2014 (4) TMI 305 - AT - Income Tax

Deletion of disallowance u/s 40(a)(ia) - employees on deputation Amount paid as reimbursement of manpower costs and professional charges - Liability to deduct TDS Held that - CIT(A) rightly held that the Mudra is not into the business of supply of manpower or rendering services by providing its employees to others - There is no element of profit involved in the transaction the amount paid does not warrant deduction of TDS - the amount paid is the exact amount of salary paid by Mudra to its employees - the payment has been made for the actual period for which the persons were on deputation - the payment made has no element of profit which is a primary condition for treating the nature of payment to be that in the nature of Professional Fees - Mudra has not been nor was it into the business of supply of manpower or rendering service by providing its employees. The expenses claimed was purely Reimbursement Of Salary Of Deputed Personnel and in the nature of COST SHARING based purely on distribution of cost as per work done and hence cannot be disallowed under section 40a(ia) Relying upon M/s. Utility Powertech Ltd. Vs. ACIT 2013 (10) TMI 94 - CESTAT AHMEDABAD - The assesee has actually shared the cost with MUDRA to the extent of actual utilization of employees time, and there has been no profit element involved at all - the amounts paid purely as reimbursement of manpower cost cannot be subjected to TDS - the payment was nothing but a reimbursement as admitted by CIT(A) thus, there is no need to interfere in the order Revenue could not brought any contrary material - Decided against Revenue.

Summary

Issues:
Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961 for Assessment Years 2006-07 and 2007-08.

Analysis:
1. The appeals by the Revenue were against the CIT(A)'s order deleting the disallowance of expenses made by the Assessing Officer under Section 40(a)(ia) of the Income Tax Act, 1961. The expenses in question were related to manpower deputation costs paid to Mudra Communication Pvt. Ltd. by the assessee company, an advertising and marketing business. The AO contended that TDS should have been deducted on these payments.

2. The assessee's argument was that the payments were reimbursement of salary costs of deputed personnel and not subject to TDS. The CIT(A) analyzed the facts and found that Mudra was not in the business of supplying manpower or providing services. The payments were purely for sharing salary expenses without any profit element. The CIT(A) relied on judicial precedents to support the decision that reimbursement of expenses without income element does not warrant disallowance under Section 40(a)(ia).

3. The CIT(A) highlighted that the payments were exact salary amounts paid by Mudra to its employees, and there was no profit involved. The nature of the expenses was cost-sharing, not professional fees. The CIT(A) emphasized that Mudra did not act as a professional consultant and had fulfilled all legal provisions, including TDS on salaries. The CIT(A) also noted that the auditors' treatment of the amounts as income did not change the nature of the payments.

4. The Tribunal, after hearing both sides, upheld the CIT(A)'s decision. The Revenue's grounds were dismissed as the factual position confirmed the payments were reimbursement without any profit element. The Tribunal found no reason to interfere with the CIT(A)'s factual findings, especially in the absence of contrary evidence from the Revenue.

5. Consequently, the Tribunal dismissed the appeals by the Revenue, affirming the CIT(A)'s order to delete the disallowance of expenses under Section 40(a)(ia) for the relevant assessment years.