TaxTMI 
TaxTMI 
2008 (2) TMI 515
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appreciated that no TDS was required to make in respect of reimbursement of exps. 2. The brief facts relating to these grounds are that the assessee-bank is a Public Sector Bank engaged in the business of banking activities/services in Surat. The Assessing Officer during the course of verification of the TDS return noted that the assessee-bank made payments/credited the following sums for the respective assessment years towards MICR charges such as MICR processing, service tax, floppy charges, etc., to MICR Centre managed by the State Bank of India (SBI) in Surat: 2003-04 Rs. 9,63,820 2004-05 Rs. 10,63,515 2005-06 Rs. 13,02,642 2006-07 Rs. 18,49,791 3. In the opinion of the Assessing Officer, the bank had not deducted any tax in respect of these services which fall under section 194J. Before the Assessing Officer, the assessee submitted as under: "We particularly wish to inform you that SBI, Surat directly debits our current account with them and recovers the charges directly, instead of our making the payment. So SBI has not deducted and remitted TDS to you while recoverin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntre with respect to the receipts from the member banks and with respect to the expenses incurred by it. The State Bank of India vide letter dated 17-2-2007, 16-2-2007 and 6-3-2007 stated as under: "(2) We are collecting MICR Charges as directed by RBI and other maintaining charges which include reimbursement of expenses under Regulation 19(URRBCH). We have informed all the member banks to deduct tax on such MICR charges. We are reimbursed the amount from member of clearing house towards expenses incurred by us for maintaining the house. We are recovering the amount on quarterly basis from member bank...." "(3) All the revenue expenses are debited to different charges/P&L A/c for maintaining service branch, MICR centre and clearing house, expenses like salary and allowances, rent for the premises used for house, electricity bill, telephone bill, P&T charges, transportation charges, computer related items and other charges etc. All the income received from member bank is credited to charges/P&L A/c of service branch." "(4) All the expenditure incurred for conducting the house as mentioned above reimbursed from member bank on quarterly basis. Actual expenses are being recovered fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. If there is surplus in charges account, it is transferred to our Local Head Office (LHO) at monthly intervals. At the LHO, this amount is credited to Commission - C&I Account. The balance in this account is transferred to the Bank's P&L account, which is maintained by the corporate centre, Mumbai. The surplus or deficit in the P&L account is offered for taxation after complying with various statutory provisions." The CIT(A) confirmed the action of the Assessing Officer that the services rendered by the SBI is covered under section 194J in the following manner: "4.1 I have considered the submissions made by the appellant and observation of the Assessing Officer. During the appellate proceedings the appellant has tried to say that the MICR Centre is a mutual concern of member banks and hence as per the decision of Hon'ble Gujarat High Court in the case of Sports Club of Gujarat Ltd. and Adarsh Co-operative Housing Society Ltd., MICR Centre being a mutual concern is not liable for tax and, hence, the assessee bank was not liable to deduct TDS under section 194J. I do not agree with this contention because the State Bank of India has not been treating the MICR Centre as a mutual c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tting up the cheques processing centre for sorting/listing of cheques drawee bank/branch-wise, preparing the batch-wise adjustments etc. which the member banks presently were doing in-house in the mechanized system would be entrusted by the member banks to one bank among themselves. The accounting of the settlement however will be the responsibility of the clearing house manager who will, apart from arising the debits/credits in the accounts of various member banks held in his bank, also look after the overall functioning of the clearing house and monitoring of its operations including admission of new members, the discipline relating to return of unpaid cheques, etc. 4.3 From the above it is clear that the MICR Centre manages and controls all the stage of processing of cheques from the procurement of paper to printing of the code line on cheque forms till the completion of clearing of cheques. The MICR Centre manages all the functioning like accounting of the settlement, watch on the position of debits/credits in the accounts of various member banks and also looks after the overall functioning of the clearing house and monitoring its operations on behalf of the member bank branch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the apparatus and cheques get processed for clearing. The State Bank of India has not to render any services which may be regarded to be the technical services. 6. The learned DR, on the other hand, pointed out that the provisions of section 194J are clearly applicable in the case of the assessee. TDS is required to be deducted on payment of fees for technical services as per the provisions of section 194J of the Act. The fee for technical services is not defined in section 194J of the Act. Explanation (b) in that section states that the expression "technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. He relied on the order of the CIT(A) and pointed out that MICR Centre manages and controls all stages of processing of the cheques from the procurement of paper to printing of the code line on cheque forms till the completion of clearing of cheques. The various functions are being managed by the State Bank of India for which they charge from the various bankers. Even State Bank of India has also directed various bankers to deduct TDS. Referring to the decisions relied upon by the learned AR, it was pointed out that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly." This is an undisputed fact that the MICR Clearing Stations have special machines to read the code on every cheque. These machines, though being inexpensive, are made with a special technology to read and identify the cheques and fees are being charged by SBI for the said facility unable of being rendered by any other person. The term "fees for technical services" as defined in section 9(1) reads as under: "For the purposes of this section, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'." The definition of "fees for technical services" is very wide. It, in our opinion, covers within its ambit any managerial, technical or consultancy services rendered by a perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. At the time the Income-tax Act was enacted in the year 1961, as also at the time when Explanation 2 to section 9(1)(vii) was introduced by the Finance (No. 2) Act, with effect from April 1, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Section 194J, as also Explanation 2 in section 9(1)(vii) of the Act were not intended to cover the charges paid by the average householder or consumer for utilising the products of modern technology, such as, use of the telephone fixed or mobile, the cable TV., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and ....