2013 (5) TMI 532 - AT - Income Tax

Grossing up of the expenditure with TDS amount for claiming deduction - Non reimbursable tax paid to Master Cards/Visa Cards included under the head Operating Expenses - Assessee claimed that as per the agreement with Visa/Master Cards, the company is required to make payment without deduction of tax - Held that - As decided in CIT Vs Standard Polygraph Machines Pvt. Ltd (1998 (11) TMI 49 - MADRAS High Court) on identical facts allowed the claim holding that amount paid was only to the discharge of the liability which liability the assessee had taken to pay as part of the agreement entered into. The amount so paid as tax has been held to be the amount payable between the collaborator and the assessee. The Tribunal decided that the amount so paid by the assessee was only in discharge of a liability which it had undertaken in terms of the agreement. Also see S.Takenaka Vs CIT (1998 (9) TMI 55 - KARNATAKA High Court). Respectfully following the orders of the co-ordinate bench decide the grounds raised against the Revenue.

Summary

Issues: Claim of non-reimbursable tax paid to Master Cards/Visa Cards under "Operating Expenses" disallowed by AO, but allowed by CIT (A) based on previous years' orders. Whether the grossed-up portion of payment is a legitimate business expenditure.

Analysis:
1. The appeal pertains to a dispute regarding the claim of non-reimbursable tax paid to Master Cards/Visa Cards under "Operating Expenses." The Assessee contended that the tax payment was over and above service charges, as per the agreement with Visa/Master Cards. The Assessee grossed up the service charges under section 195A and treated it as business expenditure. However, the Assessing Officer (AO) disallowed this expenditure, which was later allowed by the CIT (A) based on precedents from earlier years.

2. The issue was raised before the ITAT, which noted that similar matters had been decided in favor of the Assessee in previous years. The ITAT referred to specific cases where the payment made as a result of a contractual liability was considered an allowable expenditure. The Tribunal emphasized that the payment was in discharge of a liability undertaken by the Assessee as part of the agreement with Visa/Master Card agencies.

3. The ITAT further highlighted decisions by High Courts supporting the Assessee's position, where the amount paid was deemed to be in discharge of a liability agreed upon in the contract. The Tribunal, in line with previous judgments, dismissed the Revenue's appeal and upheld the Assessee's claim for treating the grossed-up value as a legitimate business expenditure.

4. Ultimately, the ITAT, following the orders of the Coordinate Bench and considering the consistent legal precedents, decided against the Revenue, thereby dismissing the appeal filed by the Revenue. The judgment reaffirmed the Assessee's right to treat the grossed-up payment as a valid business expenditure, in accordance with the terms of the agreement with Visa/Master Card agencies.

In conclusion, the judgment upholds the Assessee's claim for treating the grossed-up tax payment to Master Cards/Visa Cards as a legitimate business expenditure, based on contractual obligations and supported by legal precedents and High Court decisions.