2019 (6) TMI 547 - HC - Income Tax

TDS u/s 194C OR 194J - deduction of tax at source on the payment of outsourcing expenses - as per ITAT tds is to be deducted u/s 194C instead of section 194J - HELD THAT - 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 repetative 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. No question of law arises. TDS u/s 194C or 194J - Short deduction of tds - charges of the event management expenses paid by the assessee - HELD THAT - 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 and TDS deductible u/s 194C instead of 194J . No question of law arises. Quantum on which the deduction of tax at source would be made - deductible from payment of net insurance commission to the agents after excluding the service tax component from the gross commission - HELD THAT - Tribunal referred to the CBDT circular essentially providing that the deduction of tax at source has to be made in relation to the income of the payee. The service tax component not being the part of the income liability of deducting tax on this component therefore does not arise. Special reference was made to the case of the landlord and tenant where the rent paid would require deduction of tax at source but excluding the service tax component. In the CBDT circular it has been clarified that where the service tax component is separately indicated the same would not find part of the payment inviting deduction of tax at source - No error in view of the Tribunal. In the present case the payment made to the agent was the net commission payable excluding the service tax component which in the law the assessee was required to directly deposit with the Government.

Summary

Issues:
1. Whether the ITAT was correct in holding that tax was deductible under section 194C instead of section 194J for outsourcing expenses?
2. Whether the ITAT was correct in holding that tax was deductible under section 194C instead of section 194J for data storage charges?
3. Whether the ITAT was correct in holding that tax was deductible under section 194C instead of section 194J for event management expenses?
4. Whether the ITAT was correct in holding that tax was deductible from net insurance commission instead of gross commission?

Analysis:

1. The first issue revolves around the deduction of tax for outsourcing expenses. The respondent, an Insurance Company, had deducted tax under Section 194C instead of Section 194J for payments related to storage of data, scanning of documents, processing charges, and call center operations. The Tribunal concluded that these services were clerical in nature, not managerial or technical. The High Court upheld this decision, stating that the nature of services outsourced was clerical work, and no error was found in the Tribunal's judgment.

2. The second issue concerns tax deduction for data storage charges under section 194C instead of section 194J. The Court found that the payments for data storage were also clerical in nature, not requiring technical or managerial skills. Therefore, the Tribunal's decision to uphold the deduction under section 194C was deemed correct.

3. The third issue involves tax deduction for event management expenses under section 194C instead of section 194J. The Court agreed with the Tribunal's decision that the payments made for event management services were essentially for travel arrangements and not for technical services. Therefore, no error was found in the Tribunal's judgment regarding this issue.

4. The final issue pertains to the deduction of tax from net insurance commission instead of gross commission. The Tribunal based its decision on a CBDT circular, stating that tax deduction should be made in relation to the income of the payee, excluding the service tax component. The Court agreed with this interpretation, noting that the service tax component was not part of the income and thus not subject to tax deduction. Therefore, the Tribunal's decision to deduct tax from the net commission was upheld.

In conclusion, all the appeals filed by the revenue were dismissed by the High Court, affirming the decisions of the Income Tax Appellate Tribunal on the various issues raised regarding tax deductions in the case.