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2016 (5) TMI 1254 - ITAT MUMBAI

2016 (5) TMI 1254 - ITAT MUMBAI - TMI - TDS u/s 194J OR 194C - nature of services received by the assessee by incurring data storage expenses - Held that:- CIT(A) after having examined and perused agreements with the service providers and after going into the various services provided reached a conclusion that the outsourced services do not require any kind of technical and professional expertise and are just simple and repetitive nature of work such as document storage, documents delivery and c .....

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but simple, basic and repetitive nature of work and we are inclined to opine that the order of CIT(A) is correct and deserved to be upheld - Decided against revenue

TDS u/s 194J OR 194C - event management expenses - Held that:- The assessee has paid ₹ 1,69,08,818/- to M/S Reliance Transport and Travel Pvt Ltd as reimbursement expenses and tour leader expenses. These reimbursements were made by the assessee to the said company for arranging tickets, hotel bookings and providing .....

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and not 194J which deals with the deduction and deposit of TDS in case of technical, professional and consultancy services. Looking to the facts in the light of provisions of section 194C vis a vis 194J we find that the order of FAA is correct and needs to be upheld. - Decided against revenue

Applicability of TDS provisions u/s 194D of the Act on Service Tax element in respect of ‘insurance commission‘ - Held that:- TDS is required to be deducted and paid to the Govt Treasury on the .....

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- I.T.A. No. 3009/M/2013, I.T.A. No.3010/M/2013, I.T.A. No.3011/M/2013 - Dated:- 25-5-2016 - Shri Saktijit Dey, Judicial Member And Shri Rajesh Kumar, Accountant Member For the Appellant : Shri Jitendra B. Sanghavi For the Respondent : Shri Pradeep Singh, DR ORDER Per Rajesh Kumar, AM There are three appeals under consideration. All these appeals are filed by the department involving the assessment years 2008-09 to 2010-11. Since, the issues involved in these appeals are identical / inter-conne .....

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n law and on facts of the case is not correctly appreciating the nature of services received by the assessee by incurring data storage expenses which requires certain parameters of technical / marginal skill of highly qualified specialized competency and falls within the purview of section 194J and not u/s 194C of the Act. 2. The Ld CIT (A) has erred in law and on facts of the case in not correctly appreciating the nature of services received by the assessee by incurring event management expense .....

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the order u/s 201(1) of the Act. 4. The Ld CIT (A) has erred in law and on facts of the case in not appreciating correctly that the interpretation of Circular No.4/2008 dated 29/4/2008 of CBDT r.w. clarification vide circular no.275/73/2007 IT(B) dated 30/6/2008 wherein it is emphasized that the circular no. 4/2008 clearly speaks of section 194I only and this circular is not applicable to section 194J and the same analogy is applicable to other sections of TDS which also include the provisions .....

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al Officer (CFO) was recorded u/s 131 of the Act . During the course of survey proceedings and subsequent proceedings u/s 201(1) of the Act, AO noticed that the payments in respect of outsourcing expenses and data storage charges have been made after deducting TDS u/s 194C of the Act and not under the applicable provisions of section 194J. Accordingly , On this issue, AO proposed to invoke the provisions of section 194J as against the provisions of section 194C as applied by the assessee by issu .....

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mount of insurance commission which was arrived at after excluding the service tax component included therein. In this regard assessee was asked to show cause as to why the assessee has not deducted the TDS on the gross amount of insurance commission, which is the requirement of section 194D of the Act. In this regard, after considering the submissions / reply of the assessee, AO passed order u/s 201(1) of the Act holding that there was a short deduction of TDS on payments made for outsourcing e .....

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e submissions of the assessee, CIT (A) allowed the assessee s appeal on the issues of (i) TDS on outsourcing expenses (paras 5 and its sub-paras of the CIT (A) s order are relevant); (ii) TDS on Data Storage Charges (paras 6 and its sub-paras of the CIT (A) s order are relevant); (iii) Event management expenses (paras 7 and its sub-paras of the CIT (A) s order are relevant); (iv) TDS on Service Tax Element in respect of the insurance commission (paras 8 and its sub-paras of the CIT (A) s order a .....

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9,563/-. In this regard, after considering the submissions of the assessee, various documents including chart of services outsourced including agreements with all the parties , sample copies of bills, the AO came to a conclusion that the payment made by the assessee included the payment for data sorting; data storage, which may include scanning and storing of data in a special manner and the same required technical / management skills. Therefore, AO concluded that the said payments were liable f .....

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d data storage / sorting, document scanning etc, and the expenses / payments made to such parties were in nature of work contract . He further submitted that there was no technical skill / knowledge involved in rendering those services and therefore, such payment did not fall under section 194J but u/s 194C of the Act. Further, assessee also explained Explanation 2 to section 9(1)(vii) of the Act to support that the payment would not partake the character of fees for technical / managerial servi .....

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2008, wherein it was clarified that since the arrangement between the customers and cold storage owners are basically contractual in nature, the provisions of section 194C will be applicable... . Thus, before the CIT (A), assessee reiterated that the assessee could not be treated as assessee in default u/s 201(1) of the Act and it correctly applied the provisions of section 194C of the Act. After considering the above submissions and replies of the assessee filed during the proceedings u/s 201(1 .....

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res certain parameters to be followed on the basis of which data sorting is done. These activities require certain technical managerial skills. On the other hand the case of the appellant is that from the scope of various aforesaid works outsourced, it is evident that none of these works fall within the scope of technical services. In this case, the appellant company has entered into contracts with M/s Writer Information Management Services. I have gone through the details of data storage charge .....

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tc in respect of the life insurance business of the appellant. These parties have carried out the work in the normal course of their business and it is evident that the same does not involve high level of technical or professional qualification. The work is repetitive in nature. Therefore, I agree with the appellant that in respect of these services works outsourced, it cannot be said that the these parties have rendered any managerial, technical or consultancy services to the appellant within t .....

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n merits. 7. Aggrieved with the above decision of the CIT (A), Revenue is in appeal before the Tribunal. The ld DR vehemently submitted before us that the payment made by the assessee on account of data storage charges, processing charges, call centre operation and business services which included sorting of inward outward data , storage of records and scanning in a special manner so that data could be retrieved when required etc were purely of technical nature as the same required certain degre .....

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d counsel for the assessee heavily relied on the decision of the CIT (A) and reiterated the submissions as made before the lower authorities. The learned counsel for the assessee submitted that the services outsourced and paid for by the assessee included processing charges , call centre operations , data sorting, document scanning ,storage of data and other business services etc for which contracts were entered into with the various parties for carrying out and rendering these services which in .....

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technical skill involved. Finally the ld counsel argued that the services availed by the assessee were involving machines and materials with some staff requiring no technical or professional qualification. These were simply in the nature of work contract and the assessee rightly applied deducted the TDS as per the provisions of section 194C of the Act and since the order passed by the CIT(A) did not suffer from any infirmity legal or otherwise and therefore be upheld. 9. We have heard both the .....

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e assessee to outside agencies on contractual basis. The various services outsourced were cash & bank reconciliation, commission querry handling, cash cheque collection charges , commission processing and document despatch, data processing, policy despatch, document scanning , printing ,emails of documents, infra support and outsourcing staffing, policy serving process, call inbound and outbound , tele-calling for answering customer queries about product , follow and maintaining dealers netw .....

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treated the assessee in default under the provisions of section 201(1) of the Act and raised the demand accordingly. The ld CIT(A) after having examined and perused agreements with the service providers and after going into the various services provided reached a conclusion that the outsourced services do not require any kind of technical and professional expertise and are just simple and repetitive nature of work such as document storage, documents delivery and collection services and document .....

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ve nature of work and we are inclined to opine that the order of CIT(A) is correct and deserved to be upheld.In view of the above facts, we dismiss the ground no 1 raised by the revenue by upholding the order of FAA on this point. 10. Ground no.2 relates to whether event management expenses attract the provisions of section 194C or 194J of the Act. Brief facts in this regard are that the assessee made payment of ₹ 1,69,08,818/- to Reliance Transport and Travels Pvt Ltd (RTTPL). During the .....

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t event management service was not only booking of ticket and hotels and includes management of entire event from beginning to end through its tour leaders and event management professionals. Therefore, the services provided by RTTPL are of managerial nature and such payments are liable for TDS u/s 194J of the Act. Accordingly, AO treated the assessee as an assessee in default within the provisions of section 201 for not deducting TDS u/s 194J of the Act in respect of event management expenses a .....

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. 77,65,123/-) and tour leader expenses (Rs. 1,20,000/-) totalling to ₹ 1,69,08,818/-. The services were in the nature of services of travel agents, who arranged the ticketing, booking of the hotel and providing a tour leader to provide proper arrangements at the said conference. Therefore, it is the contention of the assessee before the CIT (A) that the payments made to the RTTPL could not constitute fees for technical services and therefore, the provisions of section 194J were not applic .....

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under:- 7.8 I have considered the facts of the case, the written submissions of the appellant as well as the order of the AO on this issue. It is seen that the appellant had organised conference at Agra and the contract for managing this event was given to Reliance Transport and Travels Pvt. Ltd. (RTTPL). The appellant made payment ₹ 1,69,08,818/- to RTTPL for these services. The appellant has deducted tax at source as per the provisions of section 194C of the Act. It is thus evident that .....

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rred to. In question No. 6, the issue regarding ticketing services has been clarified in the following manner: Question 6: Whether payment under a contract for carnage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods? Answer: The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at sou .....

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at source under section 194C of the Act. 7.9 Thus, as per the above clarification itself, the contract for transport of passengers is covered by the provisions of section 194C of the Act (however, in an individual's case, even the provisions of section 194C are not attracted). Similarly, question No. 11 of the circular throws light on the aspect of catering services in the following manner: Question 11: Whether a contract for catering would include serving food in a restaurant/ sale of eatab .....

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ation is given in respect of composite event management services, from the answers to above questions in the said circular, it is evident that event management services cannot be said to involve any high level of managerial or technical skills and these are in the nature of simple 'work contracts'. In the case of the appellant, RTTPL has provided the services of ticketing, booking of hotels, organising of the conference, catering etc to the technical skills. Neither any technical knowled .....

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, Revenue is in appeal before the Tribunal. The ld DR submitted before us that it is not a case of simple booking of travelling tickets but hotels were also booked and team leaders were also provided for the event management and therefore the provisions of section 194J of the Act were rightly invoked by the AO as it involved high level o skills and professionalism and prayed that the order of AO be restored by setting aside the order of FAA. 13. Per contra, during the proceedings before us, Ld C .....

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377; 77,65,123/- for hotel re-imbursement and ₹ 1,20,000/- for tour leaders expenses which in no manner or by any stretch of reasoning can be termed as consultancy or technical or professional services and the provisions of section 194J were wrongly applied by the AO by treating the assessee in default u/s 201 but did not raise any demand on this issue. To support his arguments , the ld counsel cited various decisions wherein it has been held that re-imbursement of expenses are not liable .....

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ursement expenses and tour leader expenses. These reimbursements were made by the assessee to the said company for arranging tickets, hotel bookings and providing leaders to see the arrangement at Agra. As is seen from the nature of services availed , we do not find any sort of professional or technical or consultancy but rather routine services which are provided by the travel agents in the normal course of business which were purely of contractual nature. It can be seen from nature of reimburs .....

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nd nos.3 and 4 relate to applicability of TDS provisions u/s 194D of the Act on Service Tax element in respect of insurance commission . Briefly stated relevant facts in this regard are that the assessee is engaged in the business of life insurance and markets its products through insurance agents as well as its own direct sales force. During the course of survey, AO noticed that while making payment of insurance commission in case of licensed agents, the assessee deducted TDS on the net amount .....

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tion or reward, whether by way of commission or otherwise for soliciting insurance business, shall at the time of credit of such income to the account of payee shall deduct income tax thereon. Since, the assessee while discharging the liability on behalf of the service agents excluded the service tax component for the purpose of TDS, AO treated the assessee as an assessee in default within the provisions of section 201 of the Act and AO worked out the TDS default on this account at ₹ 5,33, .....

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section 194D, the TDS is deducted on the amount of commission paid or payable to agents, excluding the service tax which is as per the Service Tax Regulations (Finance Act, 1994). He also discussed the provisions of section 68 of the Service Tax Act, which deals with the liability of a person to pay service tax to the Government Treasury. As per section 68(1) of the Service Tax Act, any person, providing taxable services to any person, shall pay service tax at the prescribed rate, in such manne .....

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the case may be. Thus, it was contented before the CIT (A) that the liability to discharge the service tax on the commission paid to insurance agents is that of the insurance company and not of insurance agents. Assessee also relied on various Circulars of the Service Tax Authorities in relation to insurance business in support of his above contentions. Assessee also discussed Rule 4A of the Service Tax rules, 1994 and reiterated that an insurance agent is the person, who provides insurance auxi .....

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D] wherein it was held that when a particular sum is not income at all for an assessee, there is no requirement to make TDS . Further, assessee discussed the provisions of Chapter XVII-B of the Act, which are applicable in case of payment of income in the hands of the recipient. It was also submitted that section 190 is the charging section for the purpose of invoking Chapter XVII-B of the Act, wherein it was indicated that before deduction of tax at source on the amount to be paid to the recipi .....

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therefore, it should not be considered to be an assessee in default under section 201 of the Act. It was reiterated before the CIT (A) that the income as stated in section 194D and 194-I of the Act refers to the amount paid as income to the payee. Income paid by the assessee to its insurance agents was the amount of commission and not the amount of service tax, which is paid by Reliance Life direct to the Government. It is further submitted that when the language of the provision is clear, tax .....

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submissions, assessee stated before the CIT (A) that section 196 of the Act provides that no tax is required to be deducted from any sum paid to the Government Service Tax, VAT or similar levies are not the consideration for any contractual payment or consideration payable pursuant to any contract. Service tax since diverted and received only in a fiduciary capacity by the payee (agents in the present case), the same cannot be construed as the income of the recipient. After considering the above .....

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se charge mechanism. As per the Service Tax Regulations, the service tax on insurance commission payable to Insurance Agents is required to be paid by the Insurance Company as per section 68(2) of the Service Tax Act read with Rule 2(1)(d)(ii) of Service Tax Rules, 1994. The clause (iii) of Rule 2(1 )(d) of the Service Tax Rules 1994 is under: "person liable for paying the service tax" means- (iii) in relation to insurance auxiliary service by an Insurance agent, any person carrying on .....

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erned insurance company who has appointed the agent. Thus, it is evident that the appellant is legally liable to deposit the said service tax with the Government and the Insurance agent has no obligation or liability for the same. There is no dispute that the said service tax amount is not paid to or received by the Insurance agent. 8.25 The Life Insurance Agents also do not issue any invoice mentioning the amount of service tax nor is it their obligation to pay service tax to the Government Tre .....

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TDS excluded the service tax component commission paid to agents which has resulted in short deduction. He therefore strongly relied on the order of AO and prayed for restoring the same. 19. On the other hand the ld AR of the assessee submitted before us that in the business of the assessee the commission are paid to the agents for soliciting insurance business and are paid commission in quid pro quo.The said commission is also subject to service tax. The TDS is only deducted on the net commiss .....

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nce Act 1994.Section 68 of the Service Tax Act deals with the liability of the person paying commission to deposit service tax into the Govt Treasury. The ld counsel of the assessee while referring to page no 76 and 77 of the paper book no 1 {circular no 4/2008 dated 28.04.2008 and circular no 1/2014[F.No. 275/59/2012-IT(B)] dated 13.1.2014}, submitted that these circulars have set at rest the controversy of TDS on service tax though brought out with reference to the service tax on rent wherein .....

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w. The AO while referring to the provisions of section 66 came to the conclusion that the TDS is required to be deducted on the gross amount of commission paid including the service tax component which was reversed by the CIT(A).Now the issue before us is whether TDS is required to be deducted on the service tax component on the commission paid to insurance agents u/s 194D of the Act. We shall first refer to the provisions of section 194D & 194I of Act for the purpose of better understanding .....

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eque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Similarly the provisions of section 194 I of the Act are also reproduced below for the sake of better understanding of the issue in hand:- 194I. Rent.- Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereo .....

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circulars no 4/2008 dated 28.04.2008 and circular no 1/2014 [F.No. 275/59/2012-IT(B)] dated 13.1.2014. In circulars no. 4/2008 dated 28.04.2008 CBDT has clarified that TDS is not required to be deducted on service tax on rent u/s 194I.The relevant para 3 of the circular is re-produced as under:- 3. Service tax paid by the tenant doesn t partake the nature of "income" of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore .....

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2. Attention of CBDT has also been drawn to the judgement of the Hon'ble Rajasthan High Court dated 1- 7-2013, in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), holding that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax com .....

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