Itxa/596/2017 Of The Commissioner Of Income Tax,Tds-2 v. M/S Reliance Life Insurance Co.ltd

Priya Soparkar 18 itxa 604-17, 596-17 and 612-17-o IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.604 OF 2017WITHINCOME TAX APPEAL NO.596 OF 2017WITHINCOME TAX APPEAL NO.612 OF 2017 The Commissioner of Income Tax… Appellant V/s. M/s Reliance Life Insurance Co. Ltd. … Respondent --- Mr.P.C.Chhotaray for the Appellant.Mr.R.Murlidharan i/by M/s Rajesh Shah & Co. for theRespondent. --- CORAM : AKIL KURESHI AND S.J.KATHAWALLA, JJ. DATE : JUNE 10, 2019. P.C.:- 1.These three appeals filed by the revenue arise out of the common judgment of Income Tax AppellateTribunal. For convenience, we may record facts fromIncome Tax Appeal No.604 of 2017. Revenue haspresented following questions for our consideration:- “(a) Whether on the facts and in thecircumstances of the case and in law, the ITATwas justified in holding that tax wasdeductible from payment of outsourcing expenses such as processing charges, callcentre operations and business services etc.under section 194C instead of section 194J ofthe Act without appreciating that the nature ofservices received by the assessee requirescertain parameters of technical/managerialskill of highly specialized competency and fallswithin the purview of section 194J of the Actand not 194C of the Act? (b) Whether on the facts and in thecircumstances of the case and in law, the ITATwas justified in holding that tax was deductiblefrom payment of data storage charges underthe head outsourcing expenses under section194C instead of section 194J of the Act withoutappreciating that the nature of servicesreceived by the assessee requires certainparameters of technical/ managerial skill ofhighly specialized competency and falls withinthe purview of section 194J of the Act and not194 C of the Act? (c) Whether on the facts and in thecircumstance of the case and in law, the ITATwas justified in holding that tax deductiblefrom payment of event managementexpenses to Reliance Transport and Travel Pvt.Ltd. under section 194C instead of 194J of theAct without appreciating that the nature ofservices received by the assessee requirescertain parameters of technical/ managerialskill of highly qualified specialized competencyand falls within the purview of section 194J ofthe Act and 194C of the Act? (d) Whether on the facts and in thecircumstances of the case and in law, the ITATwas justified in holding that tax was deductiblefrom payment of net insurance commission tothe agents, after excluding the service taxcomponent from the gross commission,instead of holding that tax was deductiblefrom the gross insurance commission including Priya Soparkar 38 itxa 604-17, 596-17 and 612-17-o the service tax component?” 2.Question Nos.a to c relate to the requirement of deduction of tax at source by the respondent whetherthe same was correctly deducted. Each question relatesto a different payment and we shall therefore examineeach question separately. 3.Respondent–assessee is an Insurance Company.Question Nos.a and b pertain to a deduction of tax atsource on the payment of outsourcing expenses. Theassessee had deducted tax under Section 194C of theAct. The revenue argues that the same ought to havebeen under Section 194J of the Act since payments werefor managerial and technical services. 4.The CIT (Appeals) and the Tribunal examined thenature of expenditure and came to the conclusion thatthe assessee had hired the services for various workssuch as storage of data, scanning of documents,processing charges, call centre operations etc. Looking to 3.Respondent–assessee is an Insurance Company.Question Nos.a and b pertain to a deduction of tax atsource on the payment of outsourcing expenses. Theassessee had deducted tax under Section 194C of theAct. The revenue argues that the same ought to havebeen under Section 194J of the Act since payments werefor managerial and technical services. 4.The CIT (Appeals) and the Tribunal examined thenature of expenditure and came to the conclusion thatthe assessee had hired the services for various workssuch as storage of data, scanning of documents,processing charges, call centre operations etc. Looking to Priya Soparkar48 itxa 604-17, 596-17 and 612-17-othe nature of services outsourced, it was held that thesame were basically clerical services of repetativenature of work and payments were therefore, neither formanagerial nor for technical services. Having perused thedocuments on record and looking to the nature ofservices described, we do not find that the Tribunal hascommitted any error. The work outsourced was in thenature of clerical work. No question of law arises. 5. In so far as question No.c is concerned, the samepertains to the charges of the event management paidby the assessee. In this context, the CIT (Appeals) andthe Tribunal noted that the assessee had arrangedconference at Agra. The payments were essentially fordomestic ticketing, reimbursing hotel expenses, tourleaders’ expenses. Such services were essentially in thenature of travel agent who had arranged the ticketbooking and hotel facilities. The Tribunal therefore heldthat payments were not for any technical servicesavailed by the assessee. No question of law arises. Priya Soparkar 58 itxa 604-17, 596-17 and 612-17-o 6.Question No.d relates to the quantum on which thededuction of tax at source would be made. Therespondent-assessee would hire agents for its insurancework and make payment for hiring such services. Thispayment would invite service tax. Under specialprovisions, the assessee-Insurance company would makenet payment of charges to the agent and directly depositthe service tax component with the Government. Theassessee deducted the tax at source on the agent’scommission excluding service tax component. Therevenue objects to this methodology arguing that eventhe service tax component ought to have been part ofthe amount on which TDS was required to be deducted.The Tribunal however referred to the CBDT circularessentially providing that the deduction of tax at sourcehas to be made in relation to the income of the payee.The service tax component not being the part of theincome, liability of deducting tax on this componenttherefore does not arise. Special reference was made tothe case of the landlord and tenant where the rent paidwould require deduction of tax at source, but excluding Priya Soparkar 68 itxa 604-17, 596-17 and 612-17-o the service tax component. In the CBDT circular it hasbeen clarified that where the service tax component isseparately indicated, the same would not find part of thepayment inviting deduction of tax at source. 7. We see no error in view of the Tribunal. In the present case, the payment made to the agent was thenet commission payable excluding the service taxcomponent which in the law the assessee was requiredto directly deposit with the Government. 8.We notice that in other two appeals the question ofevent management does not arise. However, rest of thequestions are common. 9.In the result, all the appeals are dismissed. (S.J.KATHAWALLA, J.) (AKIL KURESHI, J.)….