2019 (6) TMI 1165 - HC - Income Tax

Short deduction of TDS - TDS u/s 194C OR 194J - payment of outsourcing expenses such as processing charges and business services etc. - whether nature of services received by the assessee requires certain parameters of technical / managerial skill of highly specialized competency? - HELD THAT - As decided in own case 2019 (6) TMI 547 - BOMBAY HIGH COURT CIT (Appeals) and the Tribunal examined the nature of expenditure and came to the conclusion that the assessee had hired the services for various works such as storage of data, scanning of documents, processing charges, call centre operations etc. Looking to the nature of services outsourced, it was held that the same were basically clerical services of repetitive nature of work and payments were therefore, neither for managerial nor for technical services. Having perused the documents on record and looking to the nature of services described, we do not find that the Tribunal has committed any error. The work outsourced was in the nature of clerical work Charges of the event management paid by the assessee CIT (Appeals) and the Tribunal noted that the assessee had arranged conference at Agra. The payments were essentially for domestic ticketing, reimbursing hotel expenses, tour leaders expenses. Such services were essentially in the nature of travel agent who had arranged the ticket booking and hotel facilities. The Tribunal therefore held that payments were not for any technical services availed by the assessee. - Decided against revenue.

Summary

Issues:
1. Interpretation of provisions under Section 194C and Section 194J of the Income Tax Act, 1961 regarding tax deduction on outsourcing expenses.

Analysis:
The High Court of Bombay heard an appeal by the Revenue against a judgment of the Income Tax Appellate Tribunal concerning the deduction of tax at source on outsourcing expenses. The main issue revolved around whether the payments made by the assessee for services fell under Section 194C or Section 194J of the Income Tax Act. The Court analyzed the nature of services provided by the assessee, which included storage of data, scanning of documents, processing charges, call center operations, and event management services. The Revenue contended that the payments should have been subject to tax deduction under Section 194J for managerial and technical services. However, both the CIT (Appeals) and the Tribunal concluded that the services were clerical and not managerial or technical in nature. The Court upheld this decision, stating that the outsourced work was clerical and repetitive, thus falling under Section 194C. Therefore, the Court dismissed the appeal, finding no error in the Tribunal's decision regarding the tax deduction on outsourcing expenses.

In conclusion, the judgment clarified the distinction between payments for clerical services falling under Section 194C and payments for managerial or technical services falling under Section 194J of the Income Tax Act. The Court emphasized the importance of examining the nature of services provided to determine the appropriate section for tax deduction. The decision highlighted that payments for clerical work do not qualify as payments for managerial or technical services, warranting tax deduction under Section 194C instead of Section 194J.