DCIT (TDS) 3(2), MUMBAI vs. RELIANCE LIFE INSURANCE CO. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL ―D‖ BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER I.T.A. No.3009/M/2013 (AY: 2008-2009) I.T.A. No.3010/M/2013 (AY: 2009-2010) I.T.A. No.3011/M/2013 (AY: 2010-2011) फनाभ/ DCIT (TDS)-3(2), M/s. Reliance Life Insurance 1012, 10 th Floor, Co. Ltd., Vs. 10 th Floor, R-Tech Park, Smt. K.G. Mittal Ayurvedic Hospital, Charni Road (W), Nirlon Compound, Mumbai-400002. Near HUB Mall, Goregaon (E), Mumbai -400063. स्थायी ऱेखा सं./ PAN : AADCA1410E (अऩीराथी /Appellant) (प्रत्मथी / Respondent) .. अऩीराथी की ओय से / Appellant by : Shri Jitendra B. Sanghavi प्रत्मथी की ओय से/ Respondent by : Shri Pradeep Singh, DR सुनवाई की तायीख / Date of Hearing : 05.05.2016 घोषणा की तायीख /Date of Pronouncement : 25.05.2016 आदेश / O R D E R PER RAJESH KUMAR, AM:

There are three appeals under consideration. All these appeals are filed by the department involving the assessment years 2008-09 to 2010-11. Since, the issues involved in these appeals are identical / inter-connected, therefore, for the sake of convenience, they are clubbed together, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the succeeding paragraphs.

―1. Ld CIT (A) has erred in law and on facts of the case is not correctly appreciating the nature of services received by the assessee by incurring data storage expenses which requires certain parameters of technical / marginal skill of highly qualified specialized competency and falls within the purview of section 194J and not u/s 194C of the Act. 2. The Ld CIT (A) has erred in law and on facts of the case in not correctly appreciating the nature of services received by the assessee by incurring event management expenses which requires certain parameters of technical / managerial skill of highly qualified specialized competency and falls within the purview of section 194J and not u/s 194C of the Act. 3. The Ld CIT (A) has erred in law and on facts of the case in deleting the short deduction u/s 194D 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 clearly brought out by the AO in the order u/s 201(1) of the Act. 4. The Ld CIT (A) has erred in law and on facts of the case in not appreciating correctly that the interpretation of Circular No.4/2008 dated 29/4/2008 of CBDT r.w. clarification vide circular no.275/73/2007 IT(B) dated 30/6/2008 wherein it is emphasized that the circular no. 4/2008 clearly speaks of section 194I only and this circular is not applicable to section 194J and the same analogy is applicable to other sections of TDS which also include the provisions of section 194D of the Act. 5. The Ld CIT (A) has erred in law and on facts of the case in deleting the tax by way of short deduction without properly appreciating the factual and legal matrix of the case as clearly brought out by the AO in order u/s 201(1) of the Act.‖

commission, which is the requirement of section 194D of the Act. In this regard, after considering the submissions / reply of the assessee, AO passed order u/s 201(1) of the Act holding that there was a short deduction of TDS on payments made for outsourcing expenses; data storage charges; expenses on event management and commission to agents( service tax component reduced from the gross commission). Accordingly, AO computed and determined the non-deduction and short deduction of tax u/s 201(1) of the Act at Rs. 8,33,23,790/- and passed order dated 30.3.2011. Aggrieved by the order of AO, assessee carried the matter in appeal before the first appellate authority.

u/s 194J as invoked by the AO. During the course of survey, AO observed that the assessee deducted and deposited TDS of Rs. 1,36,561/- on ‗data storage charges‘ u/s 194C of the Act on payment of Rs. 60,39,563/-. In this regard, after considering the submissions of the assessee, various documents including chart of services outsourced including agreements with all the parties , sample copies of bills, the AO came to a conclusion that the payment made by the assessee included the payment for data sorting; data storage, which may include scanning and storing of data in a special manner and the same required technical / management skills. Therefore, AO concluded that the said payments were liable for TDS u/s 194J of the Act by holding the assessee in default‘ within the provision of section 201 for not deducting TDS u/s 194J of the Act and the quantum of default under this head was worked out at Rs. 5,47,721/-. Aggrieved assessee carried the matter in appeal before the first appellate authority.`

Chennai in the case of R.S. Suriya vs. DCIT [2010] (2 ITR 746) (Chennai) which is relevant for the proposition that ‗management of the call sheets of the assessee could not be considered as professional services or technical services.......no professional qualification was required for giving such services and hence, there was no liability to deduct tax under section 194J .....‘. Assessee also relied on the CBDT Circular No.1 of 2008, dated 10.1.2008, wherein it was clarified that since the arrangement between the customers and cold storage owners are basically contractual in nature, the provisions of section 194C will be applicable...‘. Thus, before the CIT (A), assessee reiterated that the assessee could not be treated as ‗assessee in default u/s 201(1) of the Act and it correctly applied the provisions of section 194C of the Act. After considering the above submissions and replies of the assessee filed during the proceedings u/s 201(1), ld CIT (A) allowed the appeal of the assessee on this issue by observing and holding as under: ―6.10 I have considered the facts of the case, the written submissions of the appellant as well as the order of the AO on this issue. In this case, the issue for consideration is as to whether the said payments made by the appellant would constitute 'fees for technical services' as defined in the Explanation 2 to Section 9(1)(vii) of the Act. The AO is of the view that data sorting also requires certain parameters to be followed on the basis of which data sorting is done. These activities require certain technical managerial skills. On the other hand the case of the appellant is that from the scope of various aforesaid works outsourced, it is evident that none of these works fall within the scope of technical services. In this case, the appellant company has entered into contracts with M/s Writer Information Management Services. I have gone through the details of data storage charges of Rs. 60,39,563/- and also the agreements with M/s Writer Information Management Services as well as the sample invoices in respect of the aforesaid expenses. The description of the services provided by M/s Writer Information Management Services as per the contract is: Document management services Document delivery and collection services Document storage

6.11 The above activities mainly involve document management services, document delivery and collection services and document storage etc in respect of the life insurance business of the appellant. These parties have carried out the work in the normal course of their business and it is evident that the same does not involve high level of 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 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 demand of Rs. 5,47,721/- raised by the AO in this regard is deleted on merits.‖ 7. Aggrieved with the above decision of the CIT (A), Revenue is in appeal before the Tribunal. The ld DR vehemently submitted before us that the payment made by the assessee on account of data storage charges, processing charges, call centre operation and business services which included sorting of inward outward data , storage of records and scanning in a special manner so that data could be retrieved when required etc were purely of technical nature as the same required certain degree of managerial skills to follow the rules and procedures and carrying out the work in some special manner. The ld DR thus argued that that since these services involved special managerial skills to carry out the work in specialised manner , these were liable to TDS under the provisions of section 194J of the act and not u/s 194C

as has been done by the assessee. Finally ,while relying on the order of AO, Ld DR prayed for setting aside the order of CIT(A) by restoring that of AO.

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 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.

―7.8 I have considered the facts of the case, the written submissions of the appellant as well as the order of the AO on this issue. It is seen that the appellant had organised conference at Agra and the contract for managing this event was given to Reliance Transport and Travels Pvt. Ltd. (RTTPL). The appellant made payment Rs.1,69,08,818/- to RTTPL for these services. The appellant has deducted tax at source as per the provisions of section 194C of the Act. It is thus evident that the payment has been made towards the event management services provided by RTTPL. The services, in essence do not involve any high level of technical or managerial skill. Basically, the work of an event management company/tour operator is to provide facilities of ticketing, hotel booking, catering and providing certain other services respect of organising the event, in this case the conference of the appellant. In the regard, Circular NO.715 dated 08/08/1995 issued by CBOT can be usefully referred to. In question No. 6, the issue regarding ticketing services has been clarified in the following manner: Question 6: Whether payment under a contract for carnage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods?

Answer: The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at source as the / privy of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in section 194C(1). The provision of section 194C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of the Act. As regards payments made to clearing and forwarding agents for carriage of goods, the same shall be subjected to tax deduction at source under section 194C of the Act. 7.9 Thus, as per the above clarification itself, the contract for transport of passengers is covered by the provisions of section 194C of the Act (however, in an individual's case, even the provisions of section 194C are not attracted). Similarly, question No. 11 of the circular throws light on the aspect of catering services in the following manner: Question 11: Whether a contract for catering would include serving food in a restaurant/ sale of eatables? Answer: TDS is not required to be made when payment is made for serving food in a restaurant in the normal course of running of the restaurant/ cafe. 7.10 From the above, it can be concluded that catering services (except those where food in a restaurant is served in normal course of running of the restaurant), by any chance cannot be regarded as technical or managerial services and at the most these can becateqorised as 'work contracts'. Although, in the above circular, no clarification is given in respect of composite event management services, from the answers to above questions in the said circular, it is evident that event management services cannot be said to involve any high level of managerial or technical skills and these are in the nature of simple 'work contracts'. In the case of the appellant, RTTPL has provided the services of ticketing, booking of hotels, organising of the conference, catering etc to the technical skills. Neither any technical knowledge or training has been provided to the personnel who participated in the conference. Hence, in my

opinion, the services rendered by RTTPL are simply in the nature of 'works contract' and I hold accordingly. Since, the appellant has already deducted tax at source under section 194C, the appellant cannot be held to be 'an assessee in default'. 7.11. The demand of Rs.19,15,759 /- raised by the AO is hereby deleted on merits.‖ 12. Aggrieved with the above decision of the CIT (A), Revenue is in appeal before the Tribunal. The ld DR submitted before us that it is not a case of simple booking of travelling tickets but hotels were also booked and team leaders were also provided for the event management and therefore the provisions of section 194J of the Act were rightly invoked by the AO as it involved high level o skills and professionalism and prayed that the order of AO be restored by setting aside the order of FAA.

AO treated the assessee as ‗an assessee in default‘ within the provisions of section 201 of the Act and AO worked out the TDS default on this account at Rs. 5,33,58,178/-. Aggrieved, assessee carried the matter in appeal before the first appellate authority.

or Life Insurance Company, as the case may be. Thus, it was contented before the CIT (A) that the liability to discharge the service tax on the commission paid to insurance agents is that of the insurance company and not of insurance agents. Assessee also relied on various Circulars of the Service Tax Authorities in relation to insurance business in support of his above contentions. Assessee also discussed Rule 4A of the Service Tax rules, 1994 and reiterated that an insurance agent is the person, who provides insurance auxiliary services and the life insurance company, who appoints such agents, is liable for paying the service tax and therefore, the amount of service tax is not the ‗income‘ in the hands of the insurance agents. Therefore, the provisions of section 194D of the Act do not apply in respect of the amount paid by the assessee to the insurance agents, which is their income. Assessee relied on the decision in the case of MEIL-SEW- MAYTAS-BHEL(JV) VS ITO IT APPEAL NOS 63 TO 76 (HYD.) OF 2012 [ITAT – HYDERABAD] wherein it was held that ‗when a particular sum is not income at all for an assessee, there is no requirement to make TDS‘. Further, assessee discussed the provisions of Chapter XVII-B of the Act, which are applicable in case of payment of income in the hands of the recipient. It was also submitted that section 190 is the charging section for the purpose of invoking Chapter XVII-B of the Act, wherein it was indicated that before deduction of tax at source on the amount to be paid to the recipient, it must be shown that the amount received by the recipient shall falls within the ambit of the charging section as per the provisions of the Act. In this regard, he relied on the judgment of the Apex Court in the case of CWT vs. Ellis Bridge Gymkhana, Etc (229 ITR 1) (SC). Before the CIT (A) it is the case of the assessee that the assessee correctly deducted the tax at source under the provisions of section 194D of the Act on the ‗income‘ paid to or income received by the insurance agents and therefore, it should not be considered to be an assessee in default under section 201 of the Act. It was reiterated before the CIT (A) that the ‗income‘ as stated in section 194D and 194-I of the Act refers to the amount paid as income to the payee. Income paid by the assessee to its insurance agents was the amount of commission and not the amount of service tax, which is paid by Reliance Life direct to the Government. It is further submitted that when the language of the provision is clear, tax liability cannot be fastened on the person unless the amount received / receivable by him represents income in his hands. Conclusively, it was submitted before the CIT (A) that since the provision of section 194D is applicable to only ‗income‘, the analogy cannot be extended to service tax component which is neither received nor accrued or nor is the liability of the recipient, insurance agent. Accordingly, assessee should not be treated as ‗an assessee in default‘. Without prejudice to the above submissions, assessee stated before the CIT (A) that section 196 of the Act provides that no tax is required to be deducted from any sum paid to the Government Service Tax, VAT or similar levies are not the consideration for any contractual payment or consideration payable

pursuant to any contract. Service tax since diverted and received only in a fiduciary capacity by the payee (agents in the present case), the same cannot be construed as the ‗income‘ of the recipient. After considering the above submissions of the assessee, CIT (A) discussed the issue at length and granted relief vide paras 8.23 to 8.29 of his order and the same are extracted as under:-

8.23 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 any 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 under: "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." 8.24 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 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.

8.25 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 it is his liability. I concur with the Appellant's arguments on the said aspect.

The ld counsel of the assessee while referring to page no 76 and 77 of the paper book no 1 {circular no 4/2008 dated 28.04.2008 and circular no 1/2014[F.No. 275/59/2012-IT(B)] dated 13.1.2014}, submitted that these circulars have set at rest the controversy of TDS on service tax though brought out with reference to the service tax on rent wherein it has been specifically clarified that the service tax paid by the tenant does not partake the character of ―income ― of the landlord and the landlord is only acting as a collecting agency for the Government of collection of service tax and thus it has been decided that the TDS would be required to be deducted on rent paid/payable without including service tax. 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 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 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—

―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/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. 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)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.

ITA No:3010/M/2013 AY 2009-10 & ITA No: 3011/M/2013 AY 2010-11 The issues involved in these two appeals are identical to the issues decided by us in ITA No:3009/M/2013 AY 2008-09 and therefore our findings on the various grounds of appeals in ITA No 3009/M/2013 would , mutatis mutandis, apply to these appeals as well. Our findings on ground no 1 in ITA No 3009/M/2013 would apply to ground no . 1 & 2 in ITA 3010/M/2013 & 3011/M/2013. In result both the appeals of the revenue are dismissed.

Order pronounced in the open court 25th May,2016. sd (SAKTIJIT DEY) ACCOUNTANT MEMBER भुंफई Mumbai; ददनाुंक 25th May,2016 व.नन.स./ OKK , Sr. PS आदेश की प्रतिलऱपऩ अग्रेपिि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. 3. आमकय आमुक्त(अऩीर) / The CIT(A)- आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. 6. गार्ड पाईर / Guard file. सत्मावऩत प्रनत ////

आदेशानुसार/ BY ORDER, उऩ/सहायक ऩंजीकार (Dy./Asstt.