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

ITA 3010/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3489 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JITENDRA B SANGHAVI
• Assessee Lawyers: PRADEEP SINGH
• Section: 133A; 194C; 201(1); 131; 68; 15

Judgement Text

1 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 ) DCIT (TDS) - 3(2), 1012, 10 TH FLOOR, SMT. K.G. MITTAL AYURVEDIC HOSPITAL, CHARNI ROAD (W), MUMBAI - 400 002. / VS. M/S. RELIANCE LIFE INSURANCE CO. LTD., 10 TH FLOOR, R - TECH PARK, NIRLON COMPOUND, NEAR HUB MALL , GORE GAON (E), MUMBAI - 4000 63 . ./ PAN : AADCA1410E ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI JITENDRA B. SANGHAVI / RESPONDENT BY : SHRI PRADEEP SINGH, DR / DATE OF HEARING : 05.05.2016 / DATE OF PRONOUNCEMENT : 25. 05.2016 / 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. A PPEAL WISE ADJUDICATION IS GIVEN IN THE SUCCEEDING PARAGRAPHS. 2 2. FIRSTLY, WE SHALL TAKE UP THE APPEAL ITA NO.3009/M/2013, WHICH IS FILED BY THE DEPARTMENT ON 18.4.2013 AGAINST THE ORDER OF THE CIT (A) - 14, MUMBAI DATED 28.1.2013 FOR THE ASSESSMENT YEAR 200 8 - 2009. IN THIS APPEAL, DEPARTMENT RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 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 CORREC TLY 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 194 J 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 A NALOGY 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 3 CLEARLY BROUGHT OUT BY THE AO IN ORDER U/S 201(1) OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LIFE INSURANCE. A SURVEY ACTION U/S 133A OF THE ACT WAS CONDUCTED ON 20. 11.2009 AT ITS OFFICE PREMISES AND A STATE MENT OF SHRI SUNIL AGRAWAL, CHIEF FINANCIAL OFFICER (CFO) WAS RECORDED U/S 131 OF THE ACT . DURING THE COURSE OF SURVEY PROCEEDINGS AND SUBSEQUENT PROCEEDINGS U/S 201(1) OF THE ACT, AO NOTICED THAT THE PAYMENTS IN RESPECT OF OUTSOURCING EXPENSES AND DATA STORAGE CHARGES HAVE BEEN MADE AFTER DEDUCTING TDS U/S 194C OF THE ACT AND NOT UNDER THE APP LICABLE PROVISIONS OF SECTION 194J. ACCORDIN G LY , ON THIS ISSUE, AO PROPOSED TO INVOKE THE PROVISIONS OF SECTION 194J AS AGAINST THE PROVISIONS OF SECTION 194C AS APPLIED BY THE ASSESSEE BY ISSUING SHOW CAUSE NOTICE U/S 201(1) OF THE ACT ON 16.12.2009 AND 17.02.2011 AS TO THE ASSESSEE AS TO WHY THE PROVISIONS OF SECTION 194J SHOULD NOT BE APPLIED. FURTHER, AO OPINED THAT THE PAYMENTS MADE TO RELIANCE TRANSPORT AND TRAVELS PVT LTD (RTTPL) ON ACCOUNT OF EVENT MANAGEMENT EXPENSES ATTRACT THE PROVISIONS OF SEC TION 194J OF THE ACT. IT WAS ALSO NOTICED BY THE AO THAT ASSESSEE MARKETED ITS INSURANCE POLICIES THROUGH VARIOUS LICENSED AGENTS AND TDS U/S 194D OF THE ACT WAS DEDUCTED ON THE NET AMOUNT OF INSURANCE COMMISSION WHICH WAS ARRIVED AT AFTER EXCLUDING THE SERVICE TAX COMPONENT INCLUDED THEREIN . IN THIS REGARD ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ASSESSEE HAS NOT DEDUCTED THE TDS ON THE GROSS AMOUNT OF INSURANCE 4 COMMISSION, WHICH IS THE REQUIREMENT OF SECTION 194D OF THE ACT. IN THIS REGARD, AFT ER 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 AG ENTS( 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. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) ALLOWED THE ASSESSEES APPEAL ON THE ISSUES OF (I) TDS ON OUTSOURCING EXPENSES (PARAS 5 AND ITS SUB - PARAS OF THE CIT (A)S ORDER ARE RELEVANT); (II) TDS ON DATA STORAGE CHARGES (PARAS 6 AND ITS SUB - PARAS OF THE CIT (A)S ORDER ARE RELEVANT); (III) EVENT MANAGEMENT EXPENSES (PARAS 7 AND ITS SUB - PARAS OF THE CIT (A)S ORDER ARE RELEVANT); (IV) TDS ON SERVICE TAX ELEMENT IN RESPECT OF THE INSURANCE COMMISSION (PARAS 8 AND ITS SUB - PARAS OF THE CIT (A)S ORDER ARE RELEVANT). AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5. GROUND NO.1 RELATES TO WHETHER THE DATA STORAGE CHARGES ATTRACTS THE TDS PROVISIONS U/S 194C, AS A PPLIED BY THE ASSESSEE, OR THE TDS PROVISIONS 5 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 AS SESSEE INCLUDE D THE PAYMENT FOR DATA SORTING; DATA STORAGE, WHICH MAY INCLUDE SCANNING AND STORING OF DATA IN A SPECIAL MANNER AND THE SAME REQUIRE D 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. ` 6. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS SUBMITTED THAT THE ASSESSEE ENTERED INTO CONT R ACT WITH VARIOUS PARTIES FOR OUTSOURCING THE VARIOUS SERVICES, WHICH INCLUDE D DATA STORAGE / SORTING, DOCUMENT SCANNING ETC, AND THE EXPENSES / PAYMENTS MADE TO SUCH PARTIES WERE IN NATURE OF WORK CONTRACT. HE FURTHER SUBMITTED THAT THERE WAS NO TECHNICAL SKILL / KNOWLEDGE INVOLVED IN RENDERING THOSE SERVICES AND THEREFORE, S UCH PAYMENT D ID NOT FALL UNDER SECTION 194J BUT U/S 194C OF THE ACT. FURTHER, ASSESSEE ALSO EXPLAINED EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT TO SUPPORT THAT THE PAYMENT WOULD NOT PARTAKE THE CHARACTER OF FEES FOR TECHNICAL / MANAGERIAL SERVICES. A SSESSEE ALSO RELIED ON THE DECISION OF ITAT, 6 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 C OULD NOT B E 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 TH E 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 TE CHNICAL 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 TECHNICA L 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 ENTER ED 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 7 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 BUS INESS 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 TH E 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 AC CORDINGLY 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 T HE ASSESSEE ON ACCOUNT OF DATA S T O R AGE CHARGES , PROCESSING CHARGES, CALL CENTRE OPERATION AND BUSINESS SERVICES W HICH INCLUDED SORTING OF INWARD OUTWARD DATA , STORAGE OF RECORDS AND SCANNING IN A SPECIAL MANNER SO THAT DATA COULD BE RETRIEVED WHEN REQUIRE D 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 MANAGE RIAL 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 8 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. 8. PER CONTRA LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE DECISION OF THE CIT (A) AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE SERVICES OUTSOURCED AND PAID FOR BY THE ASSESSEE INCLUDED PROCESSING CHARGES , CALL CENTRE OPERATIONS , DATA SORTING, DOCUMENT SCANNING , STORAGE OF DATA AND OTHER BUSINESS SERVICES ETC FOR WHICH CONTRACTS WERE ENTERED INTO WITH THE VARIOUS PARTIES FOR CARRYING OUT AND RENDERING THESE SERVICES WHICH IN NO WAY COULD BE TERMED AS TECHNICAL SERVICES AND WERE SIMPLY OF THE NATURE OF WORK CONTRACT. THE LD AUTHORISED REPRESENTATIVE ,WHILE REFERRING TO THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT EXPLANA TION 2 OF THE ACT , SUBMITTED THAT THE TECHNICAL SERVICES INCLUDED MANAGERIAL , TECHNICAL AND CONSULTANCY SERVICES AND THUS THE SERVICES AS RENDERED TO THE ASSESSEE SUCH AS DATA STORAGE, SCANNING AND SORTING COULD NOT BE TERMED AS TECHNICAL AND MANAGERIAL SERVICES AS NO SPECIALISED QUALIFICATION OR TECHNICAL SKILL INVOLVED. FINALLY THE LD COUNSEL ARGUED THAT THE SERVICES AVAILED BY THE ASSESSEE WERE INVOLVING MACHINES AND MATERIALS WITH SOME STAFF REQUIRING NO TECHNICAL OR PROFESSIONAL QUALIFICATION. THE SE WERE SIMPLY IN THE NATURE OF WORK CONTRACT AND THE ASSESSEE RIGHTLY APPLIED DEDUCTED THE TDS AS PER THE PROVISIONS OF SECTION 194C OF THE ACT AND SINCE THE ORDER PASSED BY THE CIT(A) DID NOT SUFFER FROM ANY INFIRMITY LEGAL OR OTHERWISE AND THEREFORE BE UPHELD. 9 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 STO R AGE OF DATA, SCANNING AND SORTING OF DOCUMENTS , PROCESSING CHARG ES, CALL CENTRE OPERATION S AND BUSINESS SERVICES BESIDES OTHER BASIC WORKS CONNECTED AND INCIDENTAL THEREWITH WHICH WERE OU T SOURCED BY THE ASSESSEE TO OUTSIDE AGENCIES ON CONTRACTUAL BASIS. THE VARIOUS SERVICES OUTSOURCED WERE CASH & BANK RECONCILIATION, C OMMISSION 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, CA LL 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 INVO LV ING NO TECHNICAL OR PROFESSIONAL QUALIFICATION WHEREAS THE AO CAME TO THE CONCLUSION THAT THESE ARE TECHNICA L 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 HAVIN G EXAMINED 10 AND PERUSED AGREEMENT S 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 REPE TITIVE 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 CONTRACTE D 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. 10. 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 INCLUDE S TICKETING , HOTEL ACCOMMODATION AND TOUR LEADER PROFESSIONALS ETC. ACCORDINGLY ASSESSEE WAS ASKED TO SHOW - CAUSE AS TO 11 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 T HE 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 EVEN T 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 I N APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 11. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE SUBMITTED THAT THE AMOUNT OF RS. 1,69,08,818/ - WAS PAID TO THE RTTPL WITH REGARD TO A CONFERENCE AT AGRA. ASSESSEE FURTHER SUBMITTED THAT THE AMOUNT PAID TO RTTPL IS TOWARDS DOMEST IC TICKETING (RS. 90,23,695/ - ) ; REIMBURSEMENT OF HOTEL EXPENSES (RS. 77,65,123/ - ) AND TOUR LEADER EXPENSES (RS. 1,20,000/ - ) TOTALLING TO RS. 1,69,08,818/ - . THE SERVICES WERE IN THE NATURE OF SERVICES OF TRAVEL AGENTS, WHO ARRANGED THE TICKETING, BOOKING O F THE HOTEL AND PROVIDING A TOUR LEADER TO PROVIDE PROPER ARRANGEMENTS AT THE SAID CONFERENCE. THEREFORE, IT IS THE CONTENTION OF THE ASSESSEE BEFORE THE CIT (A) THAT THE 12 PAYMENTS MADE TO THE RTTPL C OULD NOT CONSTITUTE FEES FOR TECHNICAL SERVICES AND TH EREFORE, THE PROVISIONS OF SECTION 194J WERE NOT APPLICABLE. REGARDING THE REIMBURSEMENT OF EXPENSES, ASSESSEE RELIED ON A NUMBER OF DECISIONS. THUS, IT WAS CONTEN D ED BEFORE THE CIT (A) THAT SINCE, NO MANAGERIAL SERVICES WERE PROVIDED BY THE RTTPL, THERE FORE, THE PAYMENT MADE TO THEM WAS NOT LIABLE TO TDS U/S 194J OF THE ACT AND THE ASSESSEE WAS WRONGLY TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT. AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, CIT (A) GRANTED RELIEF BY OBSERVING A ND HOLING VIDE PARAS 7.8 TO 7.11 OF HIS ORDER AS UNDER: - 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 N OT 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 EVEN T, 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? 13 ANSWER: THE PAYM ENTS 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 T HE 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 PAYM ENTS 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 T O BE MADE WHEN PAYMENT IS MADE FOR SERVING FOOD IN A RESTAURANT IN THE NORMAL COURSE OF RUNNING OF THE RESTAURANT/ CAF E. 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 THE SE 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 C ANNOT 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, C ATERING ETC TO THE TECHNICAL SKILLS. NEITHER ANY TECHNICAL KNOWLEDGE OR TRAINING HAS BEEN PROVIDED TO THE PE RSONNEL WHO PARTICIPATED IN THE CONFERENCE. HENCE, IN MY 14 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 MANA GEMENT AND THEREFORE THE PROVISIONS OF SECTION 194J OF THE ACT WERE RIGHTLY INVOKED BY THE AO AS IT INVOLVED HIGH LEVE L O S KILLS AND PROFESSIONALISM AND PRAYED THAT THE ORDER OF AO BE RESTORED BY SETTING ASIDE THE ORDER OF FAA. 13. PER CONTRA, D URING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES. THE LD AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THERE SER VICES PROVIDED CONSISTED OF TICKETING, HOTEL BOOKING AND TEAM LEADERS AND THUS IT WAS SIMPLE CONTRACTUAL SERVICES INVOLVING NO TECHNICAL OR PROFESSIONAL SKILLS. THE LD COUNSEL FOR THE ASSESSEE THAT THE TOTAL PAYMENT TO RTTPL INCLUDED RS. 90,23,695/ - FOR DO MESTIC TICKETING, RS.77,65,123/ - FOR HOTEL RE - IMBURSEMENT AND RS. 1,20,000/ - FOR TOUR LEADERS EXPENSES WHICH IN NO MANNER OR BY ANY STRETCH OF REASONING CAN BE TERMED AS CONSULTANCY OR TECHNICAL OR PROFESSIONAL SERVICES AND THE PROVISIONS OF SECTION 194J W ERE WRONGLY APPLIED BY THE AO BY TREATING THE ASSESSEE IN DEFAULT U/S 201 BUT 15 DID NOT RAISE ANY DEMAND ON THIS ISSUE . TO SUPPORT HIS ARGUMENTS , THE LD COUNSEL CITED VARIOUS DECISIONS WHEREIN IT HAS BEEN HELD THAT RE - IMBURSEMENT OF EXPENSES ARE NOT LIABLE TO TDS. THE PAYMENT TO RTTPL WAS JUST RE - IMBURSEMENT OF EXPENSES. FINALLY THE LD COUNSEL FOR THE ASSESSEE PRAYED THE SERVICES RENDERED BY THE RTTPL WERE PURELY OF CONTRACTUAL NATURE AND WERE LIABLE TO TDS U/S 194C OF THE ACT AND THEREFORE THE ORDER OF FAA BE UPHELD. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. THE ASSESSEE HAS PAID RS. 1,69,08,818/ - TO M /S RELIANCE TRANSPORT AND TRAVEL PVT LTD AS R EIMBURSEMENT EXPENSES AND TOUR LEADER EXPENSES. THESE REIMBURSEMENTS WERE MADE BY THE ASSESSEE TO THE SAID COMPANY FOR ARRANGING TICKETS, HOTEL BOOKINGS AND PROVIDING LEADERS TO SEE THE ARRANGEMENT AT AGRA. AS IS SEEN FROM THE NATURE OF SERVICES AVAILED , WE DO NOT FIND ANY SORT OF PROFESSIONAL OR TECHNICAL OR CONSULTANCY BUT RATHER ROUTINE SERVICES WHICH ARE PROVIDED BY THE TRAVEL AGENTS IN THE NORMAL COURSE OF BUSINESS WHICH WERE PURELY OF CONTRACTUAL NATURE . IT CAN BE SEEN FROM NATURE OF REIMBURSEMENT FOR THE SERVICES AVAILED THAT THESE ARE IN THE NATURE OF SIMPLE CONTRACTUAL CASE WHERE ONLY THE PROVISIONS OF 194C COULD BE APPLIED TO DEDUCT AND DEPOSIT TDS AND NOT 194J WHICH DEALS WITH THE DEDUCTION AND DEPOSIT OF TDS IN CASE OF TECHNICAL, PROFESSIONAL AND CONSULTANCY SERVICES. LOOKING TO THE FACTS IN THE LIGHT OF PROVISIONS OF 16 SECTION 194C VIS A VIS 194J WE FIND THAT THE ORDER OF FAA IS CORRECT AND NEEDS TO BE UPHELD. ACCORDINGLY WE DISMISS THE GROUND AS RAISED BY THE REVENUE. 15. GROUND NOS.3 AND 4 RELATE TO APPLICABILITY OF TDS PROVISIONS U/S 194D OF THE ACT ON SERVICE TAX ELEMENT IN RESPECT OF INSURANCE COMMISSION. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LIFE INSURANCE AND MARKETS ITS PROD UCTS THROUGH INSURANCE AGENTS AS WELL AS ITS OWN DIRECT SALES FORCE. DURING THE COURSE OF SURVEY, AO NOTICED THAT WHILE MAKING PAYMENT OF INSURANCE COMMISSION IN CASE OF LICENSED AGENTS, THE ASSESSEE DEDUCTED TDS ON THE NET AMOUNT OF INSURANCE COMMISSIO N ARRIVED AT AFTER EXCLUDING SERVICE TAX COMPONENT AMOUNTING TO RS. 23,54,72,978/ - FOR THE PRESENT ASSESSMENT YEAR. AO OPINED THAT TDS IS REQUIRED TO BE DEDUCTED ON THE GROSS INSURANCE COMMISSION INCLUDING SERVICE TAX COMPONENT AS REQUIRED BY SECTION 19 4D OF THE ACT. IN THIS REGARD, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO C A ME TO THE CONCLUSION THAT AS PER THE PROVISIONS OF 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 INSURANCE BUSINESS, SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF PAYEE SHALL DEDUCT INCOME TAX THEREON. SINCE, THE ASSESSEE WHILE DISCHARGING THE LIABILITY ON BEHALF OF THE SERVICE AGENTS EXCLUDED THE SERVICE TAX COMPONENT FOR THE PURPOSE OF TDS, 17 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 MATT ER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 16. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE SUBMITTED THAT CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE I . E LIFE INSURANCE BUSINESS, ASSESSEE SELLS ITS PRODUCTS / POLICIES THROUGH A WIDE NETWORK OF AGENTS AND BROKERS. ASSESSEE MAKES PAYMENTS TO THE SAID AGENTS / BROKERS FOR RENDERING THEIR SERVICES. IT IS THE SUBMISSION OF THE ASSESSEE THAT AS PER THE PROVIS IONS OF SECTION 194D, THE TDS IS DEDUCTED ON THE AMOUNT OF COMMISSION PA ID OR PAYABLE TO AGENTS, EXCLUDING THE SERVICE TAX WHICH IS AS PER THE SERVICE TAX REGULATIONS (FINANCE ACT, 1994). HE ALSO DISCUSSED THE PROVISIONS OF SECTION 68 OF THE SERVICE TAX ACT, WHICH DEALS WITH THE LIABILITY OF A PERSON TO PAY SERVICE TAX TO THE GOVERNMENT TREASURY. AS PER SECTION 68(1) OF THE SERVICE TAX ACT, ANY PERSON, PROVIDING TAXABLE SERVICES TO ANY PERSON, SHALL PAY SERVICE TAX AT THE PRESCRIBED RATE, IN SUCH MANNER AND WITHIN SUCH PERIOD AS MAY BE PRESCRIBED. SECTION 68(2) OF THE SERVICE TAX ACT PRESCRIBES THAT THE CENTRAL GOVERNMENT MAY NOTIFY PERSONS OTHER THAN THE SERVICE PROVIDER AS THE PERSON LIABLE TO PAY SERVICE TAX AND NOTIFICATION NO.36/2004 - ST, DATED 31.12 .2004 IS RELEVANT IN THIS REGARD. AS PER THE SAID NOTIFICATION, IN CASE OF SERVICES IN RELATION TO INSURANCE AUXILIARY SERVICES BY AN INSURANCE AGENT, THE PERSON LIABLE FOR PAYING SERVICE TAX IS GENERAL INSURANCE 18 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 AN D THE LIFE INSURANCE COMPANY, WHO APPOINTS SUCH AGENTS, IS LIABLE FOR PAYING THE SERVICE TAX AND THEREFORE, THE AMOUNT OF SERVICE TAX I S NOT THE INCOME IN THE HANDS OF THE INSURANCE AGENTS. THEREFORE, THE PROVISIONS OF SECTION 194D OF THE ACT DO NOT APP LY 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 TH AT 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 AMO UNT RECEIVED BY THE RECIPIENT SHALL FALLS WITHIN THE AMBIT OF THE 19 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 TH E 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 WHI CH IS NEITHER RECEIVED NOR ACCRUED O R NO R 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 SEC TION 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 20 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 I SSUE AT LENGTH AND GRA N TED 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 APPELLAN T 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 SER VICE 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 T HE 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 MENTIO NING THE AMOUNT OF SERVICE TAX NOR IS IT THEIR OBLIGATION TO PAY SERVICE TAX TO THE GOVERNMENT TREASURY. ACCORDINGLY, THE SAID SERVICE 21 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. 18. THE LD DR SUBMITTED BEFORE US THAT THE SERVICE TAX IS PART OF THE INSURANCE COMMISSION PAID TO THE AGENTS AND THEREFORE LIABLE FOR D EDUCTION OF TDS U/S 194D OF THE ACT WHEREAS THE ASSESSEE WHILE DEDUCTING THE TDS EXCLUDED THE SERVICE TAX COMPONENT COMMISSION PAID TO AGENTS WHICH HAS RESULTED IN SHORT DEDUCTION. HE THEREFORE STRONGLY RELIED ON THE ORDER OF AO AND PRAYED FOR RESTORING THE SAME. 19. ON THE OTHER HAND THE LD AR OF THE ASSESSEE SUBMITTED BEFORE US THAT IN THE BUSINESS OF THE ASSESSEE THE COMMISSION ARE PAID TO THE AGENTS FOR SOLICITING INSURANCE BUSINESS AND ARE PAID COMMISSION IN QUID PRO QUO.THE SAID COMMISSION IS ALSO SUBJECT TO SERVICE TAX. THE TDS IS ONLY DEDUCTED ON THE NET COMMISSION BY EXCLUDING THE SERVICE TAX COMPONENT WHICH IS AS PER THE SCHEME OF SERVICE TAX REGULATION S . THE LD AR SUBMITTED THAT THE INSURANCE AGENTS ARE NOT LIABLE TO PAY THE SERVICE TAX ON THE COMMISSIONS EARNED/RECEIVED BY THEM BUT PAID BY THE INSURANCE COMPANY PAYING THE COMMISSION UNDER REVERSE CHARGE MECHANISM. SIMILARLY THE APPELLANT IS ALSO LIAB LE LEGALLY AND CONTRACTUALLY TO DEPOSIT SERVICE TAX ON BEHALF OF THE AGENTS TO WHOM THE COMMISSION WAS PAID AS PER THE RELEVANT REGULATION OF THE FINANCE ACT 1994.SECTION 68 OF THE SERVICE TAX ACT DEALS WITH THE LIABILITY OF THE PERSON PAYING COMMISSION TO DEPOSIT SERVICE TAX INTO THE GOVT TREASURY. 22 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 THA T 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 TA X PAID BY THE TENANT DOES NOT PARTAKE THE CHARACTER OF INCO ME 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. 23 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 P OLICIES 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 F ORCE : 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 TH EREON 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 DOESNT PARTAKE THE NATURE OF 'INCOME' OF THE LANDLORD. THE LANDLORD ONLY ACTS AS A COLLECTING AGENCY 24 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 AFR ESH. 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 INDICA TED 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 HONBLE 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 25 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 APPE ALS AS WELL. OUR FINDINGS ON GROUND NO 1 IN ITA NO 3009/M/2013 WOULD APPLY TO GROUND NO . 1 & 2 IN ITA 30 10 /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 SD ( SAKTIJIT DEY ) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 25TH MAY, 2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI