2017 (10) TMI 98 - HC - Income Tax

TDS u/s 194J - payments made by the assessee to HRTC - arrangement arrived at inter se M/s. Himachal Pradesh Bus Stand Management Development Authority (Development Authority) and Himachal Pradesh Road Transport Corporation (HRTC) can be said to be in the nature of latter providing professional or technical services to the former? - whether reimbursement of expenditure incurred by the latter would not attract the provisions of Section 194J - Held that - The arrangement inter se the development authority and HRTC was clear and simple. It was by way of a stop gap arrangement. Till such time the authority developed its infrastructure and recruited the staff, the work of development and management was required to be carried out by HRTC. Hence, employees of HRTC were called upon to continue to discharge such duties. It is in this backdrop, two entities decided to share their resources by arriving at an arrangement, whereby salaries of certain staff and other expenditure incurred by HRTC was to be shared proportionately. Such an arrangement arrived at between two entities cannot be said to be that of rendering professional services. No legal, medical, engineering, architectural consultancy, technical consultancy, accountancy, nature of interior decoration or development was to be rendered by HRTC. Similarly, no service, which can be termed to be technical service, was provided by HRTC to the development authority, so also no managerial, technical or consultancy services were provided. The arrangement was purely simple. The staff of HRTC was to carry out the work of development and management of the development authority till such time, the said authority developed its infrastructure and the expenditure so incurred by HRTC was to be apportioned on the agreed terms. It is only pursuant to such arrangement, the development authority disbursed the payment to HRTC and, as such, in our considered view, no amount of TDS was required to be deducted on the same. It is only a reimbursement of an expense so incurred by HRTC. - Decided in favour of assessee.

Summary

Issues:
1. Whether payments made by the assessee to another entity are liable for deduction of tax at source under the Income Tax Act?
2. Whether the order of the ld. CIT(A) deleting the addition made by AO under section 40(a)(ia) of the Income Tax Act is valid?

Analysis:
1. The main issue in this case is whether the payments made by the appellant to another entity are subject to deduction of tax at source under the Income Tax Act. The court examined the provisions of Section 194J of the Act, which require the deduction of tax on payments made for professional or technical services. The court noted that professional services include legal, medical, engineering, or technical consultancy services, while technical services encompass managerial, technical, or consultancy services. The court analyzed the arrangement between the parties, where one entity reimbursed the other for expenses incurred. The court concluded that as the payments were only reimbursement of expenses and not for professional or technical services, no tax deduction was required under Section 194J.

2. The second issue revolves around the validity of the order of the ld. CIT(A) in deleting the addition made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act. The court referred to a judgment of the Hon'ble ITAT and highlighted that the reimbursement of expenses cannot be considered as revenue receipt and, therefore, is not liable to income tax. The court cited previous rulings to support this position, emphasizing that reimbursement of expenses does not attract tax liability. The court also referred to Section 194C and Section 194J of the Act, noting that TDS obligations apply only to payments classified as "income." Since the payments in question were for reimbursement of expenses, the court held that no TDS was required to be deducted.

In conclusion, the court upheld the decisions of the lower authorities and ruled in favor of the appellant, stating that the payments made were for reimbursement of expenses and not for professional or technical services, hence not subject to tax deduction at the source. The court dismissed all appeals and answered the substantial questions of law accordingly.