DCIT(TDS)-2(3), MUMBAI, MUMBAI vs. TATA AIA LIFE INSURANCE COMPANY LIMITED,, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRIABY T VARKEY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 563/Mum/2019 (A.Y. 2009-10) DCIT (TDS)-2(3), Room No. 718, K.G. Mittal Ayurvedic Hospital Building, Charni Road, Mumbai-400002. ...... Appellant Vs. Tata AIA Life Insurance Co. Ltd. 14th Floor, Tower-A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai-400013. PAN: AABCT3784C ..... Respondent Appellant by : Smt. Mahita Nair- CIT (DR) Respondent by : Sh. Hiten Chande Date of hearing : 25/07/2022 Date of pronouncement : 20/10/2022 ORDER PER GAGAN GOYAL, A.M: This appeal by the Revenue is directed against the order of Ld. Commissioner of Income Tax(Appeals)-60, Mumbai [hereinafter referred to as [‘CIT(A)’] dated 30.11.2018 passed under section 201(1) / 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as [‘the Act’] for the Assessment Year (AY) 2009-10. The Revenue has raised the following grounds of appeal:

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a. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the sitting fees of the director holding that the assessee was under no liability to deduct tax u/s 1943 of the I.T Act, without appreciating the fact brought by the AO that as per the clause 1943(1)(ba) covers any remuneration paid by way of fees or commission or by any other name and such payments shall be subjected to TDS @10% b. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that outsourcing expenses should be deducted u/s 194C without appreciating the fact brought on record by the AO that outsourcing expenses were paid for Technical services for which TDS deducted u/s 194Jof the Act." c. "Whether on the facts and in the circumstances of the case and in law, the CIT (A) was justified in deleting the addition made by the AO on account of TDS payment towards network charges made u/s 194J of the IT Act and treating the same as TDS payment u/s 194C without appreciating the fact brought on record that Network service work are done by skilled and technically competent persons with expertise in the field such service." d. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of hearing of the case or thereafter. e. The order of the CIT(A) being erroneous be set aside and Ld. A.O's order be restored.” 2. Brief facts of the case are that the assessee-company is one of the leading Life Insurance Company providing insurance solutions to individuals and corporate. This appeal was filed on 04/05/2011 for the AY 2000-10. This appeal was filed against the order passed under section 201(1)/ 201(1A) of the Income- tax Act. 1981 passed on 28/03/2011 by the ITO, OSD(TDS) 3(2), Mumbai The CIT(A)-13 Mumbai passed an order on 24/12/2013 by partly allowed the appeal. The appellant, further appealed the order in the ITAT Mumbai and the Hon'ble ITAT ‘E’ Bench Mumbai by their order dated 15/10/2016 set aside the appeal and restored the matter to the CIT(A) for fresh adjudication after giving opportunity.

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In the light of Hon'ble Tribunal's direction, a notice for the hearing was issued to the appellant and Ms. Diksha Manchanda and Mr. Ankit Shah, CA-AR from SRBC Associates LLP appeared and furnished written arguments and also argued the matter. 3. TALIC is a joint venture between Tata Sons and AIA Group and undertakes life insurance business in India in accordance with the regulations prescribed by the Insurance Regulatory and Development Authority of India (IRDAI). It has obtained license from IRDAI to carry on life insurance business in India on 12 February 2001 and started operations on April 2001. On 20th November 2009 a survey action under section 133A of the Act was conducted on TALIC to verify whether TALIC was complying with the provisions of Chapter XVI-B of the Act. Post the completion of survey proceedings, the then learned Assessing Officer (AQ) issued show-cause notice dated 18 May 2010 (copy enclosed as Annexure 2) to TALIC requiring show cause as to why the following payments should not be governed by the provisions of section 194J of the Act. Director sitting fees Outsourcing expenses; and Network charges. Further, submissions were filed with the income-tax officer (OSD) (TDS) on 27 2009, 22 December 2009, 22 January 2010, 1 April 2010, 27 May2010, 1 June 2010, 8 March 2010 and 15 December 2010 detailing arguments as to why TDS should not be deducted under section 194J of the Act.

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After considering the submissions filed by TALIC in response to the show-cause notice, the AO issued an order dated 10 February, 2011 raising the following demand under section 201(1) of the Act. Sr. Particulars Amount (in No. Rs.) 1 Director sitting fees 1,01,970 2 Outsourcing expenses 59,46,386 3 Network charges 35,715 Total 60,84,070

Against the said order, TALIC filed an appeal with the Hon'ble Commissioner of Income-tax (Appeals)- 14. The matter was adjudicated by Hon'ble Commissioner of Income-tax (Appeals)-13. The CIT (A)-13, after considering the submissions filed by TALIC on 23rd December 2010, adjudicated the matter partly in favour of TALIC vide order dated 24th December 2013 Against the order of the CIT(A)- 13, the AO filed an appeal before the Hon'ble Mumbai Income-tax Appellate Tribunal (ITAT). The ITAT in its order dated 19 October 2016 restored back the matter to the files of this office for examining them afresh. 4. We have gone through the order of the A.O under section 201(1), order of the Ld. CIT (A) and submissions of the assessee. The 1st ground of appeal by the Revenue pertains to deduction of tax under section 194J @ 10% on Director’s Sitting Fees. On this issue, we are reproducing the version of AO for sake of clarity and judicious adjudication of the matter involved as under:

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“On perusal of the records it is seen that the assessee company has deducted the tax as per the provisions of section 1943 of the I.T. Act 1961 @ 5.66% on Rs.2,50,000/- on Director's Sitting Fees for the month of April and May,2007 and has stopped deducting TDS from June, 2007 onwards. The assessee was regularly deducting the tax as per the provisions of section 1943 of the I.T. Act in earlier years. The assessee has deducted tax of Rs. 30,012/- U/s.194] of the I.T. Act 5.61% during the financial year 2006-07 also. A show cause letter dated 18th May,2010 was issued to the assessee requiring to show cause why the payments made towards Director's Sitting Fees should not fall under the provision of section 1943 and the b assessee should not be treated as assessee in default U/s. 201 and 201(1A). The authorised representative of the assessee company Shri Rushabh Seth Chartered Accountant from M/s. S.R. Batlibol & Co. C. As. attended from time to time and filed their letter dated 1st June, 2010 and 15th December, 2010 furnishing its submission on Director's Sitting Fees which is reproduced as under: "Explanation as to why the payment towards the directors' sitting fees have not been subjected to TDS under section 1943 of the Act. Section 1943 of the Act requires deduction of tax at source on the following payments made- (a) fees for professional services, of (b) 'fees for technical services', or (c) royalty, or (d) any sum referred to in clause (va) of section 28. By attending board meetings, a director does not rendering any professional services as envisaged under section 1943 of the Act. Further, the term professional service refers to a few types of services contained in the definition (such as legal, medical, engineering, or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other notified profession) which, inter alia, does not include payment relating to sitting fees. Accordingly, sitting fees paid to a director would not fall within the purview of fees for professional services. As regards, fee for technical services (FTS), explanation (b) to section 194) read with Explanation 2 to section 9(1)(vii) defines 'fees for technical services’ as follows:

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“................."fees for technical services” means any consideration ....................for the rendering of any managerial, technical or consultancy services ....................The services of a director would not fail within the purview of "technical or consultancy services" With regard to the term 'managerial services, the term 'management’ has been defined in various dictionaries as follows: Venkataramalyas's The Law Lexicon - "Management is a very broad term. In a sense, all administrative acts of the board would be acts of management" The Shorter Oxford English Dictionary - "A governing body, e.g. a board of directors, a board of governors, etc. P. Ramanatha Aiyar's The Law Lexicon "A governing body i.e. a Board of Directors, a Board of Governors etc. However, this term, "management would need to be distinguished from "managerial services". Though the director can be said to form part of the management body of the company (i.e. Board of Directors), in attending such Board meetings, the director cannot be said to perform "managerial services. Further, since the sitting fees is paid to directors for discharge of their statutory obligation/ duties viz. attending Board Meetings. In attending Board Meetings, directors are per se not rendering any managerial, consultancy or technical services. Accordingly no TDS is required to be deducted under section 1943 on payment of sitting fees to directors." The submission of the assessee is considered but not acceptable because the assessee was regularly deducting tax as per the provisions of section 194J of the I.T. Act up to May, 2007 and has stopped deducting the taxes from June, 2007 onwards neither the assessee is considering the payments under the Head Salary of the Directors. Furthermore the Director's sitting fees is mainly for attending the Board's Meetings taking decisions on the affairs of the company and the management of the company etc which is covered under Technical Services as per the Explanation 2 to sub-section (vii) to section 9(1) of the I.T. Act, which clearly defines "fees for technical services" means any consideration(including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but not includes consideration for any construction assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salary." In view of the same the assessee company is treated as a defaulter U/s.201(1) of the I.T. Act on account of short deduction of tax on account of Director's Sitting Fees.

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The assessee company has deducted tax only up to the month of May, 2007 on. Director's Sitting Fees U/s. 194J of the I.T. Act and has not deducted any tax on the remaining part of the financial year and onwards from June, 2007. The amount of Rs.9,00,000/- is the amount on which the TDS U/s.1943 of the I.T. Act 1961 was to be deducted, which works out to Rs.1,01,970/- (9,00,000 x 11.33%) The assessee company is deemed to be an assessee in default within the provisions of Sec. on 201(1) of the I.T. Act 1961. Therefore, the default under the head Director's sitting fees is at Rs.1,01,970/- as Short Deduction U/s 201 of the I.T. Act 1961.” 5. During AY 2009-10, TALIC had made payment towards outsourcing expenses on which TDS was deducted by TALIC under section 194C of the Act. The payments were made towards service contracts entered into with various third party vendors for services in the nature of administrative support services. The said services include.  Mailroom operations (viz. receipts of mails, dispatch of mails, storage and distribution of stationery).  Collection of cash/cheque/DD;  Petty cash handling;  Account adjustment entries;  Payroll administration (viz. attrition/leave administration);  Data entry and secretarial support;  Other back officer operational support services The vendor wise payment details along with the nature of services provided and TDS deducted there from, pertaining to the vendors under depute is tabulated below: Sr. Name of the Nature of service Value of TDS Rate of No. Vendors rendered service (in TDS (In %) Rs) 1 Outsource Avon Mailroom Services 16,87,888 38,253 2.27 Solutions & Contractor Logistics Pvt. Ltd. 2 CMS Securities Cashiering Services 5,98,08,703 13,55,273 2.27

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Ltd. Outsourced 3 India Pvt. Ltd. Payable Accounting 41,36,814 93,744 2.27 Related services Total 6,56,33,405 14,87,270

The AO, however, on 18 May 2010, issued a show cause notice requiring to show cause as to why the payments made towards outsourcing salary expenses should not be treated as an assessee in default under section 201j and 201(1A) of the Act. During AY 2009-10, TALIC had made payments towards network charges on which TDS was deducted by TALIC u/s 194C of the Act. The payments were made towards the following service provided by various third party services providers. The said services include.  Internet connection/bandwidth services  Annual maintenance of servers and ups  Upgrading existing link & commissioning of new link  Inland letters and mail handling services For the same, TALIC has deducted TDS u/s 194C of the Act and duly deposited the taxes to the treasury of the Government. The vendor wise payment details along with the nature of services provided and TDS deducted there form, pertaining to the vendors under dispute is tabulated below; Sr. Name of the Nature of service Value of TDS Rate of TDS No. Vendors rendered service (in Rs) (In %) 1 M/s Computer Upgrading of 3,03,000 6,867 2.27

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Access Pvt. Ltd. existing Link and commissioning of New Link 2 M/s Emerson Annual 91,059 2,064 2.27 Network Power Maintenance (India) Pvt. Ltd. Charges Total 3,95,059 8,931

On 18 May 2010, the AO issued a show cause notice requiring to show cause as to why the payments made towards network charges should not fall under provisions of section 194J of the Act why TALIC should not be treated as an assessee in default u/s 201 and 201(1) of the Act. 6. We have gone through the order of the AO, order of Ld. CIT (A), Submissions made by the assessee before the authorities below and before us. As per our observation the head wise findings as under. i. The director sitting fees: The requirements to withhold taxes u/s 194J of the Act on director sitting fees was introduced by the finance Act, 2012 with effect from 1 July 2012. The relevant extract of the Memorandum of the Finance Act, 2012 is reproduced below: “Under the existing provisions of the Income-Tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration. This Amendment will take effect from 1st July 2012. There were so many findings of various Hon’ble High Courts and co-ordinate benches of ITAT wherein it was held that assessee-company

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is not liable to deduct and TDS u/s 194J. To overcome those decisions clause (ba) to section 194J was inserted with effect from 01-07-2012.” It clearly shows that companies were not responsible to deduct any TDS u/s 194J before this amendment. We further relied on the following decision of Co- ordinate benches a. Kirloskar Oil Engine Ltd. (2016) 678 taxmann.com 204 (Pune-Trib.) b. Bharat Forge Limited (2013) 144 ITD 455 (Pune – Trib.) c. ITCl Ltd. (2015) 57 taxmann.com 192 (Kolkata- ITAT) d. Jahangir Biri Factory 9p.) Ltd. (2009) 126 TTJ 567 (Kolkata – ITAT) Based on above discussion and applicability of section 194J clause (ba) on based 1-07-2012, we found no error in the decision of Ld. CIT (A). We confirm the findings Ld. CIT (A) resultantly ground no 1(a) raised by the revenue is dismissed ii. Outsourcing expenses Out sourcing expenses were made to various vendors for various services. We have gone thought the types of services provided by the vendors and it is found that none of them are falling within the purview of section 194J as the same were not in the nature of professional or technical services as provided in section 194J we have considered the decision in the following cases Skycell Communications Ltd. (2001) 251 ITR 53 (Madras High Court), Siemens Ltd ITA No. 4356/Mum/2010 and WTFI Advance Technology Ltd. (2018) 94 taxmann.com 14. We further observed that these vendors provided manpower to carry on assesee’s admin and support services and not to carry any job in the nature of technical or professional services. The technical aspects are being handled by

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assesse’s own staff and only the support services are being handed over to the staff provided by vendors. We found the contentions of the AO to be at wrong footing and we confirm the view taken by the Ld. CIT (A). In the light of above ground no. 1(b) raised by the revenue is dismissed. iii. Payments towards network charges We observed that the assessee utilised the technical equipment for bandwidth purposes only through technical equipment or gadgets used in the transmission process, but the same did not partake of the nature of services of managerial, technical or consultancy nature. Merely because, certain technical equipment or gadgets are made available for bandwidth, it does not establish the case of the revenue that such services are technical services provided by the service provider to the assessee so as to be covered under the provisions of section 194J. Moreover, where such technical equipment/gadgets require maintenance, then technical support staff is used for maintaining the system but that itself does not establish that the services provided by the maintenance crew are in the nature of technical services. We relied on the case of Vodafone South Limited (241 Taxman 407) and Tata Teleservices (Maharashtra) Ltd. (ITA No. 2043 to 2045/Mum/2014). We further relied on Circular No. 720 dated 20-08-1995. We further observed that the payment made by the telecom company to another company for utilisation of network cannot be termed as Technical Service as accessing the network during cells is a fully automatic process and did not require any human intervention. There are no Technical Services involved during the process of telecom / data

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traffic flow and hence such payments cannot be termed as “Fees for Technical Services” and therefore, no TDS was deductible on such payments. The issue has already been dealt with by various judicial forums and law has been established. Based on above we do not find any reason to interfere in the order of Ld. CIT (A). In the result Ground No. 1(c) raised by the revenue is also dismissed. 7. In the result, appeal filed by the Revenue is fully dismissed. Order pronounced in the open court on 20th day of October, 2022.

Sd/- Sd/- (ABY T VARKEY) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 20/10/2022 SK, Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकर आयु�(अ)/The CIT(A)- 4. आयकर आयु� CIT 5. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt.Registrar) ITAT, Mumbai