ITA Nos. 564 & 565/Mds/2015

N R S Ganesan, JM And Chandra Poojari, AM

For the Appellant : Mr Deepak Chopra and Ms Manasvini Bajpai, Adv
For the Respondent : Shri A V Sreekanth, JCIT-IRS

ORDER

The order of the Bench was delivered by

Chandra Poojari, Accountant Member-These two appeals by the assessee are directed against different orders of the Commissioner of Income-tax (Appeals)-2, Coimbatore, for the assessments years 2013-2014 and 2014-2015. Since the issues involved in these appeals are common in nature, these appeals are combined, heard together, and disposed of by this order for the sake of convenience.

2. The common ground in these two appeals are with regard to treating the assessee as "assessee in default" by observing that the assessee is liable to deduct TDS u/s.194J of the Income Tax Act,1961 instead of u/s.194C of the Act for the payment made for supply of manpowers, thereby invoking the provision under section 201(1) and 201(1A) of the Income Tax Act.

3. For the sake of conveniences, we consider the facts as narrated in ITA No.564/Mds/2015 for the assessment year 2013-2014 for adjudication.

4. The facts of the case are that a survey u/s 133A was conducted in the business premise of M/s Vodafone Essar Cellular Limited at 1046, Avinashi Road, Coimbatore-641 018 on 17.09.2013. During the course of survey, it was noticed that in the assessee's business premises, the services of the most of the personnel were provided by outsourcing agencies. The work relating to front office management, liaison work, data entry was being manned by the outsourced personnel. The assessee was deducting tax at source at the rate of 2% u/s.194C on the payments made. The assessee, during the course of hearings, was questioned on this nature of business model and was asked to provide the details of manpower availed for these services and also its objection, if any, to invoke Section 194J. The assessee's submission was that wherever the services of technical personnel were utilized as in the case maintenance of mobile towers, tax @ 10% u/s 194J was deducted and in other cases tax u/s 194C @ 2% was deducted. The argument advanced was that these services were not technical in nature and don't require technical knowledge. The assessee also filed a written submission dated 16/12/2013 arguing that since Section 194C speaks of supply of labour for carrying out any work pursuant to a contract, the applicable rate of payment would be only 2%. However, the Assessing Officer observed that "work" is different from "services" and Sec 194C and 194 J operate on different parameters. Definition of technical services in section 9 states as under:-

"For the purposes of this clause, 'lees for technical services" means any consideration (including any turn» 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 above definition leaves no room for ambiguity as it clearly states that the provision for services of technical or other personnel for rendering any managerial, technical or consultancy services will be treated as technical services. The persons so supplied need not possesses any technical qualifications. This is made clear by the phrase "other personnel." Since Section 194J r.w.s Explanation 2 to (vii) of Section 9 is a special provision in the Act defining technical services, it will override the general reference to supply of labour for carrying out any work contained in Section 194C. Further, on facts also it was seen in the assessee's case that personnel for performing front office, managerial and services including data entry etc have been taken on outsourcing basis. This would amount to supply of personnel for rendering technical services and would attract tax. at deduction @ 10%. Failed to deduct the TDS, the assessee is in appeal and the Assessing Officer considered the assessee is in default and accordingly he invoked the provision of sections 201(1) and 201(1A) of the Act. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us.

5. The ld. Authorised Representative for assessee submitted that the assessee has entered into agreements with various contractors for supply of manpower. Manpower services provided by the aforesaid service providers include provision of temporary staff who render services to the Assessee, including inter-alia the following:

(i) attending to subscribers who visit the stores of the Assessee;
(ii) keeping a track of number of subscribers of the Assessee on a daily basis;
(iii) reaching prospective customers;
(iv) collecting dues from customers, etc.

5.1 In consideration for such services, the Assessee makes payment at a specified amount, per personnel, per month. Thus, any person responsible for paying any sum to any resident for 'carrying out any work' including supply of labour for carrying out any work in pursuance of a contract was liable to deduct tax at source at the specified rate under Section 194C of the Act. Since, the service provider was providing personnel/ labour to the assessee for carrying out certain specified activities under the contract, the same gets squarely covered under the provisions of the section 194C of the Act. Further, the term 'work' has a wide import which includes not only 'works contract' but also any work which can be carried out by either a contractor under a contract or through supply of labour to carry out work under a contract. The ld. Authorised representative for assessee wish to submit that in the subject orders passed by the Assessing Officer under section 201(1)/(1A) of the Act for FY 2012-13 and 2013-14 (till September, 2014), it has been held that payment made for supply of manpower would qualify as Fee for Technical Services and hence, tax was deductible at the rate of 10% under section 194J of the Act. In this regard, the ld. Authorised representative for assessee submitted that the payment made to the suppliers of manpower would not be liable for deduction of tax at source under Section 194J of the Act is as follows:

Relevant extract of section 194J of the Act is as follows:
"(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of
(a) .... , or
(b) fees for technical services, or
(c) …………………
(d) ……………….
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income- tax on income comprised therein."

5.2 The ld. Authorised Representative for assessee drew our attention to the definition of the term 'fees for technical services' as used in Section 194J of the Act. As per clause (b) of the Explanation to Section 194J of the Act, 'fees for technical services' has the same meaning as used in Explanation 2 to Section 9(1)(vii) of the Act. As stated the use of the term 'means' in the above definition clearly indicates that the above definition was exhaustive and that only the services specifically stated in the said definition would be included within the meaning of the term 'fees for technical services '. Hence, it was of paramount importance that the services rendered should be in the nature of any managerial, technical or consultancy services, for being classified as being towards fees for technical services. The Authorised Representative for assessee submitted that the executives supplied by the service provider are generally under graduates or simple graduates, who are trained to act in a particular manner and as per given set of guidelines when attending to a subscriber or to a prospective customer of the Assessee. There was nil or negligible intellectual element involved in the task undertaken by the executives, the predominant element being conversing with the subscribers of the assessee, based on non-technical training provided to them by the Assessee. The service provided by the executive's is of a mechanical routine nature carried out by semi-skilled executives.In view of the above, it was clearly evident that the executives do not provide any technical or consultancy services, as there is nil or negligible application of mind by the executives while discharging their duties. Moreover, even the training and guidelines provided to the executives to assist them in performing their task is also provided by the assessee. Further, the word 'manage' has been defined to mean "to control, to guide, to administer, to conduct or direct affairs, carry on business" as per the Shorter Oxford Dictionary and Websters' New World Dictionary. As you would appreciate, none of the above functions is performed by the executives at the assessee's stores. Their job being restricted to only attending to the subscribers/ customers of the Assessee in a manner already specified to them. Having regard to the above definition, the Assessee respectfully submits that no directive or regulative or control or superintendence or administrative functions are performed by these executives. In fact the direction, control, regulation, administrative and superintendence functions are performed by the management of the Assessee in respect of the activities of these executives. Considering the nature of work carried out by the service provider, provisions of Section 194J of the Act would not be applicable in the present case. Accordingly, the Assessee respectfully submits that the payments made towards supply of manpower is in the nature of 'supply of labour for carrying out work' as envisaged under Section 194C of the Act and tax has been appropriately deducted under Section 194C Of the Act. Further, the explanation to Section 191 of the Act provides that an assessee cannot be treated as an assessee in default when taxes were not deducted at source but paid directly by the recipient. This view is supported by the Instruction No. 275/201/95-ITB(B) dated 29.01.1997 issued by the Central Board of Direct Taxes. It was further submitted before the learned TDS Officer that the assessee had discharged its primary onus of providing that taxes due have already been paid by the recipient telecom operators. It was further submitted that affidavits furnished by the assessee form a reasonable basis to assume that other telecom operators, from whom confirmations/certificates could not be obtained, would have discharged their tax liability on roaming charges paid by the assessee and the onus was on the learned TDS officer to prove that such taxes have not been paid by the aforesaid operators. In respect of consequential interest under section 201(1A) of the Act, since interest under section 201(1A) of the Act is compensatory in nature, it can be charged for the period for which the tax department was deprived of such due taxes. In the instant case, since the recipient distributors/other telecom operators are discharging their tax liability by way of advance tax, self assessment taxes and other pre-paid taxes, interest, if any, under section 201 (1A) of the act that may be levied, should be charged up to the date of payment of taxes by the payee/recipient of such income".

5.3 The ld. Authorised Representative for assessee relied on the following judgments.
(1) Associated Cement Company Ltd. vs. CIT 201 ITR 435 (SC)
(2) ITO vs Bharat Sanchar Nigam Ltd, 64 SOT 138, Mumbai.
(3) Khaitan & Co vs. CIT, 12 SOT 120, Delhi.
(4) Glaxo Smithkline Consumer Health Care Ltd. vs. ITO, 12 SOT 221, Delhi.
(5) ACIT vs. Merchant Shipping Services (P) Ltd, 135 TTJ 589, Mumbai.
(6) East India Hotels Ltd. And Authorised Representative. V. CBDT and Anr.320 ITR 526 (Bom)
(7) Skycell Communications Ltd and Another vs. DICT, 251 ITR 53 and also Circular No.715, dated 08.08.1995 issued by CBDT.

6. On the other hand, the ld. Departmental Representative submitted that the assessee's claim that no finding has been given by the Assessing Officer that there was a failure on the part of the deductees to pay tax directly which is a pre- requisite for assuming jurisdiction was not correct. Section 201(1) treats any non-deduction /short deduction on the part of a person enjoined to deduct tax was an infraction of law and equates such failure with an assessee in default. The issue in question was only to adjudicate if the services provided for payments made for supply of personnel would be technical service u/s.194J or mere contract u/s.194C. The Assessing Officer was duty bound to examine the nature of services provided and to decide on the applicability of relevant section. In this case u/s.194J or 194C, the judgment relied upon by the assessee in this context is not relevant to the issue before the Assessing Officer, hence the Commissioner of Income Tax (Appeals) dismissed this ground.

7.1 In the next ground, the ld. Departmental Representative submitted that the assessee contents that the Assessing officer has erred in holding the manpower charges are subject to deduction of tax u/s.194J has technical services whereas the actual or contractual in nature and tax is to be deducted only u/s.194C. In the case of CIT vs. Bharti Cellular in 220 CTR 258 (Del), the Delhi High Court, wherein held that

"15. From the above discussion, it is apparent that both the words 'managerial' and 'consultancy' involve a human element. And, both managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitura sociis, the word 'technical' as appearing in Explanation 2 to Section 9(1)(vii) could also have to be construed as involving a human element. But, the facility provided by MTNL//other companies for interconnection / port access is one which is provided automatically by machines. It is independently provided by the use of technology and that to, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Explanation 2 to Section 9(1)(vii)of the said Act. This is so because the expression 'technical services' takes colour from the expression managerial services and consultancy services which necessarily involve a human element or, what is now days fashionable called, human interface. In the fact of the present appeal, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as 'technical services' as contemplated u/s.194J of the said Act".

The test, therefore, was to check if there was any human interface or managerial service provided. In the same view, it cannot be held that normal day today services like security services and sanitation can be termed as technical service. In this context the assessee was asked to furnish the details of service availed and payments made in this regard. The assessee has furnished the details vide his letter dated 16.01.2015 as under:-

It can be seen, the payment can be made for three kinds of service. They are

(1) Support services such as filed activations, vendor payment queries, entering receipts into SAP, field verifications etc.
(2) Customer support services such as tele-calling for bill payments, tele-calling for new activations.
(3) House keeping services.

On perusal of the same shows that the support services at "I" and "II" above would necessarily require technical expertise and managerial expertise because they would involve identification of the customers to whom such services have to be rendered. The activation of any new service/ marketing and selling of the services would also essentially required in depth analysis and knowledge of the services provided and activates of the company. It was an admitted fact that the services provided by the assessee are highly technical in nature and support of services cannot be carried out by a person without requisite knowledge. Therefore the payments made for I & II will be covered for tax deduction u/s.194J. The third activity i.e. the house keeping services shall not constitute technical services as these would involved only normal house keeping services, like security/sanitation which was provide for any organization. Therefore, it was held that the payments made towards housekeeping services shall be subject to tax u/s.194C and the Commissioner of Income Tax (Appeals) has allowed the ground partly and it was held that the assessee should deduct tax u/s.194J for technical services for the services provided (i) Support services such as filed activations, vendor payment queries, entering receipts into SAP, filed verification etc., and (ii) Customer support services such "as telecalling for bill payments, tele-calling for new activation" and u/s.194C for the housekeeping services. Against this, the assessee is in appeal before us.

7. We have heard both the parties and perused the material on record. In this case the impugned payment made by the assessee company to the service provider M/s. Forte Solutions Private Limited (hereinafter referred as 'service provider') in pursuance to the contract and scope of service provider shall perform a broad level of services including, but not limited to the followings:-

a. Recruitment
Service Provider will help source candidates for selection based on agreed specifications. VECL will commit a person or absorb anybody for work from Service Provider. However, instructions to this effect either orally or in writing will be given to the service provider.

b. Placement and relocation
VECL will intimate the locations in oral or writing where the deputees need to be deputed. VECL reserves the right to relocate any of the deputees at any time during the term of Agreement.

c. Performance assessment / feedback
VECL may offer an assessment on each deputee after every 180 days.
d. Withdrawal of a deputee
VECL will request through its designated personnel for withdrawal of deputee in case of theft, fraud and acts that constitute moral turpitude. VECL will brief Service Provider on the full details in such that month would be payable by VECL. cases.

In such cases, Service Provider will immediately withdraw the deputee and fee proportionate to the number of days worked by the deputee in that month would be payable by VECL.

In all other cases, VECL may request for withdrawal of a deputee subject to payment of one month's service fee to Service Provider.

In case of relieving a Deputee, VECL shall conduct all the formalities required to be done at their end and inform Service Provider duly of the same. No pending formalities shall be entertained at a later date by Service Provider.

e. Safety and Health
VECL will not assign work of a hazardous nature (health/safety) without prior intimation to service provider and without provision of adequate personal protection gear.
f. Service Provider will devise suitable selection procedures and ensure that personnel's services offered have the approval of VECL.
g. Service Provider will ensure that the deputees' salaries / reimbursements are processed and reached to the deputees latest by last working day of the month irrespective of thepayments from VECl.
h. Service Provider will review deputee performance periodically with the concerned Executive of the VECL
i. Service Provider personnel will communicate with the deputees / concerned Executive ofVECL periodically to address any problems and implement solutions to the satisfaction ofVECL.
j. Service Provider will ensure that statutory benefits such as ESI, PF,Professional Tax, etc where applicable will be administered as per law
k. Service Provider will respond promptly and responsibly to any charge of misconduct of any kind by the deputees and ensure speedy resolution of the matter.
l. Service Provider should Issue Identity Cards to its Deputees and instruct them to carry it all the time.
M. Service Provider should provide Insurance coverage (Both Medical insurance and GPA) to all its Deputees provided to VECl."
According to the ld. Authorised Representative for assessee the above service provider falls within the preview of Explanation 4 of Sec. 194C of the Act.

8. We have carefully gone through the above services to be rendered by the service provider. The above services to be rendered by the employees to the service provider who shall be sufficiently trained and shall have adequate knowledge of service to be provided to the highest standard. Further, the assessee shall provide the material to service provider to be used for delivering the services of the assessee. The service provider shall use such material solely for the purpose of rendering services hereunder in accordance with instructions of assessee and for no other purpose. Upon expiry or termination of this agreement, the service provider shall promptly return or deal with all such material in accordance with the instructions from the assessee. The service provider shall maintain and use the confidential information only for the purpose of this agreement and only as permitted herein. The service provider only make copies as specifically authorised by the prior written consent of the other party and with the same confidential or proprietary notices as may be printed or displaced on the original, to restrict access and disclosures of confidential information to such of their employees, agents and third parties on a "need to know" basis and upon the execution of a written undertaking from such employees, agents, and third parties to maintain confidentiality of the confidential information disclosed to them in accordance with this clause 8 and to treat the confidential information as confidential for a period of five years from the date of receipt. In the event of earlier termination of this agreement, the parties hereby agree to maintain the confidentiality of the confidential information for a further period of three years from the date of such termination. The service provider agrees that any of assessee's technical or business information that service provider's employees or agents acquire while on assessee's premises or through access to assessee's computer system or databases while on or off assessee's premises, shall be deemed confidential information. All information provided by the assessee to service provider shall at all times, remain the sole and exclusive property of assessee. Upon termination /expiry of this agreement, confidential information shall be returned to assessee or destroyed in accordance with the instructions of assessee and evidence of such destruction provided to assessee to its reasonable satisfaction the assessee may at its sole option, witness the destruction. The transactions – financial or otherwise and / or correspondence entered into by and between assessee and the service provider and submit such reports to assessee periodically as specified by the assessee. In the assessment year under consideration, the assessee availed/ made payments as under:-

As can be seen, the payment can be made for three kinds of service. They are

1. Support services such as filed activations, vendor payment queries, entering receipts into SAP, field verification etc

2. Customer support services such as tele-calling for bill payments, tele-calling for new activations.
3. House keeping services.

On perusal of the same shows that the support services at "1" and "2" above would necessarily require technical expertise and managerial expertise because they would involve identification of the customers to whom such services have to be rendered. The activation of any new service/marketing and selling of the services would also essentially required in depth analysis and knowledge of the services provided and activities of the company. It is an admitted fact that the services provided by the assessee are highly technical in nature of services cannot be carried out by a person without requisite knowledge. Therefore the payments made for 1 & 2 will be covered for tax deduction u/s.194J. The third activity i.e. the house keeping services shall not constitute technical services as these would involve only normal house keeping services, like security/sanitation which is provided for any organization. Therefore, it was held by the Commissioner of Income Tax (Appeals) that the payments made towards housekeeping services shall be subject to tax u/s.194C and he also held that the assessee should deduct tax u/s.194J for technical services for the services provided "1) Support services such as filed activations, vendor payment queries, entering receipts into SAP, field verification etc. and 2) Customer support services such 'as tele- calling for bill payments, tele- calling for new activation".

9. In our opinion, the findings of the Commissioner of Income Tax (Appeals) is to be confirmed as the activities undertaken by the service provider for the assessee company discussed as per the agreement, it is not possible to undertake such activities without technical expertise, skilled manpower and by using up to date technology of the service provider. Contrary to this, the ld. Authorised Representative for assessee relied on the various judicial precedents. However, a careful reading of these judgments shows that the facts involved in the said cases were entirely different from the facts involved in this case. Therefore, it cannot be applied in the present case to decide the issue. In the case of CIT vs. Bharti Cellular Ltd (319 ITR 139) (Del), the Delhi High Court had an occasion to interpret and explain the expression 'fee for technical services' as appearing in S.194J. In this context, it was noted by the Delhi High Court that the said expression appearing in S.194J has the same meaning as given in Explanation (2) to S.9(1)(vii), which means any consideration for rendering of any 'managerial, technical or consultancy services'. Taking note that the word 'technical' is preceded by the word 'managerial' and succeeded by the word 'consultancy, Delhi High Court held that the rule of noscitur a sociis is clearly applicable and this would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy' in between which it is sandwiched. Elaborating further, the Delhi High Court observed that it is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it and similarly, the services 'consultancy' also necessarily intends human intervention. It was held by the Delhi High Court that the expression 'technical services' thus necessarily involves 'human element' or what is now a days fashionably called 'human interface'. In the case of Bharti Cellular Ltd (supra) before the Delhi High Court, the facility provided by MTNL and other companies to the assessee for interconnection/port access was one which was provided technically by the machines and since it did not involve any human interface, the Delhi High Court held that the same could not be regarded as 'technical services' as contemplated under S.194J of the Act.

10. It is worthwhile to note that the decision of the Delhi High Court in the case of Bharti Cellular Ltd (supra) was challenged by the Revenue before the Supreme Court, and although the Supreme Court in the judgment reported in 330 ITR 239, substantially agreed in principle with the meaning assigned by the Delhi High Court to the expression 'fee for technical services', as appearing in S.194J, they found that the question of human intervention was never raised even upto the level of the Tribunal. The Supreme Court also felt that some expert evidence was required to be brought on record to show how a human intervention takes place during the course of rendering of the services. The matter, therefore, was restored by the Supreme Apex Court to the file of the Assessing Officer with a direction to decide the same afresh, after examining a technical expert.

11. However in the present case, there is no dispute that there is 'human interface' in rendering service provider to the assessee. Being so, the said decision is squarely applicable to the assessee case and there is no need to sent the file back to the Assessing Officer to decide the issue a afresh. Accordingly, the ground of the appeal of the assessee is dismissed.

12. In the result, the appeal of the assessee in ITA Nos.564 & 565/Mds/2015 are dismissed.