IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE “A”, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA Nos.116 & 117/PN/2013 (Assessment Years : 2007-08 & 2008-09) Bajaj Allianz Life Insurance Company Limited, GE Plaza, Airport Road, Yerwada, Pune – 411 006 PAN : AADCA1701E
….
Appellant
….
Respondent
Vs. Income Tax Officer (TDS-I), Pune – 411 037.
ITA Nos.153 & 154/PN/2013 (Assessment Years : 2007-08 & 2008-09) Dy. Commissioner of Income Tax, (TDS-I), Pune.
….
Appellant
….
Respondent
Vs. Bajaj Allianz Life Insurance Company Limited, GE Plaza, Airport Road, Yerwada, Pune – 411 006 PAN : AADCA1701E Assessee by Department by
: :
Mr. Rajendra Agiwal Mr. P. L. Pathade
Date of hearing Date of pronouncement
: :
05-03-2014 21-03-2014
ORDER PER G. S. PANNU, AM The captioned two set of cross-appeals preferred by the assessee and the Revenue, pertaining to the assessment years 2007-08 and 2008-09, were heard together and are being disposed-off by way of a consolidated order for the sake of convenience and brevity.
2
2.
ITA Nos.116 & 117/PN/2013 ITA Nos.153 & 154/PN/2013
In all the appeals, the pertinent dispute relates to deduction of tax at
source in respect of certain payments made by the assessee. There is no dispute that the assessee was liable for deduction of tax at source but the only difference between the assessee and the Revenue is with respect to particular Section in Chapter XVII of the Income Tax Act, 1961 (in short “the Act”) under which tax was required to be deducted at source. In this background, we may now take-up for determination the various Grounds of Appeal raised in the respective appeals.
3.
First, we may take-up appeal of the assessee in ITA No.116/PN/2013
for assessment year 2007-08, which is directed against the order of the Commissioner of Income Tax (Appeals)-V, Pune dated 29.10.2012 which, in turn, has arisen from an order dated 28.03.2011 passed by the Assessing Officer u/s 201(1)/201(1A) of the Act.
4.
In this appeal, the first issue relates to the payments made by the
assessee to M/s TBWA Anthem Pvt. Ltd. (i.e. TBWA) for production of “Bajaj Allianz Super Agent” advertisement film in 11 languages. The said payments were subjected to tax deduction by the assessee @ 1% in terms of section 194C of the Act. As per the assessee, the said payments were in the nature of carrying out work of advertising by production of programmes for broadcasting or telecasting. The stand of the assessee was that the said payment was made to the recipient towards the cost of master production of certain advertisement films of the assessee which were broadcast/telecast on electronic media. As per the assessee, Explanation- III to section 194C of the Act specifically included ‘advertising’ and ‘production of programmes’ for broadcasting or telecasting within the definition of the expression “work”. Hence, the said payments were subjected to deduction of tax at source in terms of section 194C of the Act. The stand of the Assessing Officer as well as CIT(A) is to the effect that the nature of work carried out by TBWA involved
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rendering of technical, managerial or professional services and therefore the tax was required to be deducted in terms of section 194J of the Act @ 5%.
5.
Before us also, the rival stands have been reiterated.
As per the
appellant, Explanation- III to section 194C of the Act specifically includes ‘advertising’ within the definition of “work” and therefore section 194C of the Act was rightly applied by the assessee in order to deduct tax at source on the payments made to TBWA Anthem. The learned counsel also referred to the judgement of the Hon’ble Delhi High Court in the case of CIT vs. Prasar Bharti (Broadcasting Corpn. Of India), (2007) 292 ITR 580 (Del.) for the proposition that payments made to the Television programme producers are subjected to deduction of tax at source u/s 194C of the Act and not u/s 194J of the Act, as is being contended by the Revenue. In this connection, reliance has also been placed on the CBDT Circular No.714 dated 03.08.1995 wherein it has been clarified that entire payments made for ‘advertising’ including production of programmes for such broadcasting and telecasting to be used in advertising shall be liable for deduction of tax at source u/s 194C of the Act.
6.
On the other hand, the learned Departmental Representative has
reiterated the stand of the Assessing Officer by pointing out that the recipient is a production house which has produced an advertisement film for the assessee, which involved rendering of professional services and therefore section 194J of the Act has been rightly applied by the Assessing Officer.
7.
We have carefully considered the rival submissions.
Factually
speaking, in terms of the invoice raised by the recipient TBWA Anthem, a copy of which has been placed at page 16 of the Paper Book, assessee has made the payment towards cost of master production of advertising films in 11 languages. Clearly, assessee has incurred the expenditure for production of films, which have been used by it for the purposes of ‘advertising’. It has been
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clarified by the CBDT in its Circular No.714 (supra) that payments made for advertisement, including production of programmes for such broadcasting and telecasting to be used in such advertisement, are liable for deduction of tax at source in terms of section 194C of the Act. The aforesaid clarification of the CBDT, which is in line with Explanation III to section 194C of the Act, clearly supports the stand of the assessee regarding the applicability of section 194C of the Act to the impugned payments. Moreover, it is also clear from a perusal of the said Circular that it has been issued by CBDT to clear the reported confusion about the applicability of section 194C or section 194J of the Act in such situations. The CBDT, having regard to the scope and meaning of the term ‘advertisement’ used in section 194C(1) of the Act has opined that the impugned nature of payments would attract deduction of tax at source u/s 194C of the Act and not under section 194J of the Act, as sought to be made out by the Revenue before us. The plea of the Revenue is that the recipient is a film production house, and has, thus rendered professional services for producing the advertising firms; thus section 194J of the Act is attracted. The said plea is quite misplaced because the payments are not made to any professional artists but to an advertising agency/production house, which has produced the advertising films for the assessee. Therefore, considering the aforesaid discussion, in our view, the assessee is justified in asserting that the impugned payments are liable for deduction of tax at source u/s 194C of the Act as against section 194J of the Act contemplated by the Revenue. Hence, on this Ground assessee succeeds.
8.
The second Ground in this appeal is with regard to the deduction of tax
at source on payments of Rs.1,06,79,133/- made to M/s Valuefirst Messaging Private Limited (in short “M/s Valuefirst”) for SMS services. In brief, the facts are that assessee paid the impugned sum to the recipient M/s Valuefirst for using its services. M/s Valuefirst provided the assessee with SMS services to update its policy-holders regarding policy renewal dates, premium payment
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due dates, acknowledgement of premium payment received, etc. and certain other relevant updates.
For the aforesaid purpose, assessee utilized a
computer portal provided by M/s Valuefirst which was used to send SMS updates to the customers and this exercise was undertaken without any interface, advice or support of any personnel from M/s Valuefirst.
The
assessee stated the said payments are subjected to deduction of tax at source u/s 194C of the Act whereas the stand of the Assessing Officer was that the services rendered by M/s Valuefirst were in the nature of technical and professional services and accordingly, such payments should be subjected to deduction of tax at source u/s 194J of the Act. As per the Revenue, the involvement of human element in the services provided by M/s Valuefirst were also present and the same could not be ruled out. The CIT(A) has further observed that the agreement with M/s Valuefirst also contained clauses whereby the said concern was to impart training to the personnel of the assessee for understanding and running the SMS services and also provide professional support and therefore according to him it was a case of rendering of ‘professional services’ which fell within the purview of section 194J of the Act. Accordingly, the assessee is in further appeal before us.
9.
Before us, the learned counsel for the assessee pointed out that the
services of updating its policy-holders could have been undertaken by the assessee by sending SMSs itself but going by the quantum of SMSs required to be sent every-day, the said service was outsourced to M/s Valuefirst. Therefore, the only work that was done by M/s Valuefirst was to act as sender of the SMSs sent by the assessee to its ultimate customers and M/s Valuefirst carried the messages through its mobility platform.
The learned counsel
vehemently pointed out that M/s Valuefirst was neither the originator of the SMS and nor does it compile or draft the contents of the messages, which was being entirely done by the assessee.
Therefore, there is no technical,
managerial or professional skills provided by M/s Valuefirst so as to require
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deduction of tax at source in terms of section 194J of the Act. According to the assessee, it was in the nature of service contract and the tax has deducted accordingly in terms of section 194C of the Act.
10.
On the other hand, the learned Departmental Representative has
reiterated the points raised by the Assessing Officer/CIT(A) in order to support the case of the Revenue, which we have already noted above, and are not being repeated for the sake of brevity.
11.
We have carefully considered the rival submissions.
Factually
speaking, in the present case, it is quite evident that M/s Valuefirst is merely assisting the assessee for sending SMS messages to its customers. In-fact, even the Preamble of the agreement with M/s Valuefirst, a copy of which has been placed in the Paper Book at pages 20 to 34, describes M/s Valuefirst as a company engaged in providing mobile messaging solutions to carry data over mobile network using its mobility platform.
The content of the SMS
messages sent to the customers are developed by the assessee itself and M/s Valuefirst merely assists in sending of such messages.
To effectuate the
delivery of such messages, M/s Valuefirst provides its mobility platform. In our considered opinion, there is no technical or professional services which can be said to have been offered by M/s Valuefirst in terms of the present arrangement.
The emphasis of the CIT(A) on training provided by M/s
Valuefirst to the employees of the assessee to justify that the services involved are in the nature of professional service, is quite a misnomer. In-fact, the relevant clause of the agreement only provides that M/s Valuefirst shall train four people of the assessee company in order to understand and run the SMS services and apparently such training appears to be so elementary that the same is to be provided over a chat session on an instant messenger, over phone or in person.
Similarly, the other plea based on clause 14 of the
agreement to say that M/s Valuefirst was providing professional services is
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also wrong.
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As per the said clause, M/s Valuefirst has categorized its
maintenance services into the categories, namely, Standard Support and Professional Support.
The two services are categorized on the basis of
response time taken by M/s Valuefirst to respond to the maintenance demands by the assessee.
The Professional Support category entailed a
shorter response time from M/s Valuefirst as compared to the other category of service.
It appears that assessee opted for the Professional Support
category of service from M/s Valuefirst. It only means that the categorization of services between standard support and professional support reflects on the response time needed by M/s Valuefirst to respond to the maintenance problems and it is no reflection on the nature of services which in the present case evidently does not involve providing of any technical, managerial or professional services so as to fall within the meaning of section 194J. Therefore, in our view, assessee made no mistake in deducting the tax at source in terms of section 194C of the Act.
Thus, on this aspect also
assessee succeeds.
12.
The third and last Ground in this appeal relates to the payments made
by the assessee of Rs.2,89,94,243/- on account of Facilities Management Charges. The relevant facts in this regard are that assessee, being a large organization, outsourced certain routine administrative functions such as assets management, vendor management, etc. to a service provider. The impugned amount reflected payments to such service providers for the services provided by them. Assessee subjected such payments to deduction of tax at source u/s 194C of the Act whereas as per the Revenue, tax was required to be deducted u/s 194J of the Act, as it amounted to professional services.
13.
Before us, the learned counsel for the assessee pointed out that the
Facilities management service provider was not running any managerial,
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technical or professional services so as to fall within the purview of section 194J of the Act. The learned counsel has referred to the written submissions made before the CIT(A), which has been reproduced in the impugned order, to show the nature of services obtained from the Facilities management service provider. In terms thereof it is seen that the services have been rendered in relation to Asset Management Services; Desktop Management Services; Vendor Management; Virus Management; and, Network Management, etc.. The emphasis of the Revenue is that the said amounts are paid for complex services of asset management, desktop management, virus management etc. which requires large scale human element qualified in the respective fields and therefore it involves rendering of professional services covered by section 194J of the Act and not section 194C of the Act, as contended by the assessee.
14.
We have perused the nature of services rendered by the said service
provider in the context of the objection raised by the Revenue. Under the Asset Management Services, it inter-alia, involves obtaining initial database for respective branches of assessee, maintenance of upto date Asset Database and updating the same.
Similarly, in Desktop Management Services, the
services involved Co-ordination with vendors for installation of new desktops and laptops, conducting first level diagnosis in the case of any hardware failure and ensuring that no unauthorized software is loaded on the desktops. Similarly, Vendor Management services, included logging call with vendors after first level of analysis of the incident, maintain vendor database, follow up with the supplier, tracking of inventory items sent for repairs and follow up replacements, etc. In virus and Network Management, the services inter-alia include coordinating with the assessee’s IT Department for problem resolution, ensuring local connectivity from desktop to switch, checking for cable connection and connectivity from switch and router, etc..
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15.
ITA Nos.116 & 117/PN/2013 ITA Nos.153 & 154/PN/2013
It is quite evident from all the aforesaid services that there is hardly any
level of expertise required to render such services; and, rather they are in the nature
of
routine
administrative
assistances
required
for
day-to-day
operations. In-fact, the desktop management services envisaged under the agreement only appear to be for effecting coordination with the vendors for installation or follow up with the vendors in case of hardware failure, etc.. Therefore, the services provider by itself does not envisage providing of any technical or professional services and is merely providing administrative support functions. In our considered opinion, the aforesaid services fall within the scope of ‘work’, as understood for the purpose of section 194C of the Act and the assessee made no mistake in deducting tax at source in terms of section 194C of the Act. Thus, on this Ground also assessee succeeds.
16.
In the result, the appeal of the assessee in ITA No.116/PN/2013 for
assessment year 2007-08 is allowed.
17.
Now, we may take-up the cross-appeal of the Revenue for assessment
year 2007-08 wherein the grievance is with regard to action of the CIT(A) in holding that the provisions of section 194-I of the Act are not applicable in respect of payments made for Diesel Generator (D.G.) set hire charges.
18.
In brief, the relevant facts are as follows. Assessee had incurred D.G.
set expenses for its various offices across India, which represented composite payment for expenses on account of diesel, running and maintenance of D.G. sets, provision of labour for operating the D.G. sets and repairs/replacement in case of damage to the D.G. sets. Assessee contended that the contractor was providing composite services and the element of hire charges was merely incidental; and, accordingly it was canvassed that such payments were liable for deduction of tax at source u/s 194C of the Act. The stand of the Assessing Officer was that the payments were for hiring of D.G. sets which was liable for
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deduction of tax at source u/s 194-I of the Act and not u/s 194C of the Act. The stand of the Revenue is that section 194-I of the Act prescribes for deduction of tax at source on all rent payments made for hiring of machinery or plant or equipment. Since in the present case, the sum and substance of the agreement was hiring of D.G. sets, as per the Revenue, tax was liable to be deducted u/s 194-I of the Act and not u/s 194C of the Act, as done by the assessee.
19.
Before the CIT(A), assessee accepted the position that section 194-I of
the Act was attracted in relation to payments in the nature of ‘rent’ for use of D.G. sets, and such payments amounted to Rs.70,19,046/- out of total payment of Rs.1,66,82,034/-.
Assessee also submitted that in respect of
payments of Rs.6,38,670/-, income-tax was duly paid by the recipients and accordingly CIT(A) held that demand u/s 201(1) of the Act could not be raised again to the above extent following the judgement of the Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT (2007) 293 ITR 226 (SC) but directed the Assessing Officer to charge interest u/s 201(1A) of the Act. With regard to the balance amount, the CIT(A) noticed that payment has been made for composite contract for the services of D.G. set as the recipients were liable to provide the spare parts, diesel as well as the requisite manpower to run the D.G. sets, and accordingly he held that such payments attracted deduction of tax at source u/s 194C of the Act.
The
relevant discussion in the order of the CIT(A) contained in para 7 is as under :“I have carefully considered the facts of the case as well as reply of the appellant. From the brake-up of payment of Rs.1,66,82,034/-, it is seen that payment of Rs.70,19,046/- has been made as a rent for DG set. This position has been accepted by the appellant too in its submissions. However, the appellant has submitted that it has got confirmations from the payees in respect of payment of Rs.6,38,670/- on which Income-tax has been duly paid by the recipients. This being so, default can be said to Rs.63,80,376/- only, as in view of Hon'ble Supreme Court's Order in the case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. CIT (2007)(293 ITR 226)(SC). demand u/s. 201(1) cannot be invoked in case the recipient has made payment of tax. Therefore, as submitted by the appellant company itself, there is no default in respect of Rs.6,38,670/-on account of short deduction of TDS. The Assessing Officer is
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accordingly directed to modify the demand after verification of the appellant's claim that recipient had made payment of tax in respect of Rs.6,38,670/-. However, interest u/s. 201(1A) will be chargeable in this regard. As regards, the balance amount, it is seen that the payment has been made for composite contract for the services of DG set as the recipients were liable to provide the spare parts, diesel as well as requisite man power to run the DG sets. Therefore, the whole arrangement is in the nature of contract for which provisions of Sec. 194C are applicable. Therefore, it is held that there is default in respect of Rs.63,80,376/- only pertaining to this ground for which the Assessing Officer is directed to modify the demand. Accordingly, ground No. 2 is partly allowed.”
20.
Against the aforesaid, Revenue is in appeal before us. Before us the
dispute raised by the Revenue is only in respect of composite D.G. set hire charges wherein the CIT(A) held that such payments are covered u/s 194C and not u/s 194-I of the Act. The reason advanced by the CIT(A) is that such payments are in terms of a composite contract for supply of the D.G. sets and allied services which involved providing of diesel, spare parts, requisite manpower, etc..
On this basis, the CIT(A) has inferred that the said
contract/arrangement was for carrying out of ‘work’ within the meaning of section 194C of the Act and is not a mere rental arrangement as envisaged u/s 194-I of the Act.
We find no reason to interfere with the aforesaid
conclusion of the CIT(A) as no material has been brought by the Revenue to controvert the findings of the CIT(A). The order of the CIT(A) on this aspect is hereby affirmed. Thus, Revenue fails in its appeal.
21.
In the result, the appeal of the Revenue in ITA No. 153/PN/2013 for
assessment year 2007-08 is dismissed.
22.
It was a common point between the parties that the issues raised in the
cross-appeals of the assessee and the Revenue respectively for assessment year 2008-09 are covered by our decision in appeal of the assessee and cross-appeal of the Revenue for assessment year 2007-08 respectively as rendered in above paragraphs. Accordingly, the same shall apply mutatis-
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mutandis in the appeals of the assessee and cross-appeal of the Revenue for assessment year 2008-09 also.
23.
Resultantly, whereas the appeals of the assessee are allowed, those of
the Revenue are dismissed.
Order pronounced in the open Court on 21 st March, 2014.
Sd/(SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER
Sd/(G. S. PANNU) ACCOUNTANT MEMBER
Pune, Dated : 21 st March, 2014 Sujeet
Copy of the order is forwarded to: 1) 2) 3) 4) 5) 6)
The Assessee; The Department; The CIT(A)-V, Pune; The CIT-V, Pune; The DR “A” Bench, I.T.A.T., Pune; Guard File. By Order
//True Copy// Sr. Private Secretary I.T.A.T., Pune
