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2010 (2) TMI 696 - AT - Income TaxAssessee in default - International transaction - TDS u/s 195 - Reimbursement of actual expenditure - It has been held that section 195 of the Act also covers composite payments which have an element of income embedded or incorporated in them - The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all - It is in this sense that we hold that the Income-tax Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the Income-tax Act - When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income-tax Act for the said sum as an expenditure - Even in cases of composite payments, the Courts have held that the obligation to deduct the tax is in respect of the element of income embedded or incorporated in them - Appeal is allowed by way of remand
Issues Involved:
1. Whether reimbursement of travelling expenditure constitutes part of "fee for technical services." 2. Applicability of withholding tax under section 195 of the Income-tax Act, 1961, on reimbursements based on actual expenditure incurred. 3. Determination of the assessee as 'assessee in default' under sections 201 and 201(1A) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Reimbursement of Travelling Expenditure as Part of "Fee for Technical Services": The Hon'ble CIT(A) held that reimbursement of travelling expenditure by the appellant based on actual expenditure incurred forms part of the fee for technical services. This decision relied on the precedent set in Cochin Refineries Ltd. v. CIT [1996] 222 ITR 354 (Ker.), where travel expenses incurred in the course of providing technical services were considered part of the technical fee. 2. Applicability of Withholding Tax under Section 195: The primary issue in this appeal is the applicability of section 195 of the Income-tax Act on the reimbursement of travelling expenses. The assessee argued that reimbursement of actual expenditure does not constitute income chargeable to tax under section 195. The Assessing Officer, however, concluded that such reimbursements were part of the fee paid to M/s. Joint Commissioner Resources (International) and thus subject to tax deduction. The CIT(A) supported this view. The appellant referenced the Supreme Court ruling in GE India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234, which stated that tax must be deducted at source only if the sum paid is assessable to tax in India. The Supreme Court also clarified that section 195 covers composite payments with an income element, but tax should be deducted only on the income portion. The Special Bench of the Chennai Tribunal in ITO v. Prasad Productions Ltd. [2010] 125 ITD 263 (Chennai)(SB) further supported that where the payer believes no part of the payment has an income character, section 195(1) would not apply. 3. Determination as 'Assessee in Default': The Assessing Officer declared the assessee in default under section 201(1) and charged interest under section 201(1A) due to non-deduction of tax on the reimbursement of travel expenses. The Tribunal, however, held that where the assessee has reimbursed the actual expenditure incurred by the payee, no withholding of tax under section 195 is warranted if there is no income element embedded in the reimbursement. Conclusion: The Tribunal directed the Assessing Officer to verify the actual incurrence of the expenditure. If the assessee can provide evidence that the payments are indeed reimbursements, they fall outside the purview of section 195, and no tax deduction at source is required. If the assessee fails to establish this, the payments are subject to tax deduction, and non-compliance would result in liability under sections 201(1) and 201(1A). The appeal was allowed for statistical purposes, with instructions for the Assessing Officer to decide the issue after providing a reasonable opportunity for the assessee to present their case.
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