processing centre will: (i) Receive the outward clearing cheques from the member banks and pass a receipt. (ii) Arrange for data capture, sorting/listing of cheques drawee bank/branch-wise. (iii) Place the cheques duly sorted in the respective banks trays/receptables. (iv) Generate various reports such as the settlement sheet, bank-wise settlement reports, and drawee bank/branch-wise listings of cheques. (v) Arrange for delivery of inward cheques and relative reports to the concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 191 and since the State Bank of India has already paid the tax, it was held that no tax can be collected by the Assessing Officer from the assessee under section 201(1A) and for charging of the interest the CIT(A) directed the Assessing Officer to charge interest under section 201(1A) only for the period between the due date of TDS to the date of actual payment of tax, if any, by the State Bank of India. 5. The learned AR before us vehemently contended that the services rendered by SBI are not the technical services so that the assessee may be liable to deduct TDS. He pointed out that SBI has not rendered any technical services. Cheques get processed through the apparatus. It is the use of the apparatus only. Reliance was placed in this regard decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53, in which it was held that provision of Cellular Mobile Telephone Facility to subscribers is not a technical service and, therefore, deduction of tax at source need not be made from the subscribers. Our attention was also drawn to the decision of the ITAT Chandigarh Bench-B in the case of HFCL Infotel Ltd. v. ITO [2006] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion of section 194J reads as under: "194J(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, [or] (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein: Explanation.-For the purposes of this section- (a) "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 purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ba) "royalty" shall have the same meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service Neither service can be regarded as "technical service" for the purpose of section 194J of the Act. The use of the internet and the worldwide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o gone through the decision of the ITAT Chandigarh Bench-B in the case of HFCL Infotel Ltd. In that case the facts were that the assessee is engaged in the business of providing telecommunication services to its subscribers and sharing call charges received from subscribers with BSNL in Punjab Circle including Chandigarh. The assessee has entered into an agreement with BSNL so that whenever a subscriber of the assessee-company calls a subscriber of BSNL, and likewise whenever a subscriber of BSNL, network calls a subscriber of the assessee-network, then the calls are routed through each others' network. The amounts of share of calls are, therefore, to be given to the service provider and for which the assessee has paid the charges to the BSNL network for using the services of network. On these facts, the Tribunal has held that the assessee is providing services to its subscribers and certain calls are routed by making use of the network of BSNL and for that purpose the call charges received by the assessee from its subscribers are shared with BSNL. On this, the Tribunal held that the said services cannot be treated as technical services and the provisions of section 194J are not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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