Commissioner Of Income Tax- Tds-2 v. Sbi Life Insurance Company Ltd

rsk IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1632 OF 2017WITH INCOME TAX APPEAL NO.1873 OF 2017WITHINCOME TAX APPEAL NO.1889 OF 2017WITH INCOME TAX APPEAL NO.1875 OF 2017 Commissioner of Income Tax- TDS-2 vs. ...Appellant SBI Life Insurance Company Ltd. ...Respondent ---- Mr. Suresh Kumar for Appellant . Mr. Atul K. Jasani a/w. Mr. P. C. Tripathi for Respondent. ---- CORAM : K. R. SHRIRAM & AMIT B. BORKAR, JJ. DATE : 22 OCTOBER 2021. P. C. : Respondent is engaged in the business of underwriting lifeinsurance policies. Respondent business comprises of individual lifeand group business. A survey under Section 133A of the Income TaxAct, 1961 (for short, the Act) was conducted in the case ofrespondents on 20/11/2009. A show cause notice for default underSection 201(1) of the Act was issued on 10/3/2010. It is stated byappellant that during the course of survey, Assessing Officer noticedthat while making payment of insurance commission to its agents, the rsk assessee deducted TDS on the net amount of insurance commissionafter excluding the service tax component. Assessing Officer opinedthat TDS was required to be deducted on the gross insurancecommission including the service tax component as required underSection 194D of the Act. 2.Assessing Officer also noticed that respondent had madepayments on account of usage/hiring of hardware/software etc andthe expenses were treated as contractual expenses and TDS wasdeducted under Section 194C of the Act. Since the payments weremade to various vendors like payment to server management servicesand call support services etc., which were highly specialized workrequiring involvement of highly qualified and technical manpower forcarrying out these activities, Assessing Officer has felt that theseactivities for which payments were made by respondents are oftechnical nature and therefore liable to TDS under Section 194J ofthe Act. 3.Assessing Officer also noticed that respondents hadincurred foreign travel expenses for its agents who were working forsoliciting or procuring insurance business for respondent andAssessing Officer opined that foreign travel expenses incurred byrespondents on its agents should be covered under the words "incomeby way of remuneration or reward whether by way of commission orotherwise" used in Section 194D. Since respondent did not deductTDS Assessing Officer treated respondent as an assessee in default rsk within the provisions of Section 201(1) of the Act and worked outTDS default. 4.Against the order dated 15/3/2011 passed by theAssessing Officer under Section 201(1) of the Act, rectification orderdated 28/11/2011 under Section 154 of the Act read with orderdated 20/12/2011 under Section 201 (1A) of the Act, respondentpreferred an appeal before the Commissioner of Income Tax (Appeal)(CIT(A) for short). CIT (A) partly allowed the appeal by order dated28/8/2012. CIT (A) held that the service tax on insurancecommission to the life insurance agent is the liability to therespondent and it cannot be considered as income in the hands ofagents and hence no tax was required to be deducted at source underSection 194D of the Act on the service tax component. CIT (A)directed that the demand of tax to that extent be deleted. 5.With regard to payments on account of hiring ofhardware/software, CIT(A) held that the same was not in the natureof professional and technical services as construed under theprovisions of Section194J of the Act and hence, provisions of Section194J of the Act are not applicable and that the respondent hadcorrectly deducted TDS under Section 194C of the Act. CIT(A)deleted the demand raised by the Assessing Officer in this regard. 6.As far as foreign travel expenses were concerned, CIT (A)held that deduction was required to be made under Section 194D of rsk 5.With regard to payments on account of hiring ofhardware/software, CIT(A) held that the same was not in the natureof professional and technical services as construed under theprovisions of Section194J of the Act and hence, provisions of Section194J of the Act are not applicable and that the respondent hadcorrectly deducted TDS under Section 194C of the Act. CIT(A)deleted the demand raised by the Assessing Officer in this regard. 6.As far as foreign travel expenses were concerned, CIT (A)held that deduction was required to be made under Section 194D of rsk the Act and upheld the order of Assessing Officer to that extent. CIT(A) went on to hold that to the extent amount were spent in respectof foreign travel of respondent's own employees it was required to beexcluded while computing the default of tax under the provisions ofSection 201(1) of the Act. 7.CIT (A) also passed a separate order dated 28/9/2012 inthe appeal filed by respondent in respect of order passed by AssessingOfficer under Section 201(1A) of the Act. 8.Being aggrieved by order dated 28/8/2012 in respect ofthe order passed under Section 201(1) of the Act dated 15/3/2011 ofthe AO, the appellant as well as respondent filed appeals beforeIncome Tax Appellate Tribunal (for short, ITAT). 9.ITAT by order dated 18/11/2016 dismissed the appealfiled by the Revenue and upheld the order of CIT(A) in respect ofservice tax component of insurance commission paid to or credited inthe name of insurance agent and also that respondent has correctlydeducted TDS under Section 194C of the Act on account ofusage/hiring of hardware/software. ITAT also held that foreign travelorganized by respondent for training purpose and to discuss marketstrategies and to understand the business at the ground level by nostretch of imagination can be held to be liable for deduction underSection 194D. Aggrieved by this order of ITAT the appellant haspreferred this appeal where following substantial questions of law are raised: a)Whether there is error of law apparent on the face ofrecord ? b)Whether the Hon'ble Tribunal failed to appreciatethat the provision of the section 194D of the I. T. Act r/w.Section 68 (payment of service tax) of Service Tax Act, fromwhich it is clear that the service tax component is anintegral part of value of expenses in respect of a taxableservice. During the year under consideration, assessee haspaid service tax on commission to agents, but assessee hasexcluded the amount of service tax from gross insurancecommission and deducted TDS on net insurancecommission. However, as per the provisions of Section194D of the I. T. Act assessee is required to deduct TDS onthe gross amount of insurance commission ? c)Whether the Hon'ble ITAT erred in not appreciationthe interpretation of Circular No.4/2008 dated 29/4/2008of CBDT r/w clarification vide Circular No.275/73/2007IT(B) dated 30/6/2008 wherein it is emphasized that theCircular No.4/2008 clearly speaks of Section 194I only andits scope is restricted to 194I only and is not extended toother sections viz., 194J , 194D etc. ? d)Whether the Hon'ble ITAT has ignored the fact that the payments were made to various vendors, like paymentto server management services and call support services etc.which were highly specialized work requiring theinvolvement of highly qualified and technical manpower forcarrying out these activities and therefore, the paymenttowards these services are in the nature of payments fortechnical services and therefore liable for TDS underSection 194J ? e)Whether the Hon'ble ITAT erred in upholding theorder of the ld. CIT(A) deleting the tax by way of shortdeduction without properly appreciating the factual andlegal matrix of the case as clearly brought out by theAssessing Officer in the order under Section 201(1) of theAct ? d)Whether the Hon'ble ITAT has ignored the fact that the payments were made to various vendors, like paymentto server management services and call support services etc.which were highly specialized work requiring theinvolvement of highly qualified and technical manpower forcarrying out these activities and therefore, the paymenttowards these services are in the nature of payments fortechnical services and therefore liable for TDS underSection 194J ? e)Whether the Hon'ble ITAT erred in upholding theorder of the ld. CIT(A) deleting the tax by way of shortdeduction without properly appreciating the factual andlegal matrix of the case as clearly brought out by theAssessing Officer in the order under Section 201(1) of theAct ? 10.As regards questions b, c, d and e , counsel submitted thatITAT in the impugned order had relied upon the decision of the co-ordinate Bench in case of M/s. Reliance Life Insurance Co. Ltd. in ITANo.3009 to 3011/M/2013. Appellant had impugned that decision ofITAT in M/s. Reliance Life Insurance Co. Limited in three appealsbearing Income Tax Appeal Nos.604/2017, 596/2017 and 612/2017before this court. This court by its order dated 10/6/2019 dismissedall the three appeal filed by Revenue. Therefore counsel submittedthat questions b, c, d and e will no more be substantial questions oflaw. rsk 11.As regards question (a), we concur with the viewexpressed by the ITAT. Section 194D reads as under: “194D. Any person responsible for paying to a resident anyincome by way of remuneration or reward, whether by wayof commission or otherwise, for soliciting or procuringinsurance business (including business relating to thecontinuance, renewal or revival of policies of insurance)shall, at the time of credit of such income to the account ofthe payee or at the time of payment thereof in cash or byissue of a cheque or draft or by any other mode, whicheveris earlier, deduct income-tax thereon at the rates in force."income by way of remuneration or reward, whether by wayof commission or otherwise, for soliciting or procuringinsurance business (including business relating to thecontinuance, renewal or revival of policies of insurance)shall, at the time of credit of such income to the account ofthe payee or at the time of payment thereof in cash or byissue of a cheque or draft or by any other mode, whicheveris earlier, deduct income-tax thereon at the rates in force." 12.Therefore the obligation to deduct is on the person who ispaying and the deduction to be made at the time of making suchpayment. Factually and admittedly no amount has been paid to theagents by respondent as a reimbursement of expenses incurred byagent in the foreign travel. Respondent had made arrangement forforeign travel for all the agents and paid expenses directly to thoseservice providers. Therefore as no amount was paid to the agents byrespondent, obligation to deduct income tax thereon at source alsowould not arise. 13.In the circumstances, we disagree with the view expressedby the Assessing Officer and concur with the view expressed by theCIT(A) as well as ITAT (though its reasons are different from ourreasons). rsk 14.order as to costs. Appeals are devoid of merits and are dismissed with no 15.Identical substantial questions of law have been proposedfor above 4 appeals except Income Tax Appeal No.1632/2017 whereone question is less regarding foreign travel expenses of agent. Wedispose all the appeals by this common order. (AMIT B. BORKAR, J) (K. R. SHRIRAM, J.) Digitally signedby RAJESHWARIRAJESHWARISUBODHSUBODHKARVEKARVEDate:2021.10.2918:31:55 +0530