2019 (2) TMI 1638 - HC - Income Tax

Disallowance u/s. 40(a)(ia) - non deduction of tax at sources on account of reimbursement of expenses - Tribunal deleted the disallowance - HELD THAT - Tribunal held that the amount in question was by way of reimbursement of costs. Assessee had paid such sums towards administrative costs such as the employee cost rent finance and legal corporate recharge etc. The Tribunal noted that GSIPL had provided services to the assessee by deploying its employees for such work and the cost was for reimbursement for such expenses besides other related expenditure. Revenue was unable to dislodge these findings of fact recorded by the Tribunal. That being the position we must proceed on the basis that the payment in question was in the nature of reimbursement of costs. As relying on A.P. MOLLER MAERSK AS 2017 (2) TMI 993 - SUPREME COURT liability to deduct tax at source in such a case would not arise. No question of law arises. - Decided against revenue.

Summary

Issues:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source on reimbursement of expenses.

Analysis:
The High Court of Bombay heard an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal regarding the disallowance under Section 40(a)(ia) of the Income Tax Act. The main question before the court was whether the Tribunal erred in deleting the disallowance on account of non-deduction of tax at source on reimbursement of expenses. The Revenue contended that the assessee did not deduct tax at source while making a payment of Rs. 1.73 Crores, as required by law.

The Tribunal, however, found that the amount in question was a reimbursement of costs, specifically administrative costs like employee expenses, rent, finance, and legal corporate recharge. It was noted that the assessee had paid these sums towards expenses incurred by a service provider, and the payment was for reimbursement of these expenses. The Tribunal's factual findings were upheld, and it was established that the payment was in the nature of reimbursement of costs.

The court referred to the Supreme Court's decision in the case of Director of Income Tax v/s. A. P. Moller Maersk A. S. and previous decisions, stating that in cases of reimbursement of costs, the liability to deduct tax at source does not arise. As the Revenue failed to dislodge the Tribunal's findings, the court concluded that no question of law arose. Consequently, the appeal was dismissed, affirming the Tribunal's decision on the matter.