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2015 (11) TMI 1451 - ITAT CHENNAI

2015 (11) TMI 1451 - ITAT CHENNAI - [2016] 45 ITR (Trib) 333 - TDS u/s 194C OR 194J - whether services provided for payments made for supply of personnel would be technical service u/s.194J or mere contract u/s.194C? - Held that:- Taking note that the word 'technical' is preceded by the word 'managerial' and succeeded by the word 'consultancy' in CIT vs. Bharti Cellular Ltd (2008 (10) TMI 321 - DELHI HIGH COURT) held that the rule of noscitur a sociis is clearly applicable and this would mean th .....

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n element' or what is now a days fashionably called 'human interface'. In the case of Bharti Cellular Ltd (supra) before the Delhi High Court, the facility provided by MTNL and other companies to the assessee for interconnection/port access was one which was provided technically by the machines and since it did not involve any human interface, the Delhi High Court held that the same could not be regarded as 'technical services' as contemplated under S.194J of the Act.

It is worthwhile .....

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f the Tribunal. The Supreme Court also felt that some expert evidence was required to be brought on record to show how a human intervention takes place during the course of rendering of the services. The matter, therefore, was restored by the Supreme Apex Court to the file of the Assessing Officer with a direction to decide the same afresh, after examining a technical expert.

However in the present case, there is no dispute that there is 'human interface' in rendering service provider .....

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e are directed against different orders of the Commissioner of Income-tax (Appeals)-2, Coimbatore, for the assessments years 2013-2014 and 2014-2015. Since the issues involved in these appeals are common in nature, these appeals are combined, heard together, and disposed of by this order for the sake of convenience. 2. The common ground in these two appeals are with regard to treating the assessee as "assessee in default" by observing that the assessee is liable to deduct TDS u/s.194J .....

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018 on 17.09.2013. During the course of survey, it was noticed that in the assessee's business premises, the services of the most of the personnel were provided by outsourcing agencies. The work relating to front office management, liaison work, data entry was being manned by the outsourced personnel. The assessee was deducting tax at source at the rate of 2% u/s.194C on the payments made. The assessee, during the course of hearings, was questioned on this nature of business model and was a .....

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submission dated 16/12/2013 arguing that since Section 194C speaks of supply of labour for carrying out any work pursuant to a contract, the applicable rate of payment would be only 2%. However, the Assessing Officer observed that "work" is different from "services" and Sec 194C and 194 J operate on different parameters. Definition of technical services in section 9 states as under:- "For the purposes of this clause, 'lees for technical services" means any cons .....

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rovision for services of technical or other personnel for rendering any managerial, technical or consultancy services will be treated as technical services. The persons so supplied need not possesses any technical qualifications. This is made clear by the phrase "other personnel." Since Section 194J r.w.s Explanation 2 to (vii) of Section 9 is a special provision in the Act defining technical services, it will override the general reference to supply of labour for carrying out any work .....

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ctions 201(1) and 201(1A) of the Act. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us. 5. The ld. Authorised Representative for assessee submitted that the assessee has entered into agreements with various contractors for supply of manpower. Manpower services provided by the aforesaid service providers include provis .....

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nt for 'carrying out any work' including supply of labour for carrying out any work in pursuance of a contract was liable to deduct tax at source at the specified rate under Section 194C of the Act. Since, the service provider was providing personnel/ labour to the assessee for carrying out certain specified activities under the contract, the same gets squarely covered under the provisions of the section 194C of the Act. Further, the term 'work' has a wide import which includes n .....

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, tax was deductible at the rate of 10% under section 194J of the Act. In this regard, the ld. Authorised representative for assessee submitted that the payment made to the suppliers of manpower would not be liable for deduction of tax at source under Section 194J of the Act is as follows: Relevant extract of section 194J of the Act is as follows: "(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) .... , or .....

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attention to the definition of the term 'fees for technical services' as used in Section 194J of the Act. As per clause (b) of the Explanation to Section 194J of the Act, 'fees for technical services' has the same meaning as used in Explanation 2 to Section 9(1)(vii) of the Act. As stated the use of the term 'means' in the above definition clearly indicates that the above definition was exhaustive and that only the services specifically stated in the said definition woul .....

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d as per given set of guidelines when attending to a subscriber or to a prospective customer of the Assessee. There was nil or negligible intellectual element involved in the task undertaken by the executives, the predominant element being conversing with the subscribers of the assessee, based on non-technical training provided to them by the Assessee. The service provided by the executive's is of a mechanical routine nature carried out by semi-skilled executives.In view of the above, it was .....

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he Shorter Oxford Dictionary and Websters' New World Dictionary. As you would appreciate, none of the above functions is performed by the executives at the assessee's stores. Their job being restricted to only attending to the subscribers/ customers of the Assessee in a manner already specified to them. Having regard to the above definition, the Assessee respectfully submits that no directive or regulative or control or superintendence or administrative functions are performed by these e .....

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out work' as envisaged under Section 194C of the Act and tax has been appropriately deducted under Section 194C Of the Act. Further, the explanation to Section 191 of the Act provides that an assessee cannot be treated as an assessee in default when taxes were not deducted at source but paid directly by the recipient. This view is supported by the Instruction No. 275/201/95-ITB(B) dated 29.01.1997 issued by the Central Board of Direct Taxes. It was further submitted before the learned TDS O .....

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paid by the aforesaid operators. In respect of consequential interest under section 201(1A) of the Act, since interest under section 201(1A) of the Act is compensatory in nature, it can be charged for the period for which the tax department was deprived of such due taxes. In the instant case, since the recipient distributors/other telecom operators are discharging their tax liability by way of advance tax, self assessment taxes and other pre-paid taxes, interest, if any, under section 201 (1A) o .....

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td, 135 TTJ 589, Mumbai. (6) East India Hotels Ltd. And Authorised Representative. V. CBDT and Anr.320 ITR 526 (Bom) (7) Skycell Communications Ltd and Another vs. DICT, 251 ITR 53 and also Circular No.715, dated 08.08.1995 issued by CBDT. 6. On the other hand, the ld. Departmental Representative submitted that the assessee's claim that no finding has been given by the Assessing Officer that there was a failure on the part of the deductees to pay tax directly which is a pre- requisite for as .....

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icability of relevant section. In this case u/s.194J or 194C, the judgment relied upon by the assessee in this context is not relevant to the issue before the Assessing Officer, hence the Commissioner of Income Tax (Appeals) dismissed this ground. 7.1 In the next ground, the ld. Departmental Representative submitted that the assessee contents that the Assessing officer has erred in holding the manpower charges are subject to deduction of tax u/s.194J has technical services whereas the actual or .....

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Section 9(1)(vii) could also have to be construed as involving a human element. But, the facility provided by MTNL//other companies for interconnection / port access is one which is provided automatically by machines. It is independently provided by the use of technology and that to, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Explanation 2 to Section 9(1)(vii)of the said Act. Th .....

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refore, was to check if there was any human interface or managerial service provided. In the same view, it cannot be held that normal day today services like security services and sanitation can be termed as technical service. In this context the assessee was asked to furnish the details of service availed and payments made in this regard. The assessee has furnished the details vide his letter dated 16.01.2015 as under:- Sl. No Name F.Y. 2012-13 (amount) F.Y. 2013-14 (amount) Nature of Manpower .....

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or three kinds of service. They are (1) Support services such as filed activations, vendor payment queries, entering receipts into SAP, field verifications etc. (2) Customer support services such as tele-calling for bill payments, tele-calling for new activations. (3) House keeping services. On perusal of the same shows that the support services at "I" and "II" above would necessarily require technical expertise and managerial expertise because they would involve identificati .....

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or tax deduction u/s.194J. The third activity i.e. the house keeping services shall not constitute technical services as these would involved only normal house keeping services, like security/sanitation which was provide for any organization. Therefore, it was held that the payments made towards housekeeping services shall be subject to tax u/s.194C and the Commissioner of Income Tax (Appeals) has allowed the ground partly and it was held that the assessee should deduct tax u/s.194J for technica .....

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company to the service provider M/s. Forte Solutions Private Limited (hereinafter referred as 'service provider') in pursuance to the contract and scope of service provider shall perform a broad level of services including, but not limited to the followings:- a. Recruitment Service Provider will help source candidates for selection based on agreed specifications. VECL will commit a person or absorb anybody for work from Service Provider. However, instructions to this effect either orally .....

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ud and acts that constitute moral turpitude. VECL will brief Service Provider on the full details in such that month would be payable by VECL. cases. In such cases, Service Provider will immediately withdraw the deputee and fee proportionate to the number of days worked by the deputee in that month would be payable by VECL. In all other cases, VECL may request for withdrawal of a deputee subject to payment of one month's service fee to Service Provider. In case of relieving a Deputee, VECL s .....

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he approval of VECL. g. Service Provider will ensure that the deputees' salaries / reimbursements are processed and reached to the deputees latest by last working day of the month irrespective of thepayments from VECl. h. Service Provider will review deputee performance periodically with the concerned Executive of the VECL i. Service Provider personnel will communicate with the deputees / concerned Executive ofVECL periodically to address any problems and implement solutions to the satisfact .....

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nd GPA) to all its Deputees provided to VECl." According to the ld. Authorised Representative for assessee the above service provider falls within the preview of Explanation 4 of Sec. 194C of the Act. 8. We have carefully gone through the above services to be rendered by the service provider. The above services to be rendered by the employees to the service provider who shall be sufficiently trained and shall have adequate knowledge of service to be provided to the highest standard. Further .....

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nd use the confidential information only for the purpose of this agreement and only as permitted herein. The service provider only make copies as specifically authorised by the prior written consent of the other party and with the same confidential or proprietary notices as may be printed or displaced on the original, to restrict access and disclosures of confidential information to such of their employees, agents and third parties on a "need to know" basis and upon the execution of a .....

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on. The service provider agrees that any of assessee's technical or business information that service provider's employees or agents acquire while on assessee's premises or through access to assessee's computer system or databases while on or off assessee's premises, shall be deemed confidential information. All information provided by the assessee to service provider shall at all times, remain the sole and exclusive property of assessee. Upon termination /expiry of this agre .....

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under consideration, the assessee availed/ made payments as under:- Sl.No Name F.Y 2012-13 (Amount F.Y. 2013- 14 (Amount) Nature of manpower services 1 Cameo Corporate Services Limited 9,79,005 2,99,903 Support services such as field activations, vendor payments queries, entering receipts into SAP, field verification etc 2 Forte Private Solutions Limited 4,27,08,092 3,57,70,557 3 Sukhvasha Management services 5,88,39,000 2,50,66,617 4 Caliber Point Business solutions 7,06,96,268 2,15,58,974 Cust .....

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es. On perusal of the same shows that the support services at "1" and "2" above would necessarily require technical expertise and managerial expertise because they would involve identification of the customers to whom such services have to be rendered. The activation of any new service/marketing and selling of the services would also essentially required in depth analysis and knowledge of the services provided and activities of the company. It is an admitted fact that the ser .....

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als) that the payments made towards housekeeping services shall be subject to tax u/s.194C and he also held that the assessee should deduct tax u/s.194J for technical services for the services provided "1) Support services such as filed activations, vendor payment queries, entering receipts into SAP, field verification etc. and 2) Customer support services such 'as tele- calling for bill payments, tele- calling for new activation". 9. In our opinion, the findings of the Commissione .....

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said cases were entirely different from the facts involved in this case. Therefore, it cannot be applied in the present case to decide the issue. In the case of CIT vs. Bharti Cellular Ltd (319 ITR 139) (Del), the Delhi High Court had an occasion to interpret and explain the expression 'fee for technical services' as appearing in S.194J. In this context, it was noted by the Delhi High Court that the said expression appearing in S.194J has the same meaning as given in Explanation (2) to S .....

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d. Elaborating further, the Delhi High Court observed that it is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it and similarly, the services 'consultancy' also necessarily intends human intervention. It was held by the Delhi High Court that the expression 'technical services' thus necessarily involves 'human element' or what is now a days fashionably called 'human interface'. I .....

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