The Bombay High Court, while granting relief to Reliance Life Insurance, has held that TDS is not payable by the Company on the payment of outsourcing expenses such as processing charges and business services.
The Tribunal had held that tax was deductible from payment of outsourcing expenses such as processing charges and business services etc. under Section 194C instead of Section 194J of the Income Tax Act, 1961.
The department approached the High Court contending that the Tribunal had not appreciated the fact that the nature of services received by the assessee requires certain parameters of the technical/managerial skill of highly specialized competency and falls within the purview of Section 194J of the Income Tax Act and not 194C of the Act.
The division bench of the High court comprising Justice Akil Kureshi and Justice S J Kathawalla recalled the Court’s earlier order wherein it was held that the CIT (Appeals) and the Tribunal examined the nature of expenditure and came to the conclusion that the assessee had hired the services for various works such as storage of data, scanning of documents, processing charges, call centre operations etc. Looking to the nature of services outsourced, it was held that the same was basically clerical services of repetitive nature of work and payments were, therefore, neither for managerial nor for technical services.
Following the above decision, the bench dismissed the plea of the department.
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