2016 (5) TMI 27 - AT - Income Tax

Disallowance of expenses on account of employee s expenses of secondment - non-deduction of TDS by invoking the provisions of section 40(a)(ia) - Held that - The issue is covered by the decision of ITAT, Bangalore bench in the case of IDS Software Solutions (India) (P) Ltd. Vs. ITO 2009 (1) TMI 363 - ITAT BANGALORE-A wherein the facts discussed as regards to where the assessee entered into a secondment agreement with a US Company and obtained the services of an employee and the question arose whether the reimbursement by the assessee to the US Company of the salary paid by the US Company was chargeable to tax as fees for technical services . It was held that though the US Co was the employer in a legal sense but since the services of the employee had been seconded to the assessee and since the assessee was to reimburse the emoluments and it controlled the services of the employee, it was the assessee which for all practical purposes was the employer. Accordingly, the salary reimbursed to the US Co was not chargeable to tax. Though the person deputed by the US Co was a technical person, the consideration paid under the secondment agreement was not fees for technical services because the fact that the seconded employee was responsible and subservient to the payer (assessee) and was required to also act as officer or authorized signatory or nominee of the assessee made it inconsistent with an agreement for providing technical services. - Decided against revenue Addition of compensation from customers made by AO on estimate basis - Held that - This issue has already been remitted back to the file of AO in the immediate preceding year exactly on identical facts by Tribunal in assessee s own case for Asst. Year 2008-09. and on similar line if the issue is remitted back to the file of the AO that will suffice the matter. On query from the bench, ld. Sr. DR has not objected to the stand of the assessee. Hence, we direct the AO to decide the issue in term of the principles laid down above

Summary

Issues:
1. Disallowance of expenses on account of employee's expenses for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act.
2. Addition of compensation from customers made by the Assessing Officer on an estimate basis.

Issue 1: Disallowance of expenses on account of employee's expenses for non-deduction of TDS under section 40(a)(ia) of the Income Tax Act:

The Appellate Tribunal ITAT Mumbai addressed the first issue concerning the disallowance of expenses due to non-deduction of TDS by the Assessing Officer. The CIT(A) had deleted the disallowance, leading to the revenue's appeal. The Tribunal considered the facts, where the assessee had debited secondment charges without deducting TDS. The CIT(A) allowed the claim based on precedents and the joint venture agreement with Gail & British Gas. The Tribunal noted that the employees were seconded by British Gas, and the remuneration was reimbursed by British Gas, which had deducted TDS. The Tribunal referred to the CBDT Circular No. 720, emphasizing that tax should be deducted only under one section. Additionally, the Tribunal cited a Bombay High Court case and an ITAT Bangalore decision supporting the assessee's position. Ultimately, the Tribunal dismissed the revenue's appeal on this issue.

Issue 2: Addition of compensation from customers made by the Assessing Officer on an estimate basis:

The second issue involved the addition of compensation from customers on an estimate basis, which the CIT(A) had deleted. The revenue appealed this decision. The Tribunal noted that a similar issue had been remitted back to the AO in a previous year's case of the assessee. Considering this, the Tribunal directed the AO to decide the matter following the principles established in the earlier order. Consequently, the Tribunal allowed the revenue's appeal on this issue for statistical purposes.

In conclusion, the Appellate Tribunal ITAT Mumbai addressed the issues of disallowance of expenses due to non-deduction of TDS and the addition of compensation from customers. The Tribunal upheld the CIT(A)'s decision regarding the first issue, dismissing the revenue's appeal. However, the Tribunal allowed the revenue's appeal on the second issue, directing the AO to decide based on previous principles.