2009 (1) TMI 842 - HC - Income Tax

Appeal u/s 260A - Deletion of addition on income from other sources - monies received - agreement executed between the assessee and sister concern, Speciality Ranbaxy Limited (SRL) - expenses incurred by the Assessee during the relevant period and were debited in the books of account under the head pre-operative expenses - AO held that assessee had received professional charges for which TDS had been deducted by SRL - he concluded that sum received by the assessee from SRL during pre-operative period was to be treated as income from other sources - Accordingly, AO made an addition under the head income from other sources. HELD THAT - We are of the view that the judgment of the Tribunal deserves to be upheld. Two concurrent authorities i.e., CIT(A) as well as the Tribunal have found that the money received by the assessee from SRL was nothing but reimbursement of expenses incurred by the assessee in respect of common services extended by the assessee to SRL. The said authorities have also found as a fact that the expenses incurred by the assessee are equivalent to the monies received by the assessee from SRL and hence, no income would arise to the assessee if the expenses are set-off there being a direct nexus between the two. In view of these findings of fact we are of the opinion that no question of law, much less a substantial question of law, has arisen for our consideration. In the result, the appeal is dismissed.

Summary

Issues involved:
- Appeal by Revenue under section 260A of the Income-tax Act against Tribunal's judgment on addition of Rs. 18 lakhs as income from other sources for assessment year 2001-02.

Analysis:
1. Issue of Misdirection by Tribunal:
The primary issue in this case was whether the Tribunal had erred in law by deleting the addition of Rs. 18 lakhs made by the Assessing Officer as income from other sources. The Tribunal found that the amount received by the assessee was a reimbursement of expenses incurred in providing common services to a sister concern. Both the CIT(A) and the Tribunal concluded that the expenses incurred were equivalent to the amount received, establishing a direct nexus between the two. As a result, no income was deemed to have arisen to the assessee. The Tribunal's decision was upheld based on the factual findings that the money received was indeed a reimbursement of expenses.

2. Nature of Reimbursement and Tax Treatment:
The assessee, a company engaged in medical and clinical research, set up a super speciality hospital and entered into an agreement with a sister concern to share maintenance expenses. The sister concern reimbursed Rs. 18 lakhs towards common expenses, with tax deducted at source. The Assessing Officer treated this reimbursement as income from other sources, citing TDS deduction on professional charges. However, the CIT(A) and Tribunal established that the reimbursement was for shared services, and the expenses incurred were directly related to the amount received. The tax deduction was deemed an oversight, as no income was embedded in the payment.

3. Judicial Interpretation and Precedents:
The CIT(A) and Tribunal relied on the agreement between the parties to determine the nature of the payment and the direct correlation between expenses and reimbursement. Case law was cited to support the conclusion that the amount received was not income but a return of expenses. The Tribunal's decision was further supported by the fact that both the CIT(A) and Tribunal had concurred on the factual findings regarding the nature of the transaction and the absence of any taxable income.

4. Final Decision and Dismissal of Appeal:
After considering the arguments presented by the Revenue, the High Court upheld the Tribunal's judgment, emphasizing that no substantial question of law had arisen for consideration. The Court noted the consistent findings of both the CIT(A) and the Tribunal regarding the reimbursement of expenses, the direct nexus between expenses incurred and amount received, and the absence of any taxable income. Consequently, the appeal by the Revenue was dismissed, affirming the decision to delete the addition of Rs. 18 lakhs as income from other sources for the assessment year in question.