TDS Under section 194C deductible on Payment of outsourcing expenses.

TDS Under Section 194C Deductible On Payment On Outsourcing Expenses

Where assessee had hired the services for various works such as storage of data, scanning of documents, processing charges, call center operations, etc. and the same were basically clerical services of repetitive nature of work, therefore, work outsourced was in the nature of clerical work and was rightly deducted under section 194C.

Any person, other than an individual or HUF, responsible for making payment to a resident contractor or sub-contractor for carrying out any work (including the supply of labor) is liable to deduct tax at source under Section 194C.

However, an Individual or HUF who is liable to tax audit during the financial year immediately preceding the financial year in which such sum is credited or paid shall deduct tax under section 194C. 

CIT Vs M/s. Reliance Life Insurance Co. Ltd. (Bombay High Court)

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 and TDS was rightly deducted under section 194C.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT-

      1. These three appeals filed by the revenue arising out of the common judgment of Income Tax Appellate Tribunal. For convenience, we may record facts from Income Tax Appeal No.604 of 2017.

Revenue has presented the following questions for our consideration:-

1. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that tax was deductible from payment of outsourcing expenses such as processing charges, call centre operations and business services, payment of data storage charges under the head outsourcing expenses and payment of event management expenses to Reliance Transport and Travel Pvt. Ltd. under section 194C instead of section 194J of the Act without appreciating that the nature of services received by the assessee requires certain parameters of technical/managerial skill of highly specialized competency and falls within the purview of section 194J of the Act and not 194C of the Act ?
2. Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that tax was deductible from payment of net insurance commission to the agents, after excluding the service tax component from the gross commission, instead of holding that tax was deductible from the gross insurance commission including the service tax component?”

   2. Question Nos.1 relates to the requirement of deduction of tax at source by the respondent whether the same was correctly deducted. 

    3. Respondent–assessee is an Insurance Company. Question Nos.1 pertains to a deduction of tax at source on the payment of outsourcing expenses. The assessee had deducted tax under Section 194C of the Act. The revenue argues that the same ought to have been under Section 194J of the Act since payments were for managerial and technical services.

    4. The work outsourced was in the nature of clerical work. No question of law arises.

    5. In so far as to question No.1 An include is concerned, the same pertains to the charges of the event management paid by the assessee. In this context, the CIT (Appeals) and the Tribunal noted that the assessee had arranged a conference at Agra. The payments were essentially for domestic ticketing, reimbursing hotel expenses, tour leaders’ expenses. Such services were essentially in the nature of a 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. No question of law arises.

    6. Question No.2 relates to the quantum on which the deduction of tax at source would be made. The respondent-assessee would hire agents for its insurance work and make payment for hiring such services. This payment would invite a service tax. Under special provisions, the assessee-Insurance company would make a net payment of charges to the agent and directly deposit the service tax component with the Government. The assessee deducted the tax at source on the agent’s commission excluding service tax component. The service tax component not being the part of the income, the liability of deducting tax on this component, therefore, does not arise.

    7. We see 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 direct deposit with the Government.

    8. We notice that in the other two appeals the question of event management does not arise. However, the rest of the questions are common.

      9. As a result, all the appeals are dismissed.