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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM Smt.
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the Revenue and Cross Objection by assessee against the order of CIT(A)-59, Mumbai dated 14/06/2017 in the matter of order passed u/s.201(1) / 201(1A) of the IT Act.
The grounds taken by the Revenue reads as under:- "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the short deduction in respect of C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd, payments made towards "Outsourcing expenses" without appreciating the fact that the nature of services received by the assessee requires certain parameters of technical/managerial skill of highly qualified specialized competency and falls within the purview of sec 194J and not u/s 194C of the I.T.Act. (ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s 201(1)/201(1A) in respect of "Data Storage" Expenses" without appreciating the fact that the nature of services received by the assessee requires certain parameters of technical/managerial skill of highly qualified specialized competency and falls within the purview of sec 194J and not u/s 194C of the I.T.Act.
Assessee had taken following grounds in its cross objection:-
1. On the facts and circumstances of the case, the learned AO has erred in not appreciating the order of the learned CIT{A), who held that various payments are liable for deduction of tax at source under Section 194C of the Act as against Section 194J of the Act;
2. Without prejudice to the above, if as a result of the department's appeal, any of the payments are held to be liable for deduction of tax at source u/s 194J as against Section 194C of the Act, relief in terms of section 201{1) read with rule 31ACB, shall be granted to the Assessee as appropriate taxes on the said payments are already paid by the recipients;
3. That the learned CIT(A) has erred in confirming that the following payments are liable for deduction of tax at source under Section 194J of the Act as against Section 194C of the Act: Sr Nature of payment Amount (Rs) Party to whom No paid 1 Telecaliers - call 27,73,050 M/s centre service Renaissance Insurance Services 2 Pre-risk inspection 89,58,900 M/s Benz service business company 3 Manpower training 51,57,860 M/s Benz service business company 4 Online publicity 25,14,379 M/s Vinyog service charges Insurance Services C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd,
4. That the Appellant craves leave to add, alter, delete or modify all or any of the above grounds of cross objection.
Rival contentions have been heard and record perused.
The facts in brief are that the assessee company is a Registered Insurance Brokers and has filed its TDS Returns in Form 24Q as well as 26Q for all 4 Quarters of F.Y. 2012-13, relevant to A.Y, 2013-14. In relation to the said year, notices u/s. 201(1) & 201(1A) were issued and served on the assessee company. The learned AO passed an order u/s. 201(1)/ 201(1 A) dated 23-02-2015 in which he has worked out total tax payable of Rs. 50,41,752/-, treating the assessee in default for short deduction and also calculated interest thereon. AO held that for all these services, assessee should have deducted tax at source u/s.194J instead of 194C. 6. By the impugned order, CIT(A) after giving detailed findings treated some of the services are liable to deduction of tax u/s.194C, however in respect of some of the services he upheld the order of AO for deduction of tax u/s.194J. Revenue is in further appeal before me whereas assessee has filed cross objection. 7. From the record I found that during the year under consideration the assessee company had filed an application u/s. 197 of the I.T. Act for Lower Deduction of Tax at Sources (TDS) in respect of various payment to be made by it. Consequentially the Ld. A.O. issued notice U/s 201(1)/201(1A) and called for various details and all the details were submitted by the A.R. of the assessee. The assessee company is an C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd, Insurance Brokers and engaged certain Vendors to provide certain services, for which it makes the payment as agreed with the Vendors. The category of services provided by such Vendors are as under :- (1)Digitalization of Records Services (2)Telecallers - Call Centre Services (3) Back Office support services (4) Insurance awareness Programme Services (5) Conducting Conferences and Seminars (6) Policy & Data processing (7) Pre-risk inspection (Motor Vehicle) Services (8) Risk Management/Risk Inspection (9) Man Power Training Services (10) Workstation Services.
It was argued by learned AR that in respect of each of the above stated services, the rate of payment for each of the services are separately defined in the Agreement, for which the total payment made by the assessee company is Rs. 4,33,68,512/- on which the assessee company has correctly deducted Tax at source u/s. 194C of the I.T. Act @ 2%. However, the Ld. A.O. concluded that the above stated services are Professional Services and Tax is to be deducted u/s. 194J @ 10% and Consequentially, has worked out the Tax liability thereof of Rs. 34,61,481/- .
The Ld. A.O. has further calculated the interest payable on the said liability of Rs. 34,61,481/- u/s. 201(1A) @ 35% amounting to Rs. 12,11,518/- for the period beginning from April 12 to Feb. 15. 10. The AO also concluded that the payment made by the assessee company to M/s. Viniyog Insurance Services for its online Publicity, which is in the nature of advertising is also covered u/s. 194J for the purpose of C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd, deduction of Tax at source and not u/s. 194C, thereby in both the cases i.e. Software & Hosting charges & online publicity services the Ld. A.O. has worked out a differential tax liability amounting to Rs. 2,73,150/- u/s. 201(1) of the I.T. Act and levied an interest u/s. 201(1 A) @ 35% amounting to Rs. 95,603/- for the period beginning from April-12 to Feb.
Against the order of AO, assessee approached to CIT(A).
By the impugned order, CIT(A) upheld the AO’s action for payment made to Viniyog Insurance Services as liable to tax u/s.194J in respect of some of the services after observing as under:- 4.4 The- matter has been considered. During the financial year under consideration there were several payments made to Viniyog Insurance Services. The details such as date, invoice number, amount, service tax collected, were furnished by the appellant. As mentioned, the tax deducted at source amounting to Rs. 56,5037- under section 194C of the Act was made on each of these payments aggregating Rs. 28,25,156/- (including Rs. 3,10,777/- being service tax collected). Coming to the issue as to the correct section under which tax ought to have been deducted, the very description of services received, i.e., website development, website hosting, online content, exchange server services, are in themselves suggestive cf delivery of technical services. That is to say, these services can be performed only by professionals trained in and belonging to the Information Technology sector and not by everyone. It cannot be denied that these require the possession of extensive technical skills. The payments made are for the end-to-end website facility and solutions, even though the appellant may have segregated it into three sub- components. It is not that the website is owned and operated by the appellant and only maintenance is done by the aforesaid vendor. There is a dominant element of technical services being holistically received by the assessee for the payments made by it. The services received are such that they would fall within the ambit of the phrase "any managerial, technical or consultancy services" deployed in Explanation-2 below section 9(1) (vii) which has been made applicable to section 194J of the Act. Accordingly, the appellant misdirects itself when it makes a reference only to Explanation (a) to section 194J of the Act (which defines "professional services'' for the purposes of this section), to deny its liability to deduct tax at source. 4.5 It deserves consideration that a website of a customer-based company is not a standard product. The website designers or developers draw upon their technical skills to offer a host of activities ranging from domain registration, web designing of HTML or Flash sites, multimedia C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd, presentation, portals, backend services, etc. Another factor that needs to be borne in mind is that such websites and their online content is completely customized as per the unique specification of companies such as that of the appellant. In other words, it is also not that the facility 'offered by the vendor remains the same for everyone availing it, regardless of who the subscriber is. Next, the appellant claimed that the payment made in respect of Exchange Server charges was in the nature of reimbursement. However, no tangible evidences in this regard have been furnished in the absence of which, this remains a facile claim. The appellant itself has deducted tax at source under section 194C of the Act. Hence, the conflicting claim of same being in the nature of reimbursement is not tenable. Moreover, the Internet Service Provider is not a relevant third party in what is essentially a bilateral transaction between the appellant and M/s Viniyog Insurance Services. 4.6 Under the circumstances and in view of the discussion as foregoing, it has to be held that the payment made to Viniyog Insurance Services for Mebsite development, maintenance, hosting, online presentation, Exchange Server charges amounting to Rs. 25,14,3777- was liable for deduction under section 194J of the Act. The finding of the TDS officer to this extent requires no interference and is, therefore, upheld.
A sum of Rs.47,53,800/- has been paid by the assessee to Renaissance Insurance Services for this purpose. As per schedule to the agreement dated 01.08.2007 entered into with the aforesaid vendor, digitization of records involved scanning and uploading of proposal forms, premium instruments, annexures, endorsement requests, policy receipts, policy copy as per the instructions given by the company, claim intimation, discharge vouchers, query letters, claim payment advice, claim closure letters, etc. In other words, these would be digitization of documents that are generated by an insurance company in the normal course of its functioning. The assessee stated that digitization facilitated for easy retrieval of records at the time of renewal and claim, besides helping in saving storage cost.
C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd, 13. By the impugned order, CIT(A) accepted assessee’s contention by following the order of the Co-ordinate Bench in the case of Reliance Life Insurance Company dated 19/08/2016 after having the following observation:- “ 6.4.2 The matter has been considered. From the description of the services availed for which the payment was made by the appellant, it is seen that they are not specialised in nature or require any professional technique. These are routine, menial work and which requires no minimum qualification for their performance. In other words, the aforesaid services including photocopying, scanning and uploading, can be performed by an ordinary, unskilled man. In the case of DCIT (TDS), Cirde-3(2), Mumbai vs Reliance Life Insurance Company Ltd [ITA No. 6543/Mum.2014 dated 19.08.2016), the Id. Appellate Tribunal, Mumbai, referred to an order passed by the coordinate bench in ITA No. 3009 to 3011/Mum/2013 dated 25th of May 2016, where it was held as under (emphasis supplied): "9. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. From the orders of authorities below, rival submissions and records before us, we find that the assessee engaged in the life insurance business needs various types of services such as storage of data, scanning and sorting of documents, processing charges, call centre operations and business services besides other basic works connected and incidental therewith which were outsourced by the assessee to outside agencies on contractual basis. The various services outsourced were cash & bank reconciliation, commission query handling, cash cheque collection charges, commission processing and document despatch, data processing, policy dispatch, 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 network etc. As is clear from the said outsourced services, these are a sort of clerical and basic administrative work. The assessee made the payment for the services after deducting TDS under the provisions of section 194C of the Act believing these are basic type of services involving no technical or professional qualification, whereas the AO came to the conclusion that these are technical services and are required to be subjected to TDS under the provisions of section 194] of the Act and finally treated assessee in default on the provisions of section 201(1) of the Act and raise the demand accordingly. The learned CIT(A) after having examined and perused agreements with the service providers and after going into 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, document delivery and collection services and documents management services. The Id CIT(A)
C.O.No.275/Mum/2017 M/s. Loyal Insurance Brokers Pvt. Ltd, 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 on perusal of the various records as placed before us we find that the • work assigned to the service provider was not a technical or professional work which requires skills but simple, basic and repetitive nature of work and we are inclined to opine that the of CIT(A) is correct and deserved to be upheld. In view of the above facts, we dismiss the ground number 1 is raised by the Revenue by upholding the order of FAA on this point." 6.4.3 It is manifest that the facts in the appeal under consideration falls squarely within the ambit of the decision rendered by the Id. Appellate Tribunal, Mumbai, in the aforementioned decision. Respectfully following the same, it is held that there was no liability on the part of the appellant to deduct tax at source within the meaning of section 194J of the Act. As a result the demand raised b the TDS officer to his extent is to be deleted. He is directed accordingly.