ACIT, CHENNAI V. M/s. Armour Consultants Pvt. Ltd., CHENNAI

ITA 296/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61044 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 13-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B MURALIKUMAR
• Assessee Lawyers: R SIVARAMAN
• Section: 194C; 2

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 296/MDS/2012 ASSESSMENT YEAR: 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI 600 034. VS. M/S. ARMOUR CONSULTANTS PVT. LTD., 2A, PRAKASAM ROAD, T. NAGAR, CHENNAI 600 017. [PAN: AADCA2769C] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B. MURALIKUMAR, CIT RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE DATE OF HEARING : 02.05.2012 DATE OF PRONOUNCEMENT : 02.05.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IX, CHENNAI DA TED 30.11.2011 IN ITA NO. 58/11-12 FOR THE ASSESSMENT YEAR 2006-07. S HRI B. MURALIKUMAR, CIT REPRESENTED ON BEHALF OF THE REVENUE AND SHRI R . SIVARAMAN, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF ` .6,12,43,000/- CLAIMED AS BPO CHARGES I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 2 AND THE SECOND ISSUE IN THE GROUNDS OF APPEAL IS TH AT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOW ANCE UNDER SECTION 40A(IA) OF ` .1,45,00,000/- CLAIMED AS DATA ACCESS FEES TO THE S ISTER CONCERNS OF THE ASSESSEE. 3. AT THE TIME OF HEARING BOTH THE COUNSELS FOR TH E REVENUE AND THE ASSESSEE SUBMITTED THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-06, 2004-05 TO 2008-09 DECIDE D BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE BY ORDER DATED 08.09.2011 IN I.T.A. NO. 296/MDS/2009 AND IN I.T.A. NO. 1331 TO 1335/MDS/200 9 . THE COUNSEL FOR THE ASSESSEE PLACED A COPY OF THE ORDER OF THIS TRIBUNA L DATED 08.09.2011. 4. ON GOING THROUGH THE ORDER OF THIS TRIBUNAL, WE FIND THAT IN RESPECT OF FIRST ISSUE OF DISALLOWANCE OF BPO CHARGES OF ` .6,12,43,000/- MADE UNDER SECTION 40(A)(IA), THIS TRIBUNAL DECIDED THIS ISSUE AT PARA 5 AND 6 OF ITS ORDER AS UNDER: 5. THE FIRST ISSUE OF THIS APPEAL ASSAILS THE LD. CIT(A)S DIRECTION TO ALLOW THE EXPENSES RELATING TO BPO CHARGES. IN GROUND NO. 2.2 IT HAS BEEN STATED THAT THE LD. CIT(A) HAS RELIED ON HIS PREDECESSORS ORDER DATED 17.1.2008 IN I.T.A.NO. 868/MDS/06-07 FOR ASSESSMENT YEAR 2004-05 WHICH IS IN FAVOUR OF THE ASSESSEE. THE ONLY GRUDGE OF THE DEPARTMENT IS THAT THIS ORDER HAS NOT BECOME FINAL AS FURTHER APPEAL HAS BEEN PREFERRED A GAINST THAT ORDER. OBVIOUSLY, APPARENTLY AND OSTENSIBLY THIS ISSUE STA NDS COVERED BY THE TRIBUNAL ORDER DATED 26.6.2009 RENDERED FOR ASSESSM ENT YEAR 2004-05, AND HAS NOT BEEN OVERRULED. THE JUDICIAL PROPRIETY DEMA NDS THAT THE TRIBUNAL ORDER IN ASSESSEES OWN CASE HAS TO BE RESPECTFULLY FOLLOW. HENCE, WE SEE NO REASON TO INTERFERE IN THIS FINDING OF THE LD. CIT( A). THE ASSESSEE-COMPANY HAS UTILIZED INFRASTRUCTURE FACILITY AND MANPOWER O F THREE COMPANIES VIZ. M/S SHRIRAM TRANSPORT FINANCE CO. LTD., SHRIRAM INVESTM ENTS LTD., AND SHRIRAM I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 3 CITY UNION FINANCE LTD. FOR PROVIDING SUPPORT SERVI CES IN RELATION TO ITS INSURANCE BY ENTERING INTO OUTSOURCING AGREEMENTS A ND PAYING BPO CHARGES FOR THE WORK DONE BY THEM. THE ASSESSING OFFICER DI SALLOWED THIS CLAIM ON SIMILAR SET OF FACTS IN ASSESSMENT YEAR 2004-05, TH EREFORE, HE HAS DISALLOWED IN THIS YEAR AS WELL. THIS ISSUE HAS BEEN DECIDED B Y THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 26.6.2009, FOR ASSESSMENT YEAR 2004-05, IN I.T.A.NO. 736/MDS/2008. FOR READY REFERENCE, WE EXT RACT RELEVANT PARAGRAPHS 23 TO 28 OF THE TRIBUNAL ORDER: 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAR EFULLY IN THE LIGHT OF MATERIAL ON RECORD. WE FIND THAT ASSESSEE HAD FI LED THE COPIES OF AGREEMENT ENTERED INTO WITH THE BPO COMPANIES (PLAC ED AT PAGES 161 TO 188 OF THE PAPER BOOK) AS WELL AS THE NATURE OF SERVICES PROVIDED VIDE LETTERS DATED 10.8.2006, 21.8.2006 AND 26.12.2 006 WHICH ARE PLACED ON THE PAPER BOOK AT PAGES 126 TO 157 BEFORE THE ASSESSING OFFICER. THE ASSESSEE-COMPANY IS MAINLY ENGAGED IN TWO SEGMENTS OF BUSINESS I.E TRUCK INSURANCE BUSINESS AND CORPORATE AND RETAIL LINE OF BUSINESS WHICH HAS BEEN TERMED AS NON-TRUCK BUSINE SS. FOR TRUCK BUSINESS, ASSESSEE COMPANY HAD TO PROVIDE SERVICES ALL OVER THE COUNTRY SPREAD INTO MORE THAN 200 LOCATIONS. SINCE ASSESSEE-COMPANY DID NOT HAVE OFFICES, IT HAD TAKEN THE SERVICES OF THREE COMPANIES FOR PROVIDING OFFICE SPACE AND OTHER INFRASTRUCTURE. FO R EXAMPLE, IN THE AGREEMENT ENTERED INTO WITH SRIRAM TRANSPORT FINANC E CO. LTD, THE NATURE OF SERVICES TO BE PROVIDED BY HP COMPANY HAS BEEN LISTED AS UNDER: ' SUP POR T SER VI CES T O BE PRO VIDED BY THE HP COM PA NY TH E HP COMPAN Y H ERE B Y AGRE E THAT IT SHALL PROVID E THE FOLLOW ING CLIENT S UP POR T SERVI CES TO ARMOU R: ( A ) P ROVID E C LI E NT SUPPORT S E RV ICES I NCL UDING IN S P ECT I O N OF ARMOU R CUS T OMERS , COL L ECTION AND PAYME NT OF PREMIUM , M A ILS , CO-ORDI N A T I ON WITH I NSUR A N CE C OMPA NY/POLICY HOL DE RS FOR PAYME NT O F PREMIUM, D ELIVERY & COL LECTION OF INSURANCE POLIC I E S E T C AND COLL EC TI ON OF PR OPOSAL , VE H ICLE IN SPECT I O N , CLIENT BACKGROUND, DETAILS REGARDING TRUCK PORTFOLI OS AS PER ARMOUR POLICIES AND GUIDELINES. (B) PROVIDE USE OF ITS MANPOWER FOR MARKET SURVEY A ND DATA COLLECTION RELATING TO POTENTIAL BUSINESS PROSPECTS IN THE TOPOGRAPHICAL AREA OF THEIR RESPECTIVE BRANCHES. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 4 (C) PROVIDE USE OF ITS MANPOWER FOR FOLLOW UP WORK RELATING TO CLAIMS MANAGEMENT AND ALL OTHER AFTER SALES SERVICI NG OF CLIENTS FOR TRUCK BUSINESS AND OTHER RETAIL CLIENTS OF ARMO UR. THESE SERVICES SHALL BE PROVIDED BY THE HP COMPANY AT ITS VARIOUS BRANCH OFFICES AS SET OUT IN SCHEDULE I TO THIS AGR EEMENT. 24. FOR THIS, COMPANY AGREED TO PAY A COMPENSATION OF ` .4,50,000/- PER MONTH AND THE LIST OF BRANCHES NUMBERING 41 WHE RE SUCH SERVICES WERE TO BE PROVIDED HAS ALSO BEEN ATTACHED. SIMILAR LY, IN THE CASE OF SRIRAM INVESTMENTS LTD., THE ASSESSEE-COMPANY TOOK THE SERVICES OF OFFICES ETC AT 105 BRANCHES FOR A COMPENSATION OF ` . 13,90,000/- PER MONTH. IN VARIOUS LETTERS WRITTEN TO THE ASSESSING OFFICER, DETAILED NATURE OF SERVICES HAVE BEEN GIVEN AND THE SAME WAS SUMMARIZED IN LETTER DATED 26.12.2006 WHICH READS AS UNDER: U S E O F OFFICE SPACE AND INFRASTRUC T U R E AVAIL AB L E A T T HE S PEC I F IE D BRANCH OFFICE S OF THE HP CO M PANIES ( AR O UND 2 00 L OCA TION S ) SUCH AS FURN I T U RE, FIXTURE AND FITTING S CO N SI S TI NG OF T AB L E S , CH AIRS , CUPBOA RDS , FANS , AIR CONDITI O N ER S E TC . T H I S SAVES T HE COMPANY FRO M I N C U R RI NG O F ANY C AP I T A L EX P ENDITURE AND RENT AND OTHER REGU L A R RE PA I R & MAINTENAN CE E XP E NDITURE ON ACCOUNT OF TRUCK I NS U RAN CE BU S INE S S . USE OF T ELEPHONE L I NES A ND CO M P U TE R S , COMP U T ER NETW ORK I NG , SOFTWARE ETC PROVIDED FOR TH E PURP O SE OF T R U CK IN SURAN C E BUSINESS AT ALL THE L OCA TI O N S SAVING A RM OU R FROM THE TELEPHON E AND SO FTW ARE DEVELOPMEN T E XPE NS ES R E L A TING TO THE TRUCK INSUR A NC E BUS I N ESS . USE AND ACCESS OF W IDE RANGE OF FA C ILITIES L I KE T YPIN G , MA IL HANDLING, MESSENGER SER VICE AND OTHE R ADMINIST RA TI VE SE RV I CE S [VIZ. PRINTING & STATI ONER Y, POSTAGE , T RAVELL I NG & C ONVEY ANC E EXPENSES RELATING T O T RU CK INSURA N CE BUSINESS]. USE OF BPO ENTITYS MANPOWER SAVING ARMOUR FROM INC URRING SALARY, PF AND OTHER EMPLOYEE BENEFITS, STAFF WELFA RE EXPENSES, TRAVELLING AND CONVEYANCE EXPENSES ETC. FOR PROVIDING CLIENT SUPPORT SERVICES INCLUDING INS PECTION OF ARMOUR CUSTOMERS (TRUCK OWNERS0, COLLECTION AND PAY MENT OF PREMIUM, MAILS, COORDINATION WITH INSURANCE COMPANY /POLICY HOLDERS FOR PAYMENT OF PREMIUM, DELIVERY AND COLLEC TION OF INSURANCE POLICIES ETC AND COLLECTION OF PROPOSAL, VEHICLE INSPECTION, CLIENT BACKGROUND DETAILS REGARDING TRU CK PORTFOLIOS AS PER ARMOUR POLICIES AND GUIDELINES. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 5 FOR MARKET SU RVEY AND D AT A COL L E CTI O N R ELAT ING TO POTENTIAL BUSINESS PROSP E C TS I N T H E TOPOGRAPHIC A L A R E A OF THEIR RESPECTIVE BR ANCHES . FOR FO L LOW-U P W ORK RELATING TO C L AIMS M ANAGEME NT A ND AL L OTH E R A FTER S A L ES SERV I CING O F CLIENTS FOR TRUCK S BU S I N E SS AND O T HER RET A IL CLIENTS OF A RMOUR .' 25 . IN T HE SAMP L E DOCUM ENTS , F OR EXAMP L E , TH E R E IS A LETTER DATED 24 .1 . 200 4 , AD DR E SS E D TO S HRI JAM A L BH A I SINDHI W HEREB Y CH EQUE HAS BEE N DE S PATCHE D TO HIM B Y S RIR A M TRAN SP O R T FINANCE C O . AND C OPY OF THIS LETTE R H AS B EE N SE NT TO THE ASSESSEE C OMP ANY FOR I NFORMATIO N . T HEN IN THE LETTE R DATED 1 5 . 1 1 . 2 003, SRIRAM TRANSP ORT FI NANCE CO . LT D DESPATCHED THE SPOT R E P O RT A L O NG WI TH P H O T OGRAPHS TO SHRI N ITIN KHOLE F O R DO I NG C ORRECTION IN THE R EPO RT AND A C TIO N H AS B EE N REF E RR ED T O THE ASSE SS E E CO MPANY . T HES E K I NDS O F E XA MPLES C L EAR L Y SHOW TH AT WHILE PROV I DING S ER VI CES OF INSURANC E B R O KER , ASSES SEE N EEDS A BIG GE R IN FRASTRUCTU R E FOR CO L L ECT I NG PREM I UM S AND THEN DELIVERING POLICIES TO VARIOUS CUSTOMERS. LATER ON, IF ANY CLAIMS ARE RAISED THEN ASSESSEE-COMPANY HAD TO ORGANIZE SURVEYORS, GE T THEIR REPORTS, SEND THE SAME TO THE INSURANCE COMPANIES AND FOLLOW UP THE C LAIMS WITH INSURANCE COMPANIES. LAST STEP WOULD BE OBTAINING THE CHEQUES AND HANDING OVER THE SAME TO VARIOUS CUSTOMERS. ALL THESE THINGS REQUIRE BIG INFRASTRUCTURE AND SINCE ASSESSEE-COMPANY DID NOT HAVE ITS OWN OFFICES AND MANPOWER, IT TOOK THE SERVICES OF ASSOCIATE COMPANIES ON BPO BAS IS . WE FI ND THAT ASSE SSI N G O F FI C E R HAS DI S ALL OWED THIS CLAIM WITHOUT EX AMIN I NG THE D E T A I L S WH IC H IS NOT JUSTIFIED. 2 6 . THE O T HER F ACTOR F O R DIS ALLOW ANCE OF THE C L AIM WA S A PPL I CATION O F S ECT I ON 40 A(1 A) . PRIOR TO 31 . 3 . 2004 , TH E RE WAS ONLY A SECTI ON 4 0A (I) WH I CH WA S SP LI T I N T O SUB CLAUSE (1 ), 1 ( A ) , 1(B ) BY F I NA NC E N O . 2 A C T 2 004 W . E . F 1 . 4 . 2005 WHI C H ME ANS THIS PR OVISI ON WAS NOT APPLI C A B L E DURING THE ASSESSME NT YEAR 2004 -05 . 2 7 . T HE O TH E R I MPORTANT OBSER V A TIO N MADE BY THE AS SE SS ING O FFI C E R WAS THAT EXPEND I TURE H AS BEEN BOO K E D MAINLY ON TH E BA S IS OF J OU R NA L ENTRIES WHIC H IS A GAI N NOT CO R REC T . COP Y O F A CC OUNTS OF SR I R AM TR ANSPOR T F I NANCE CO . , SRIRAM I NVE STMENT S LT D AS WELL AS SRIRAM CITY U NION FI NANCE LTD [ AT PAGES 158 TO 1 60 OF THE PAPE R BOOK] CLEARLY SH OW THAT R EGULA R PAYMENTS HAV E BE E N MADE BY TH E ASSES SE E COMP ANY TO TH ESE COMPANIES F ROM WHOM BPO S E R V I CES WERE OBT AINED. 28 . AS FAR AS OBSERVATI O N T HAT SUCH EXPENSES W E R E NO T REFLECTED IN T H E R ESULTS FILED W I T H I RDA IS CON CERNED , WE ARE SATISFIED WITH THE EXPLANATIO N OF I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 6 THE LD. COUNSEL FOR THE ASSESSEE THAT IT WAS THE FI RST YEAR OF OPERATION AND ALL THESE BPO CHARGES WERE DULY REFLECTED IN THE SECOND HALF OF THE YEAR IN THE RETURNS FILED WITH IRDA. UNDER THESE CIRCUMSTANCES, WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) WHICH WE CONFIRM. 6. RESPECTFULLY FOLLOWING THE TRIBUNAL ORDER (SUPR A), WE HAVE TO ALLOW THE EXPENSES RELATING TO BPO CHARGES. ACCORDINGLY, WE DISMISS GROUND NO.2.1 AND 2.2 OF THE APPEAL. 5. RESPECTFULLY FOLLOWING THIS TRIBUNALS ORDER DA TED 08.09.2011 IN I.T.A. NO. 296/MDS/2009 AND IN I.T.A. NO. 1331 TO 1335/MDS /2009, IN ASSESSEES OWN CASE, WE DELETE THE DISALLOWANCE MADE UNDER SEC TION 40(A)(IA) OF THE ACT IN RESPECT OF EXPENSES RELATING TO BPO CHARGES. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ON THIS ISS UE ARE DISMISSED. 6. IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 4 0(A)(IA) OF THE ACT TOWARDS DATA ACCESS FEE TO SISTER CONCERNS, THIS TR IBUNAL HAS DECIDED THIS ISSUE IN PARAS 7 TO 12 OF ITS ORDER AS UNDER: 7. THE NEXT ISSUE TAKEN VIDE GROUND NO.3.1 TO 3.4 IS IN RELATION TO DISALLOWANCE OF ` .2,21,50,200/- CLAIMED TOWARDS DATA ACCESS FEE. THE ASSESSEE-COMPANY IS IN THE BUSINESS OF INSURANCE BR OKING AND IS REGISTERED WITH THE INSURANCE REGULATORY AND DEVELOPMENT AUTHO RITY AS AN INSURANCE BROKER. IN ORDER TO GET FRESH CUSTOMERS, WITH WHOM INSURANCE BUSINESS CAN BE CANVASSED, THE ASSESSEE-COMPANY, DURING THE YEAR EN TERED INTO AN AGREEMENT WITH THREE OF ITS SISTER CONCERNS, VIZ. M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD., M/S SHRIRAM OVERSEAS FINANCE LTD., AN D M/S SHRIRAM INVESTMENTS LTD. FOR PROVIDING THE ASSESSEE AN ACCE SS TO THEIR CUSTOMER BASE. AS PER THE AGREEMENT, THE ASSESSEE-COMPANY HAS APPR OACHED THESE FINANCE COMPANIES TO PROVIDE PERIODICAL ACCESS TO THE DATA BASE CONTAINING THE DETAILS OF THEIR DEPOSITORS, DEBENTURE-HOLDERS AND PERSONS WHO HAVE OBTAINED FINANCE. IN TURN, THE FINANCE COMPANIES AGREED TO P ROVIDE THE SAME BY SHARING RELEVANT INFORMATION, THAT THEY HAVE, WITH THE ASSESSEE-COMPANY. THESE AGREEMENTS ARE FOR A FIXED PERIOD OF TIME OF ONE YEAR. AS PER THESE AGREEMENTS, INFORMATION WITH REGARD TO THE DETAILS OF PERSONS WHO HAVE OBTAINED FINANCE, DEBENTURE HOLDERS AND DEPOSITORS ARE TO BE GIVEN ON A REGULAR BASIS. THE ASSESSEE HAS PAID AN AMOUNT OF ` .2,21,50,200/- TO THESE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 7 THREE COMPANIES FOR THE ABOVE PURPOSE. BUT THE ASSE SSEE-COMPANY DID NOT DEDUCT TAX AT SOURCE(TDS) ON THESE PAYMENTS. SINCE THE PAYMENTS HAVE BEEN MADE IN PURSUANCE TO A CONTRACT FOR PROVIDING ACCES S TO THE CUSTOMER BASE OF THE THREE FINANCE COMPANIES, AS PER THE ASSESSING O FFICER, TAX OUGHT TO HAVE BEEN DEDUCTED U/S 194C OF THE ACT. THE ASSESSEE WAS SHOW CAUSED AS TO WHY NOT SUCH PAYMENTS, MADE WITHOUT DEDUCTING TDS BE DI SALLOWED U/S 40(A)(IA) OF THE ACT. IT WAS EXPLAINED BY THE ASSESSEE-COMPAN Y THAT DATA ACCESS FEE IS NOT A SPECIFIED EXPENSE UNDER ANY OF THE SECTIONS I N CHAPTER XVIIB OF THE ACT DEALING WITH DEDUCTION OF TAXES AT SOURCE AND THIS FEE IS PAID FOR THE PURCHASE OF INFORMATION AND THEREFORE, IS NOT SUBJECT TO THE PROVISIONS OF SECTION 194C OF THE ACT. THE ASSESSING OFFICER HAS OPINED THAT A S PER THE WRITTEN AGREEMENT, AN OBLIGATION HAS BEEN CAST UPON THE FIN ANCE COMPANIES TO CONSTANTLY PROVIDE INFORMATION OF THEIR CUSTOMERS T O THE ASSESSEE-COMPANY AND IT IS NOT ONE TIME SUPPLY OF DATA/INFORMATION. SO, IT IS A CONTRACT FOR CONTINUOUS SUPPLY OF INFORMATION ON A REAL TIME BAS IS. AS AND WHEN A NEW CUSTOMER/DEPOSITOR/DEBENTURE HOLDER IS INDUCTED BY THOSE COMPANIES, THE SAID INFORMATION IS TO BE PASSED ON TO THE ASSESSEE-COMP ANY BY THE FINANCE COMPANIES. THEY HAVE TO CONTINUOUSLY UPDATE THE ASS ESSEE-COMPANY WITH THE DETAILS. THUS, THE CONTRACT FOR SUPPLY OF INFORMATI ON COULD NOT BE TREATED AS CONTRACT FOR SALE OF GOODS AS HAS BEEN CLAIMED BY T HE ASSESSEE. IT WAS STATED THAT SINCE THE FINANCE COMPANIES DO NOT HAVE ANY OW NERSHIP RIGHTS OVER THE INFORMATION PASSED ON TO THE ASSESSEE-COMPANY AND C ONSEQUENT TO CONTRACT, THERE IS NO TRANSFER OF OWNERSHIP IN THE PROPERTY T RANSFERRED, THIS TRANSACTION WILL NOT AMOUNT TO A CONTRACT FOR SALE OR PURCHASE. AS PER ASSESSING OFFICER, SECTION 194C INCLUDE WITHIN ITS AMBIT ALL CONTRACTS OF WORK INCLUDING SUPPLY OF LABOUR, THEREFORE, SUPPLY OF INFORMATION/DATA HA S BEEN EQUATED BY THE ASSESSING OFFICER WITH SUPPLY OF LABOUR. HE HAS ALS O RELIED ON CBDT CIRCULAR NO.681 CLARIFYING THE PAYMENTS COVERED BY SECTION 194C WHICH PROVIDES FOR APPLICABILITY OF SECTION 194C TO ALL T YPES OF CONTRACTS INCLUDING TRANSPORT CONTRACTS, LABOUR CONTRACTS, SERVICE CONT RACTS ETC. THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED THIS ENTIRE AMOUNT U/S 40(A)(IA) OF THE ACT AND HAS ADDED BACK TO ASSESSEES INCOME. ON THE CON TRARY, THE LD. CIT(A) HAS DELETED THE ENTIRE AMOUNT HOLDING THAT THE IMPUGNED PAYMENT IS NOT ATTRACTED UNDER SECTION 194C OF THE ACT MAINLY ON THE REASONI NG THAT GIVING ACCESS TO DATA BASE DOES NOT INVOLVE ANY WORK AND HENCE, NO C ONTRACT FOR WORK CAN BE INFERRED. NOW THE REVENUE IS AGGRIEVED. 8. IT WAS ARGUED BY THE LD.CIT/DR THAT AS PER AGREE MENT, THE FINANCE COMPANIES ARE REQUIRED TO CONSTANTLY PROVIDE INFORM ATION ABOUT THEIR CUSTOMER BASE WHICH IS A CONTINUOUS PROCESS. IT WAS FURTHER ARGUED THAT EVEN IF IT IS PRESUMED THAT THE CONTRACTORS SIMPLY LET T HE EMPLOYEE OF THE ASSESSEE- COMPANY TO USE ITS DATA BASE, THIS DATA BASE GETS U PDATED EVERY NOW AND THEN AND IT WILL AMOUNT TO RENDERING OF SERVICE. THEREFO RE, RENDERING OF SERVICE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 8 WOULD BE COVERED BY THE PROVISIONS OF SECTION 194C. PER CONTRA, APART FROM RELYING ON THE APPELLATE ORDER, THE LD.AR HAS ARGUE D THAT CIRCULAR NO.681 ON WHICH HEAVY RELIANCE HAS BEEN PLACED BY THE ASSESSI NG OFFICER AS WELL AS BY THE LD. CIT/DR, HAS SINCE BEEN STRUCK DOWN AND QUAS HED BY THE HON'BLE BOMBAY HIGH COURT WHILE DECIDING THE CASE OF EAST I NDIA HOTELS LTD VS CBDT, 320 ITR 526. 9. WE HAVE CIRCUMSPECTED THE RIVAL SUBMISSIONS VIS --VIS THE AVAILABLE FACTS AND EVIDENCE BEFORE US. THERE IS NO DISPUTE W ITH REGARD TO THE FACT THAT THE FINANCE COMPANIES ONLY ALLOW ACCESS TO INFORMAT ION AS DISCUSSED ABOVE AND THE CONTRACT BETWEEN THE PARTIES IS REGARDING A CCESS TO DATA BASE AND NOT FOR PROVIDING INFORMATION. TO PUT THIS FACT IN SIMP LE WORDS IT CAN BE SAID THAT THE FINANCE COMPANIES WOULD NOT PROVIDE INFORMATI ON THEMSELVES TO THE ASSESSEE-COMPANY, BUT PERMIT ACCESS TO ITS DATA BAS E. THE HON'BLE SUPREME COURT WHILE EXPLAINING THE TERM WORK USED IN SECT ION 194 WHILE DECIDING THE CASE OF ASSOCIATED CEMENT COMPANY LTD VS CIT, 201 I TR 435, HAS EXPLAINED AS UNDER: 'WORK' ENVISAGED IN THE SUB SECTION, THEREFORE, HAS A WIDE IMPORT AND COVERS 'ANY WORK' WHICH ONE OR THE OTHER OF THE ORGANIZATIONS SPECIFIED IN THE SUB SECTION CAN GET CARRIED OUT THROUGH A CONTRACTOR UNDER A CONTRACT AND FURTHER I T INCLUDES OBTAINING BY ANY OF SUCH ORGANIZATIONS SUPPLY OF LA BOUR UNDER A CONTRACT WITH A CONTRACTOR FOR CARRYING OUT ITS WOR K WHICH WOULD HAVE FALLEN OUTSIDE THE 'WORK' BUT FOR ITS SPECIFIC INCLUSION IN THE SUB SECTION'. SO, IT BECOMES AMPLY CLEAR THAT FOR A WORK THERE HAS TO BE SUPPLY BY THE CONTRACTING PARTY. BUT IN THE GIVEN CASE NO SUPPLY OF INFORMATION (SERVICE/LABOUR) IS INVOLVED. THE EMPLOYEES OF THE ASSESSEE-COMPANY ARE ALLOWED ACCESS TO DATA BASE WHO THEMSELVES SEARCH THE REQUISITE INFORMATION IF THEY SO REQUIRE. 10. MOREOVER, THE CBDT CIRCULAR ON WHICH THE ASSES SING OFFICER HAS RELIED, HAS BEEN QUASHED BY THE HON'BLE BOMBAY HIGH COURT. IN THE CASE OF EAST INDIA HOTELS LTD, & ANOTHER(SUPRA), CBDT CIRCU LAR NO.681 DATED 8.3.1994, HAS BEEN QUASHED AS UNDER: ALL SERVICE CONTRACTS' ARE OUTSIDE THE PURVIEW OF SECTION 194C OF THE INCOME-TAX ACT, 1961. HOWEVER, CIRCULAR NO. 681 DATED MARCH 8, 19941, STATED THAT SECTION 194C WOULD APPL Y TO ALL TYPES OF CONTRACTS INCLUDING TRANSPORT CONTRACTS, S ERVICE CONTRACTS, ADVERTISEMENT CONTRACTS, BROADCASTING CO NTRACTS, TELECASTING CONTRACTS, LABOUR CONTRACTS, MATERIAL C ONTRACTS AND I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 9 WORK CONTRACTS. BY INSERTING EXPLANATION III TO SEC TION 194C THE WORD 'WORK' IN SECTION 194C HAS BEEN EXPANDED SO AS TO INCLUDE FOUR TYPES OF SERVICE CONTRACTS WITHIN THE PURVIEW OF SECTION 194C. THE WORDS 'CARRYING OUT ANY WORK' IN SECTION 194C A RE LIMITED TO ANY WORK WHICH ON BEING CARRIED OUT CULM INATES IN A PRODUCT OR RESULT. THE WORD 'WORK' IN SECTION 194C HAS TO BE UNDERSTOOD IN A LIMITED SENSE AND WOULD EXTEND ONLY TO THE SERVICE CONTRACTS SPECIFICALLY INCLUDED IN SECTION 194C BY WAY OF EXPLANATION III. SECTION 194C WOULD APPLY TO PAYMEN TS FOR CARRYING OUT THE WORK SUCH AS CONSTRUCTING BUILDING S OR DAMS OR LAYING OF ROADS AND AIR FIELDS OR RAILWAY LINES OR ERECTION OR INSTALLATION OF PLANT AND MACHINERY, ETC. IN ALL TH ESE CONTRACTS, THE EXECUTION OF THE CONTRACT BY A CONTRACTOR/SUBCO NTRACTOR RESULTS IN PRODUCTION OF THE DESIRED OBJECT OR ACCO MPLISHING THE TASK UNDER THE CONTRACT. THE FACILITIES OR AMENITIES MADE AVAILABLE BY A HOT EL TO ITS CUSTOMERS DO NOT CONSTITUTE 'WORK' WITHIN THE MEANI NG OF SECTION 194C. CONSEQUENTLY, CIRCULAR' NO. 681, DATE D MARCH 8, 1994 , TO THE EXTENT IT HOLDS THAT THE SERVICES MAD E AVAILABLE BY A HOTEL TO ITS CUSTOMERS ARE COVERED UNDER SECTION 19 4C IS BAD IN LAW AND IS LIABLE TO BE QUASHED. SO, WHEN THE CIRCULAR ITSELF DOES NOT SURVIVE, THE MAIN BASIS OF RELIANCE BY THE ASSESSING OFFICER, TO ARRIVE AT HIS CONCLUSION, ALS O GOES TO WINDS, AND THE REASON BECOMES FUTILE. 11. ABOVE ALL, THE HON'BLE MADRAS HIGH COURT WHILE RENDERING THE DECISION IN THE CASE OF SKYCELL COMMUNICATION LTD, 251 ITR 53, HAS CATEGORICALLY STATED THAT THE PAYING COMPANIES SHOU LD RENDER SERVICE INVOLVING LABOUR AND/OR SKILL, WHICH ARE SINGULARLY ABSENT IN THE ASSESSEES CASE. IN THIS CASE, THREE COMPANIES HAVE DONE NOTHI NG OR RENDERED NO SERVICE TO THE ASSESSEE-COMPANY AND HENCE CANNOT COME UNDER THE TERM CARRYING OUT ANY WORK WHICH IS THE MAIN INGREDIENT FOR APPLYING THE PROVISIONS OF SECTION 194C. 12. IT IS CLEARLY EVIDENT FROM THE ASSESSMENT ORDE R [FROM PAGE 3 OF HIS ORDER] THAT NO SERVICE HAS BEEN RENDERED BY OTHER C OMPANIES TO THE ASSESSEE- COMPANY. THE BONAFIDES OF THE PAYMENT HAVE NOT BEEN DISPUTED OR DOUBTED. AS WE HAVE EXPLAINED ABOVE, ANY CONTRACT FOR SERVIC E WILL NOT FALL U/S 194C AS IS EVIDENT FROM THE HON'BLE BOMBAY HIGH COURTS DEC ISION RENDERED IN THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 10 CASE OF EAST INDIA HOTELS LTD. & ANOTHER (SUPRA). W E HAVE GONE THROUGH THE RELEVANT PORTION OF THE AGREEMENT EXTRACTED BY THE ASSESSING OFFICER AND THE LANGUAGE OF THE AGREEMENT IS PLAIN AND NO INTERPRET ATION IS REQUIRED. THE AGREEMENT REQUIRES THE FINANCE COMPANIES TO PROVIDE ACCESS TO THEIR DATA BASE TO THE ASSESSEE-COMPANY, FOR A STIPULATED CONS IDERATION. ANY WORK DEFINES CARRYING OUT ANY WORK AS PER THE SPECIFIC ATION OF THE PERSON WHO HAS GIVEN THE CONTRACT FOR WORK. BUT IN THE GIVEN C ASE, THE ASSESSEES STAFF ONLY VISIT THE PREMISES OF THE PAYEE COMPANIES AND AFTER ACCESSING THE DATA BASE, THE BUSINESS INTEREST OF THE ASSESSEE-COMPANY IS SERVED. THESE COMPANIES APART FROM PROVIDING ACCESS TO THE DATA B ASE, WHICH THEY PREPARE FOR THEMSELVES, DO NOT PROVIDE ANY OTHER INFORMATIO N OR DO NOT DO SOME OR ANY OTHER WORK FOR THE ASSESSEE-COMPANY. THEY MAKE THE DATA BASE FOR THEIR OWN USE AND THEY DO NOT PROVIDE ANY OTHER INFORMATI ON OR DO ANY OTHER WORK FOR THE ASSESSEE. THEY DO NOT MAKE THE DATA BASE TA ILOR-MADE TO THE SPECIFICATIONS OR REQUIREMENTS OF THE ASSESSEE-COMP ANY AND PAYEE COMPANIES STAFF IS ALSO NOT UTILIZED EVEN FOR COLL ECTING THE REQUISITE INFORMATION. THE FINANCE COMPANIES ARE BASICALLY EN GAGED IN HIRE PURCHASE AND FINANCING OF OLD OR NEW LORRIES. THEY MAINTAIN THE LIST OF THEIR CUSTOMERS WHO PURCHASE NEW OR OLD LORRIES UNDER LEASE OR HIRE PURCHASE AGREEMENT THROUGH THESE THREE COMPANIES. THEY ALSO MAINTAIN T HE RECORD OF THEIR DEPOSITORS, DEBENTURE HOLDERS AND PERSONS WHO HAVE OBTAINED FINANCE FROM THEM. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF AR RANGING INSURANCE FOR LORRIES TO BE PURCHASED BY THE CUSTOMERS OF THESE T HREE PAYEE COMPANIES. THE DEPOSITORS, ETC. MAY ALSO GO FOR SOME TYPE OF INSUR ANCE EITHER MEDI CLAIM OR FOR HOUSEHOLD GOODS ETC. IN CONNECTION WITH ITS INS URANCE WORK THE ASSESSEE NEEDS DETAILS SUCH AS NAME AND ADDRESS OF THE BUYER AND SELLER AND ASSET DETAILS ETC. TO ARRANGE THE INSURANCE FOR THEM AND FOR ACCESS TO SUCH DATA BASE OF THE PAYEE COMPANIES THE ASSESSEE-COMPANY MA KES THE PAYMENT. THIS EXERCISE FACILITATES THE WORK OF THE PAYEE COMPANIE S AS THEY ALSO WANT THE VEHICLES WHICH THEY ARE GOING TO FINANCE SHOULD HAV E INSURANCE COVER. NORMALLY, THE PAYEE COMPANIES ARE NOT OBLIGED TO RE NDER ANY SERVICES TO THE ASSESSEE-COMPANY. IT IS THE CASE OF THE ASSESSING O FFICER THAT PAYEE COMPANIES HAVE RENDERED SERVICES AS PART OF THEIR OBLIGATION TO THE ASSESSEE-COMPANY. THUS, ALL THE CONDITIONS OF SECTI ON 194C EXCEPT THAT THERE IS A CONTRACT/AGREEMENT BETWEEN THE PARTIES, NO OTH ER CONDITIONS ARE SATISFIED. HERE THE WORK IS TO BE CARRIED OUT AS PER THE TERMS AND CONDITIONS AND SPECIFICATION OF THE CONTRACTEE. THE COMPANIES ARE SIMPLY LETTING THE EMPLOYEES OF THE ASSESSEE-COMPANY TO USE THEIR DATA BASE PREPARED FOR THEIR OWN CONSUMPTION. SO, THE WORK IS DONE/CARRIED OUT B Y THE ASSESSEE COMPANY ITSELF WITH THE HELP OF THE DATA BASE MAINTAINED BY THE PAYEE COMPANIES. UNDER THESE CIRCUMSTANCES, ONE CAN SAFELY CONCLUDE THAT THERE CANNOT BE ANY OBLIGATION ON THE PART OF THE ASSESSEE-COMPANY TO D EDUCT TAX U/S 194C OR UNDER ANY OTHER PROVISION OF CHAPTER XVIIB WHILE MA KING THE PAYMENTS TO I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. . . . 296 296296 296/M/12 /M/12 /M/12 /M/12 11 THE PAYEE COMPANIES. HENCE, THE PROVISIONS OF SECTI ON 40(A)(IA) ARE NOT AT ALL APPLICABLE AND THE PAYMENTS CANNOT BE DISALLOWED TH EREUNDER. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE LD. CIT(A) WHO HAS TAKEN A SIMILAR VIEW. THUS, THE APPEAL OF THE REVENUE STAND S DISMISSED. 7. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUN AL, WE DELETE THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE AC T TOWARDS DATA ACCESS FEE. ACCORDINGLY, THE GROUNDS OF APPEAL OF THE REVE NUE ON THIS ISSUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT AT THE TIME OF HEARI NG ON WEDNESDAY, THE 2 ND MAY, 2012 AT CHENNAI. SD/ - SD/ - (DR. O.K. NARAYANAN) VICE - PRESIDENT (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 02.05.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.