2016 (12) TMI 181 - AT - Income Tax

TDS u/s 194D - TDS on expenditure incurred by the assessee on its insurance agents and SBI employees - assessee in default under section 201(1) & (1A) - Held that - The foreign travel of its agents was organized for training purposes and to discuss market strategy and to understand the business at the ground level, from the details furnished in this regard. The amount incurred towards foreign travel expenditure in respect of an insurance agent does not accrue as income in the hands of such insurance agent and thus the same would be outside the ambit of Chapter XVII. As assessee has already deducted tax at source under section 194C, by no stretch of imagination the said payment can be held to be liable for deduction of tax under section 194D, in so far as it was not a payment made to agent for procuring LIC business the expenses incurred cannot be said to be in the nature of incentive or reward to the insurance agents as they had no option to choose a place for the purpose of foreign travel. The said incentive does not in any manner has an object of benefiting the individual but has been incurred on the group as a whole and also the same is not a voluntary act on the part of insurance agents; therefore, the expenditure cannot be considered as income in the hands of the individual insurance agent. Thus we do not find any merit in the action of lower authority for treating the payment made to travel agent for getting the accommodation and ticket booking for the insurance agent causing for treating and holding them liable to deduction of tax at source under section 194D of the Act. The assesse has already deducted tax at source under section 194C, accordingly there is no justification in the order of lower authorities holding the assessee in default under section 201(1) & (1A). TDS in respect of service tax component on insurance commission paid to the insurance agent - Held that - No tax is required to be deducted at source in respect of component of service tax so paid to the commission agent. TDS u/s 194C or 194J - payment made for annual maintenance contract / routine repair - Held that - No infirmity in the order of Ld. CIT(A) holding that annual maintenance charges paid by assessee was liable for deduction of tax at source under section 194C and not under section 194J of the Income Tax Act.

Summary

Issues Involved:
1. Tax Deduction at Source (TDS) on foreign travel expenses and halting charges.
2. TDS on the service tax component of insurance commission.
3. TDS on payments for annual maintenance contracts/routine repairs.

Issue-wise Detailed Analysis:

1. TDS on Foreign Travel Expenses and Halting Charges:
The assessee, engaged in life insurance, organized foreign travel for its insurance agents. The Assessing Officer (AO) deemed these expenses as income under section 194D of the Income Tax Act, requiring TDS. The CIT(A) supported this view, stating the trips were incentives rather than training. However, the Tribunal found the trips were for training and market strategy discussions, not incentives. The expenses did not constitute income for the agents, and TDS under section 194D was not applicable. The Tribunal concluded the assessee correctly deducted TDS under section 194C, thus overturning the lower authorities' decision.

2. TDS on Service Tax Component of Insurance Commission:
The AO argued that TDS should be deducted on the entire commission, including the service tax component. The CIT(A) disagreed, noting that service tax is the liability of the insurance company, not the agent, and does not constitute income for the agent. The Tribunal upheld the CIT(A)'s decision, referencing similar cases and CBDT circulars, which clarified that TDS is not required on the service tax component. The Tribunal affirmed that the service tax paid by the insurance company does not partake the character of income for the agent.

3. TDS on Payments for Annual Maintenance Contracts/Routine Repairs:
The AO held that payments for annual maintenance contracts and routine repairs were technical services under section 194J, requiring TDS. The CIT(A) found these services were routine, repetitive, and did not involve technical or professional expertise, thus falling under section 194C. The Tribunal agreed, citing a similar case where services like document management and call center operations were deemed non-technical. The Tribunal upheld the CIT(A)'s decision that TDS was correctly deducted under section 194C, not section 194J.

Conclusion:
The Tribunal allowed the assessee's appeals, finding no merit in the lower authorities' actions regarding TDS on foreign travel expenses and halting charges. It also supported the CIT(A)'s decision that no TDS was required on the service tax component of insurance commission and that TDS for annual maintenance contracts was correctly deducted under section 194C. The Revenue's appeals were dismissed, and the Tribunal's order was pronounced on 18/11/2016.