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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI NABIN KUMAR PRADHAN
Instant appeal by the department is directed against the order dated 1st August 2014, passed by the learned Commissioner (Appeals)–14, Mumbai, for the assessment year 2011–12.
In Ground no.(i), Department has challenged the decision of the learned Commissioner (Appeals) in deleting the demand raised under section 201(1)/201(1A) of the Income Tax Act, 1961 (for short "the
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Act") on account of short deduction of tax under section 194D of the Act.
3. Brief facts are, during the proceedings initiated under section 201 of the Act, on the allegation of short deduction / non–deduction of tax for the impugned assessment year, the Assessing Officer noted that the assessee had deducted TDS on the commission paid to agents without considering the corresponding service tax of the commission amount. The Assessing Officer noted that in the assessment year 2008–09 to 2010–11, the demands were raised under section 201(1) / 201(1A) on similar short deduction of tax on commission payment. Though, the assessee in its reply submitted that the learned Commissioner (Appeals) while deciding assessee’s appeal for the assessment year 2008–09 to 2010–11, had deleted the addition made on account of short deduction of tax under section 194D, however, the Assessing Officer observed that as the Department is contesting the decision of learned Commissioner (Appeals) before the Tribunal, for keeping the matter alive, he held that assessee was required to deduct TDS on service tax deposited on behalf of agent. In this connection, he raised the demand under section 201(1) amounting to ` 4,65,21,907, alleging short deduction of tax. Further, he also levied interest amounting to ` 1,36,40,926 under section 201(1A). Being aggrieved of the order passed by the Assessing Officer under section 201(1) /
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201(1A), assessee preferred appeal before the learned Commissioner (Appeals).
Learned Commissioner (Appeals), noticing the fact that in assessment year 2008–09 to 2010–11, his predecessor–in–office has dealt with the issue while deciding the appeal preferred by the assessee and decided the issue holding that the assessee is not required to deduct tax at source under section 194D on the service tax component, followed the same and deleted the demand raised by the Assessing Officer.
We have considered the submissions of the parties and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue is decided in favour of the assessee by the Tribunal while dismissing Department’s appeal against the learned Commissioner (Appeals)’s order for assessment year 2008–09 to 2010–11. In the order passed by the co–ordinate bench of the Tribunal in to 3011/Mum./2013 dated 25th May 2016, it is held as under:–
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 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
4 Reliance Life Insurance Co. Ltd. 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 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 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 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 /
5 Reliance Life Insurance Co. Ltd. contract between the payer and the payee without including the service tax 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)37 taxmann.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 issue in dispute is squarely covered by the aforesaid observations of the co–ordinate bench in assessee’s own case, respectfully following the same, we uphold the order of the learned Commissioner (Appeals).
The next issue raised in ground no.(ii) is challenging the decision of the learned Commissioner (Appeals) in deleting the demand raised
6 Reliance Life Insurance Co. Ltd. for short deduction of tax under section 194C in respect of payment made towards out sourcing expenses.
Brief facts are, the Assessing Officer noticing that the assessee has deducted tax on payment made towards out sourcing expenses such as processing charges, call centre operation and business service charges by applying the provisions of section 194C instead of section 194J called upon the assessee to explain why demand should not be raised under section 201(1) / 201(1A). In reply, it was submitted by the assessee, as the services rendered are in the nature of contract and not fee for technical service or professional services it has deducted tax u/s 194C. The assessee also relied upon the order of the learned Commissioner (Appeals) in its own case for earlier assessment year. The Assessing Officer, however, stating that the decision of the learned Commissioner (Appeals) is contested before the Tribunal held that the assessee was required to deduct TDS under section 194J and not 194C. Accordingly, alleging short deduction of tax, he raised demand u/s 201(1)/201(1A). However, he allowed benefit to the assessee to the extent the payees have offered such income and paid taxes thereon. Being aggrieved of the demand raised assessee challenged the same before the learned Commissioner (Appeals).
Learned Commissioner (Appeals), following his order in assessee’s own case for earlier assessment years deleted the addition.
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10. We have considered the submissions of the parties and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue is decided in favour of the assessee by the Tribunal while dismissing Department’s appeal against the learned Commissioner (Appeals)’s order for assessment year 2008–09 to 2010–11. In the order passed by the co–ordinate bench of the Tribunal in to 3011/Mum./2013 dated 25th May 2016, it has been held as under:–
“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 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
8 Reliance Life Insurance Co. Ltd. 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 a technical or professional work which required special skills 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.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.
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 Rs. 1,69,08,818/- to Reliance Transport and Travels Pvt Ltd (RTTPL). During the course of survey, on perusal of the relevant details in this regard, AO observed that event management expenses includes ticketing, hotel accommodation and tour leader professionals etc. Accordingly assessee was asked to show-cause as to why it should not be held as ‗assessee in default„ since, the assessee deducted TDS u/s 194C of the Act in respect of event management expenses instead of section 194J of the Act. In this regard, after considering the submissions of the assessee, AO concluded that 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 and worked out the default under this head at Rs. 19,15,759/-. However, no demand was raised by the AO on this account. Aggrieved, assessee went in appeal before the first appellate authority.”
As the issue in dispute is squarely covered by the aforesaid observations of the co–ordinate bench in assessee’s own case,
9 Reliance Life Insurance Co. Ltd. respectfully following the same, we uphold the order of the learned Commissioner (Appeals). Ground no.(ii) is dismissed.
In ground no.(iii), the Department has challenged the decision of the learned Commissioner (Appeals) in deleting the addition under section 201(1) / 201(1A) in respect of short deduction of tax on payment of data storage expenses.
Brief facts are, the Assessing Officer noticing that the assessee has deducted tax on payment to M/s. Writers, towards data storage charges under section 194C, instead of section 194J, called upon the assessee to explain why demand should not be raised for short deduction of tax. In response, it was submitted by the assessee that work involved is in nature of contract and does not involve any professional and technical service. Therefore, provisions of section 194C are applicable. In this context, the assessee also relied upon the orders of the learned Commissioner (Appeals) in its own case for earlier assessment years. The Assessing Officer, however, observing that the decision of the learned Commissioner (Appeals) is contested before the Tribunal, held that the assessee was required to deduct tax at source under provisions of section 194J. Accordingly, alleging short deduction of tax, he raised demand under section 201(1) / 201(1A).
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Being aggrieved of such decision of the Assessing Officer, assessee challenged the same before the learned Commissioner (Appeals).
The learned Commissioner (Appeals), following his own decision for preceding assessment years, deleted the demand.
We have considered the submissions of the parties and perused the material available on record. As agreed by both the parties, this issue has been decided by the Tribunal in assessee’s own case referred to above. Therefore, respectfully following the observation of the Tribunal while deciding the case of the assessee as reproduced above, we hold that the decision of the learned Commissioner (Appeals) in deleting the addition is just and proper. Accordingly, we dismiss the ground raised by the Department.
In the result, appeal stands dismissed. Order pronounced in the open Court on 19.08.2016