Sections 194, 194D and 194J of ITA, 1961 – TDS – Works contract or professional services – Outsourcing expenses – Services clerical in nature – Not technical or managerial services – Tax deductible u/s 194C and not u/s 194J TDS – Insurance business – Insurance agent’s commission – Service tax – Quantum of amount on which income-tax to be deducted – Tax deductible on net commission excluding service tax

38.  CIT vs. Reliance Co. Ltd.; 414 ITR 551 (Bom.)

Date of order: 10^th
June, 2019

A.Y.: 2009-10

Sections 194, 194D and 194J of ITA,
1961 – TDS – Works contract or professional services – Outsourcing expenses –
Services clerical in nature – Not technical or managerial services – Tax
deductible u/s 194C and not u/s 194J

TDS – Insurance business –
Insurance agent’s commission – Service tax – Quantum of amount on which
income-tax to be deducted – Tax deductible on net commission excluding service
tax

The assessee,
an insurance company, deducted tax at source u/s 194C of the Income-tax Act,
1961 on payment of outsourcing expenses. The Department held that the tax ought
to have been deducted u/s 194J on the ground that the payments were for
managerial and technical services. The assessee deducted the tax at source on
the agent’s commission excluding the service tax component, which it directly
deposited with the Government. The Department contended that the service tax
component ought to have been part of the amount on which tax was required to be
deducted at source.

The
Commissioner (Appeals) and the Tribunal found that the services outsourced were
clerical in nature and that the payments made by the assessee were neither for
managerial services nor for technical services and that the charges for event
management paid by the assessee were for services in the nature of travel agent
and allowed the assessee’s claim. The Tribunal referred to the Circular of the
CBDT wherein it was provided that the deduction of tax at source was to be made
in relation to the income of the payee and held that tax was deductible on the
net insurance commission of the agent after excluding the service tax component
from the gross commission.

On appeal by
the Revenue, the Bombay High Court upheld the decision of the Tribunal and held
as under:

“(i)   The work outsourced by the assessee was in
the nature of clerical work. The Tribunal was justified in holding that the tax
at source was deductible u/s 194C and not u/s 194J.