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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI R.C. SHARMA & SHRI AMARJIT SINGH
O R D ER Per Bench These are the cross appeals filed by the Assessee and Revenue against the order of Ld. CIT(A) for the AY 2007-08 to 2010-11, in the matter of order passed under section 201(1)201(1)(A) of the Income Tax Act.
Rival contentions have been heard and record perused.
3. Facts in brief are that the assessee, SBI Life Insurance Company Limited (SBI Life) is a company engaged in the business of Life Insurance for which it has obtained a license from Insurance Regulatory and Development Authority (IRDA). A survey action under section 133A of the Act was conducted on 20/11/2009 at its office premises. While passing order under section 201, the AO observed that assessee has not deducted tax at source on payment of foreign travelling expenses and halting charges, accordingly assessee was held to be in default under section 201(1) and 201(1)(a) of the Act.
By the impugned order CIT(A) confirming the action of the AO and assessee is in further appeal before us in all the years under consideration.
Rival contentions have been considered and record perused. From the record we find that to boost to its business, the assessee organized foreign travel for its insurance agents. The details of the foreign travel of these groups (in Financial years 2007-08, 2008-09, 2008-09 and 2009-10) which have been so far provided by the assessee was furnished before AO. The AO was of the view that the foreign travelling and halting expenditure incurred by the assessee on its insurance agents and SBI employees are in the nature of income in the hands of such agents and falls within the provisions of section 194D of the Act. The AO further held that the word ‘income by way of remuneration or reward, whether by way of commission or otherwise’ as used in section 194D is wide enough to include the above-mentioned foreign travelling expenditure and halting charges incurred on agents, brokers and employees of SBI and therefore it was liable for tax deduction at source under section 194D of the Act.
The Ld. CIT(A) confirming the action of the AO by observing that during such foreign trips, the sole purpose in the name of training was dissemination of information. The assessee has not furnished any other details of any such training provided to the insurance agents through experts in the said field, if any like the name of the expert faculty who provided the training, the subjects covered, the training material distributed, if any etc. Thus, it can be said that the foreign trip of the insurance agents was largely a sightseeing trip i.e. an incentive given so as to inspire them to solicit more business for the assessee. The places in respect of which the foreign trips were organized are largely the famous tourist places of the world and the visit to these places was largely for sightseeing purposes/pleasure trip, although it may have been coupled with one or two sessions of information sharing in regard to the business of the assessee. The expenditure on foreign travel incurred by the assessee on its insurance agents was therefore in the nature of incentive or reward given to them.
Against the above order of CIT(A) the assessee is in further appeal before us.
We have carefully gone through the order of the authorities below and find that the foreign travel of its agents was organized for training purposes and to discuss market strategy and to understand the business at the ground level, from the details furnished in this regard. The amount incurred towards foreign travel expenditure in respect of an insurance agent does not accrue as ‘income’ in the hands of such insurance agent and thus the same would be outside the ambit of Chapter XVII.
We find that assessee has already deducted tax at source under section 194C, by no stretch of imagination the said payment can be held to be liable for deduction of tax under section 194D, in so far as it was not a payment made to agent for procuring LIC business the expenses incurred cannot be said to be in the nature of incentive or reward to the insurance agents as they had no option to choose a place for the purpose of foreign travel. The said incentive does not in any manner has an object of benefiting the individual but has been incurred on the group as a whole and also the same is not a voluntary act on the part of insurance agents; therefore, the expenditure cannot be considered as income in the hands of the individual insurance agent.
In view of the above discussion we do not find any merit in the action of lower authority for treating the payment made to travel agent for getting the accommodation and ticket booking for the insurance agent causing for treating and holding them liable to deduction of tax at source under section 194D of the Act. The assesse has already deducted tax at source under section 194C, accordingly there is no justification in the order of lower authorities holding the assessee in default under section 201(1) & (1A).
9. In the result ground taken by assessee in all the years under consideration are allowed.
In the appeal filed by the Revenue, Revenue is aggrieved by the action of CIT(A) for holding that no TDS is required to be deducted in respect of service tax component on insurance commission paid to the insurance agent. The AO held that assessee was required to deduct tax at source on the entire payment made to insurance agent including service tax component on insurance commission so paid.
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." 4.27 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 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.
We have considered the rival contention and find that issue is squarely covered by the decision of the coordinate bench in case of M/s. Reliance Life Insurance Co. Ltd. in to 3011/M/2013 for the AY ‘s 2008-09 to 2010-11, vide order dt. 25/05/2016. The precise observation of the Tribunal was as under:
20. We have considered the rival submissions and arguments and also perused the relevant materials on records , orders of authorities below. 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—
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 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.
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 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.
In the result ground taken by the Revenue in all the year under consideration are dismissed.
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.
Rival contention have been heard and record perused, in the order passed under section 201(1), the AO held that assessee was liable to deduct tax at source on 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.
By the impugned order CIT(A) held that assessee has correctly deducted tax at source under section 194C, after observing as under:
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.
We have considered rival contention and found that the issue is squarely covered by the decision of coordinate bench in case of M/s Reliance Life Insurance Co. Ltd. (supra), wherein Tribunal observed as under:
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 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 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 these 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 were required to be subjected to TDS under the provisions of section194J of the Act and finally 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.
In the result ground taken by Revenue in all the years under consideration are dismissed.
Ground taken by assessee with regard to sum credited for tax deducted at source was not pressed, the same is therefore dismissed in limine.
In the result all the appeals of the assessee are allowed in part indicated hereinabove whereas appeals of the revenue are dismissed.