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2018 (2) TMI 1522 - AT - Income Tax


Issues Involved:
1. Short deduction of tax on outsourcing expenses.
2. Addition made under Section 201(1)/201(1A) for data storage expenses.
3. Classification of various payments under Section 194C versus Section 194J.
4. Liability for deduction of tax at source on payments to Viniyog Insurance Services.
5. Liability for deduction of tax at source on payments to Renaissance Insurance Services.

Detailed Analysis:

1. Short Deduction of Tax on Outsourcing Expenses:
The Revenue contended that the CIT(A) erred in deleting the short deduction in respect of payments made towards outsourcing expenses. The nature of services received by the assessee required technical/managerial skill and fell within the purview of Section 194J, not Section 194C. The assessee argued that the payments were correctly deducted under Section 194C at 2%. The AO concluded that the services were professional and required deduction under Section 194J at 10%, resulting in a tax liability of ?34,61,481 and interest of ?12,11,518.

2. Addition Made Under Section 201(1)/201(1A) for Data Storage Expenses:
The Revenue also contended that the CIT(A) erred in deleting the addition made under Section 201(1)/201(1A) for data storage expenses. Similar to the outsourcing expenses, the nature of services required technical/managerial skill and fell within the purview of Section 194J. The AO concluded that payments for online publicity, software, and hosting charges were also covered under Section 194J, resulting in a differential tax liability of ?2,73,150 and interest of ?95,603.

3. Classification of Various Payments Under Section 194C Versus Section 194J:
The assessee's cross-objection included grounds that the AO erred in not appreciating the CIT(A)'s order, which held that various payments were liable for deduction under Section 194C, not Section 194J. The services in question included telecallers, pre-risk inspection, manpower training, and online publicity services. The CIT(A) upheld the AO’s action for some services but accepted the assessee's contention for others, following the order of the Co-ordinate Bench in Reliance Life Insurance Company.

4. Liability for Deduction of Tax at Source on Payments to Viniyog Insurance Services:
The CIT(A) upheld the AO’s decision that payments to Viniyog Insurance Services for website development, maintenance, hosting, online presentation, and Exchange Server charges were liable for deduction under Section 194J. The CIT(A) observed that these services required extensive technical skills and fell within the ambit of "any managerial, technical or consultancy services" as per Explanation-2 below Section 9(1)(vii), applicable to Section 194J.

5. Liability for Deduction of Tax at Source on Payments to Renaissance Insurance Services:
The CIT(A) accepted the assessee's contention that payments to Renaissance Insurance Services for digitization of records did not require specialized skills or professional techniques and were routine, menial work. The CIT(A) followed the decision in the case of Reliance Life Insurance Company, which held that such services were basic administrative work and not technical or professional services, thus falling under Section 194C.

Conclusion:
The ITAT upheld the CIT(A)'s findings, distinguishing between services requiring technical skills (liable under Section 194J) and routine administrative services (liable under Section 194C). The appeal of the Revenue and the cross-objection of the assessee were both dismissed. The order pronounced in the open court on 19/02/2018 concluded that the detailed findings of the CIT(A) were not controverted by either party, and no reason was found to interfere with the CIT(A)'s order.

 

 

 

 

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