2018 (12) TMI 107 - AT - Income Tax

Tax Tribunal Rules No Tax Deduction on Service Tax Component

The Tribunal upheld the CIT(A)'s decisions in a tax dispute case. It ruled that no tax deduction is required on the service tax component under section ... Short deduction under section 194D - 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 - Held that:- As decided in the case of assessee itself [2016 (12) TMI 181 - ITAT MUMBAI] the amount of service tax on the insurance commission to life insurance agents is the liability of the appellant and the same cannot be considered as income in the hands of the agents. Hence, no tax is required to be deducted at source under Section 194D of the Act, on the service tax component. Accordingly, the demand of tax of ₹ 6,45,82,054/- (as rectified by the AO) u/s 201 (1) of the Act on account of non-deduction of tax at source u/s 194D of the Act on service tax component of the Insurance commission paid to/ credited in the name of Insurance agents is hereby directed to be deleted. TDS u/s 194C or 194J - nature of services received by the assessee by incurring outsourcing fee operation and record storage expenses as data sorting, scanning, retrieving of records, which requires certain parameters of technical/managerial skill and falls within the purview of section 194J or 194C - Held that:- As following the decision of coordinate bench on the similar facts we do not find any 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 TDS on payments of annual maintenance contract/routine repair - tds u/s 194J or 194C - Held that:- Assessing Officer while framing the order under section 201(1) of the Act held that the assessee is liable to deduct tax at source on payments of annual maintenance contract/routine repair under section 194J as the same was in the nature of technical services and thus, assessee wrongly deducted tax at source under section 194C whereas the learned CIT(A) followed the order of the Tribunal and also the decision in the case of RELIANCE LIFE INSURANCE CO. LTD. [2016 (5) TMI 1254 - ITAT MUMBAI]as deliberated upon by the Tribunal. No contrary decision was brought to our notice. Thus, following the decision of the co-ordinate Bench, we affirm the stand of the learned CIT(A), resulting into the dismissal of the appeal of the Revenue. So far as ground no.5 is concerned, it is general in nature requires no deliberation from our side. - Decided against revenue Issues Involved:1. Short deduction under section 194D of the Income Tax Act, 1961.2. Nature of services for outsourcing fee operation and record storage expenses under section 194J vs. section 194C.3. Nature of services for software/hardware maintenance charges under section 194J vs. section 194C.Detailed Analysis:1. Short Deduction under Section 194D of the Income Tax Act, 1961:The Revenue challenged the deletion of short deduction under section 194D, arguing 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. The Tribunal noted that this issue was previously deliberated upon in the assessee's case for various assessment years. The Tribunal upheld the CIT(A)'s decision, which stated that no tax is required to be deducted at source on the service tax component of the commission paid to insurance agents. The CIT(A) reasoned that the service tax is a liability of the insurance company and not the agent, and thus cannot be considered as income in the hands of the agents. This position was supported by CBDT Circular No. 4/2008, which clarified that service tax does not partake the character of income and hence TDS is not required on the service tax component. The Tribunal found no infirmity in the CIT(A)'s conclusion and dismissed the Revenue's ground.2. Nature of Services for Outsourcing Fee Operation and Record Storage Expenses under Section 194J vs. Section 194C:The Revenue contended that the services received by the assessee for outsourcing fee operation and record storage expenses required technical/managerial skill and should fall under section 194J instead of section 194C. The Tribunal referred to its previous order, which held that the services outsourced by the assessee, such as sorting, scanning, and retrieving records, did not involve high technical or professional qualification. These services were repetitive and clerical in nature, falling under the purview of section 194C. The CIT(A) had observed that these services did not constitute managerial, technical, or consultancy services as defined under section 9(1)(vii) of the Act. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee correctly deducted tax at source under section 194C, and dismissed the Revenue's appeal on this ground.3. Nature of Services for Software/Hardware Maintenance Charges under Section 194J vs. Section 194C:The Revenue argued that the payment for software/hardware maintenance charges required highly specialized technical competency and should fall under section 194J instead of section 194C. The Tribunal noted that the CIT(A) had followed the Tribunal's previous decision, which held that annual maintenance contracts and routine repairs did not involve technical services requiring special skills. These services were considered basic and repetitive in nature, thus falling under section 194C. The Tribunal found that the CIT(A) correctly held that the assessee deducted tax at source under section 194C for these payments. The Tribunal affirmed the CIT(A)'s decision and dismissed the Revenue's appeal on this ground as well.Conclusion:The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions that no tax is required to be deducted at source on the service tax component under section 194D, and that the services for outsourcing fee operation, record storage expenses, and software/hardware maintenance charges fall under section 194C and not section 194J.