DCIT (TDS) 2(2), MUMBAI vs. SBI LIFE INSURANCE CO. LTD, MUMBAI

आदेश / O R D E R Per Joginder Singh(Judicial Member) The Revenue is aggrieved by the impugned order dated

30/01/2017 of the Ld. First Appellate Authority, Mumbai.

deleting the short deduction under section 194D of the

Income Tax Act, 1961 (hereinafter the Act) by holding that

the service tax liability, in the hands of the assessee, is not

income of the agents and no TDS is liable to be deductible on

the income without appreciating the facts mentioned in order

under section. 201 (1) of the Act and Circular No.4/2008

dated 29.04.2008, of CBDT read with clarification vide

Circular No.275/73/2007(IT) Business dated 30.06.2008.

During hearing the learned counsel for the assessee pointed

out that the learned CIT(A) has followed the order of the

Tribunal by inviting our attention to page 16 of the impugned

order wherein the case of the assessee itself has been

mentioned for A.Ys 2007-08 to 2010-11 along with various

other decisions. This factual matrix was not controverted by

the Revenue, though the learned DR defended the addition

3 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. made by the learned Assessing Officer by advancing

arguments, which is identical to the ground raised.

the material available on record.

3.1 We find that this issue has been deliberated upon by

the Tribunal (ITA No.6492 to 6494/Mum/2012 etc. order

dated 18.11.2016) in the case of assessee itself for various

assessment years. The relevant portion of the same is

reproduced hereunder:

“11. By the impugned order Ld. CIT(A) held that no tax is required to be deducted at source in respect of service tax component of commission so paid to the commission agent after having the following observation:

4.26 I have considered the facts of the case the order of the AO, the written submissions and the arguments of the AR on this issue. The appellant is engaged in Life Insurance Business through a network of brokers and agents. The Life Insurance agents do not pay service tax as it has to be paid by Life Insurance Company under reverse 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 as "person liable for paying the service tax" means- (iii) in relation to insurance auxiliary service by an insurance agent, any person carrying on the general insurance business or life insurance business, as the case may be, in India."

4 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. 4.27 The Government has notified insurance companies to discharge the liability of service tax on commission paid to insurance agents. The same is also clarified in' the clarification on the scope of the term for levy of service tax [vide MOF Instruction F.No.B-11/1/2002-TRU dated 1/08/2002] that in case of an insurance agent for life insurance, the person liable to pay service tax will be the concerned 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.

4.28 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 Treasury. Accordingly, the said service tax amount which is paid directly by the appellant to the Government can neither partake the character of "income" in the hands of life insurance agent nor is his liability. I concur with the Appellant's arguments on the said aspect.

4.29 Further, it is seen that the CBDT had issued circular No.4/2008 dated 29th April, 2008 analyzing the applicability of the provisions of section 1941, on the service tax component on rent wherein it has been clarified that service tax paid by the tenant does not partake the character of income of the landlord and hence TDS u/s 1941 would be required to be made only on the amount of rent paid without including the service tax.

The subsequent clarification by the CBDT 'that the said benefit cannot be extended to section 194J of the Act' would not apply to the appellant because the provisions of section 194J are materially different from those of section 1940 and 194-1. Thus there is sufficient force in the contention of the appellant. It can be noted that the provisions of sections 1940 and 194-1 are identical in the sense that the words used therein are "any income by way of……. " However, in section 194J of the Act the words used are "any sum by way of …...” Hence, I agree with the Appellant that Circular No.4/2008 dated 29th April, 2008 applies to the present case related to section 194D of the Act and later clarification vide circular F No. 275/73/2Q071T (B) dated 30.06.2008 in the context of

5 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. section 194J of the Act issued .by the CBOT would not apply to the appellant.

4.30 It is not in dispute that the amount paid to and receivable by Insurance Agent is the commission amount without the Service Tax Component. The accounting entries passed by the appellant Company have the effect of credit of the net amount of insurance commission payable to the Insurance agents. The Service Tax component liability on the said commission has been separately discharged by way of payment to Government Treasury directly by the appellant. In case of any default in this payment of Service Tax, it will be the Insurance Company which will be liable to penal consequences under the Service Tax Act and Regulations. The Insurance Agents do not face any consequences of non-payment or default in payment of the said ServiceTax. Thus the appellant has rightly deducted the tax at source on the actual amount payable to or receivable by the Insurance Agent at the applicable rates under section 1940 of the Act. Various case laws cited by the appellant in this regard on this issue, also support the argument and submissions of the appellant.

4.31 In view of the above discussion therefore, I hold that the amount of service tax on the insurance commission to life insurance agents is the liability of the appellant and the same cannot be considered as income in the hands of the agents. Hence, no tax is required to be deducted at source under Section 1940 of the Act, on the service tax component. Accordingly, the demand of tax of Rs. 6,45,82,054/- (as rectified by the AO) u/s 201 (1) of the Act on account of non-deduction of tax at source u/s 1940 of the Act on service tax component of the Insurance commission paid to/ credited in the name of Insurance agents is hereby directed to be deleted.

6 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. The AO while referring to the provisions of section66 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 194Dof the Act. We shall first refer to the provisions of section 194D & 194I of Act for the purpose of better understanding which are reproduced as under for the sake of convenience :-― Insurance commission. 194D.Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income 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 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 thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of— 22. A careful perusal of the above provisions reveal that the TDS is required to be deducted and paid to the Govt Treasury on the income payable only which means that certainly the service tax component on the commission is not liable to TDS as the same is not an income of the assessee. The provisions of section 194D and 194I have to be seen in the light of the two 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 circularsno.4/2008 dated 28.04.2008 CBDT has

7 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. 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 or Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.” Similarly in circular no 1/2014[F.No. 275/59/2012- IT(B)] dated 13.1.2014 the CBDT has clarified that TDS is required to be deducted on the amount paid/payable under an agreement/contract between the payer and the payee without including the servicetax amount. The relevant extract is reproduced as under:-― “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 component u/s 194J of the Act. 3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the Act, the Board has decided that wherever in terms of the agreement/contract between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component.” The Hon‘ble High Court of Rajasthan in the case of CIT(TDS) V Rajasthan Urban Infrastructure(2013)37taxmann.com154(Raj) has held that service tax is not subject to deduction of tax at source and the circular no 1/2014[F.No. 275/59/2012-IT(B)] dated 13.1.2014 has been brought by the CBDT after the above decision of the

8 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. high court and also referred to in para no 2 of the circular. After considering the facts of the case before us in the light of circulars as referred to above and decision of the Rajasthan High Court and also the relevant provisions of the Finance Act which provides for ―Reverse Charge Mechanism” , we are of the opinion that the order of CIT(A) is correct and does not suffer from any infirmities and we ,therefore , uphold the same. In result , the appeal of the revenue is dismissed. As the facts and circumstances during the year under consideration are same as considered by the Tribunal in the above order, we do not find any infirmity in the order of Ld. CIT(A) for holding that no tax is required to be deducted at source in respect of component of service tax so paid to the commission agent.

3.2 We find that in the aforesaid order, the Tribunal has

duly considered the factual matrix and found that this

ground is squarely covered by the decision of the co-ordinate

Bench in the case of M/s. Reliance Life Insurance Company

Ltd. (ITA No. 3009 to 3011/Mum/2013 order dated

25.05.2016). Thus, following the decision of the co-ordinate

Bench, we find no infirmity in the conclusion drawn by the

learned CIT(A), therefore, this ground of the Revenue is

dismissed.

not correctly appreciating the nature of services received by

9 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. the assessee by incurring outsourcing fee operation and

record storage expenses as data sorting, scanning, retrieving

of records, which requires certain parameters of

technical/managerial skill and falls within the purview of

section 194J and not under section 194C of the Act. During

hearing the learned counsel for the assessee pointed out that

this issue is also covered by the order of the Tribunal. The

learned DR did not controvert this factual matrix except

defending the addition made by the learned Assessing Officer.

We find that the Tribunal vide aforesaid order dated

18.11.2016, while deliberating the issue in hand that too in

the case of assessee itself observed/held as under:

10 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. meaning of Explanation 2 to Section 9(1)(vii) of the Act. These services involve carrying out of “work” within the meaning of the section 194C of the Act. The case laws cited by the appellant also support the contention of the appellant. The appellant has therefore, correctly deducted the tax at source under the said section 194C of the Act and provisions of section 194J are not applicable. I hold accordingly and the demand of Rs. 94,22,206/- raised by the AO in this regard is deleted.

11 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. 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 documents management services. The ld CIT(A) examined the contract with Writer Information Management Services and found that very basic services were contracted and rendered by the said party involving no special technical skill or professional qualification.On the basis of the rival arguments and perusal of the various records as placed before us we find that the work assigned to the service provider was not atechnical or professional work which required special skills but simple, basic and repetitive nature of workand 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 1raised by the revenue by upholding the order of FAA on this point.

As the facts and circumstances in the instant case before us are paramateria, to the facts considered by Tribunal in the aforesaid order, respectfully following the decision of coordinate bench on the similar facts we do not find any infirmity in the order of Ld. CIT(A) holding that annual maintenance charges paid by assessee was liable for deduction of tax at source under section 194C and not under section 194J of the Income Tax Act.

4.1 In the light of the above, we find merit in the claim of

the assessee. Therefore, following the aforesaid order of the

Tribunal, we affirm the stand taken by the learned CIT(A),

consequently, this ground of the Revenue is also dismissed.

12 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. 5. The next ground raised by the assessee pertains to not

correctly appreciating the nature of services received by the

assessee by paying software/hardware maintenance charges,

which requires the services of server management and call

support services requiring highly qualified specialized

technical competency and falls within the purview of section

194J and not under section 194C of the Act. The learned

counsel for the assessee claimed that this issue is also

covered by the aforesaid decision of the Tribunal vide para 14

to 17 of the order. The learned DR except defending the

addition did not controvert the claim of the assessee.

5.1 We have considered the rival submissions and perused

the material available on record. In view of the above, we are

reproducing hereunder the relevant portion from the

aforesaid order of the Tribunal dated 18.11.2016 for ready

reference and analysis.

“14. Common grievance of Revenue in all the years also pertains to CIT(A)’s action for holding that payment made for annual maintenance contract / routine repair is not free from technical services under section 194J and holding that assessee has correctly deducted tax at source under section 194C of the Income Tax Act.

13 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. payment of annual maintenance contract / routine repair under section 194J, in so far as the same was in the nature of technical services. The AO held that assessee has wrongly deducted tax at source under section 194C.

6.16 The above activities mainly involve activities with reference to insurance policy documents, Inward/Outward sorting, documents scanning, putting documents in envelopes, record storage etc in respect of the life insurance business of the appellant. The charges per proposal for segregation of documents, preparation and dispatch etc are not very high. These parties have carried out the work in the normal course of their business and it is evident that the same does not involve very high 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 the meaning of Explanation 2 to Section 9(1)(vii) of the Act. These services involve carrying out of “work” within the meaning of the section 194C of the Act. The case laws cited by the appellant also support the contention of the appellant. The appellant has therefore, correctly deducted the tax at source under the said section 194C of the Act and provisions of section 194J are not applicable. I hold accordingly and the demand of Rs. 94,22,206/- raised by the AO in this regard is deleted.

14 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd.

15 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. professional expertise and are just simple and repetitive nature of work such as document storage, documents delivery and collection services and documents management services. The ld CIT(A) examined the contract with Writer Information Management Services and found that very basic services were contracted and rendered by the said party involving no special technical skill or professional qualification.On the basis of the rival arguments and perusal of the various records as placed before us we find that the work assigned to the service provider was not atechnical or professional work which required special skills but simple, basic and repetitive nature of workand 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 1raised by the revenue by upholding the order of FAA on this point.

As the facts and circumstances in the instant case before us are paramateria, to the facts considered by Tribunal in the aforesaid order, respectfully following the decision of coordinate bench on the similar facts we do not find any infirmity in the order of Ld. CIT(A) holding that annual maintenance charges paid by assessee was liable for deduction of tax at source under section 194C and not under section 194J of the Income Tax Act.”

5.2 We find that the learned Assessing Officer while framing

the order under section 201(1) of the Act held that the

assessee is liable to deduct tax at source on payments of

annual maintenance contract/routine repair under section

194J as the same was in the nature of technical services and

16 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd. thus, assessee wrongly deducted tax at source under section

194C whereas the learned CIT(A) followed the order of the

Tribunal and also the decision in the case of M/s. Relinace

Life Insurance Company Ltd., which has been deliberated

upon by the Tribunal vide its order dated 18.11.2016. No

contrary decision was brought to our notice. Thus, following

the decision of the co-ordinate Bench, we affirm the stand of

the learned CIT(A), resulting into the dismissal of the appeal

of the Revenue. So far as ground no.5 is concerned, it is

general in nature requires no deliberation from our side.

5.3 Finally, the appeal of the Revenue is dismissed.

This Order was pronounced in the open court in the

presence of Ld. representatives from both sides at the

conclusion of hearing on 20/08/2018.

Sd/- Sd/- (Manoj Kumar Aggarwal) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 24/09/2018 f{x~{tÜ? P.S/.�न.स.

17 ITA No.2398/Mum/2017 SBI Life Insurance Company Ltd.

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai