2019 (1) TMI 1417 - HC - Income Tax

Addition towards reimbursement of the salary and related expenses u/s 40(a)(ia) - TDS liability - Held that - The facts on record would suggest that the amount in question was paid by way of reimbursement of expenditure. The employees and personnel deputed by the company giving such workers on loan to the assessee company continued to be the employer, the assessee merely reimbursed the expenditure in terms of salary structure of the employees to the employer company. There was, therefore, no question of deducting tax at source while reimbursing such costs. We notice that the Tribunal by the impugned judgment relied on its decision in case of this very assessee for earlier assessment year. This issue had travelled before this Court in CIT Vs. M/s. ITD CEM India Ltd which was dismissed by the High Court 2017 (9) TMI 740 - BOMBAY HIGH COURT - No question of law.

Summary

Issues:
1. Disallowance of reimbursement of salary and related expenses under Section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The case involves an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the disallowance of expenses related to reimbursement of salary and related expenses under Section 40(a)(ia) of the Income Tax Act, 1961. The Respondent assessee, a company registered under the Companies Act, had filed its return of income for the assessment year 2010-11, which was scrutinized by the Assessing Officer. The Assessing Officer disallowed expenses amounting to ?4.33 crore under Section 40(a)(ia) of the Act. However, the assessee appealed against this decision, arguing that the expenses were reimbursement made to ITD Cementation India Ltd towards salary and related expenses for employees deputed to work in a joint venture. The Commissioner of Income Tax [Appeals] allowed the appeal, noting that the payments were towards reimbursement of salary expenses paid to ITD Cementation India Ltd for deputed employees working in the joint venture as per the contractual agreement. The CIT(A) and the Tribunal both upheld this view, leading to the dismissal of the Revenue's appeal.

Upon reviewing the facts and documents on record, the High Court found no reason to interfere with the Tribunal's decision. It was established that the amount in question was paid as reimbursement of expenditure, with the employees deputed by the company to the assessee company continuing to be employees of the employer company. The assessee simply reimbursed the expenditure based on the salary structure of the employees to the employer company. Therefore, there was no requirement to deduct tax at source while reimbursing such costs. The Tribunal's decision was supported by its earlier ruling in a similar case involving the same assessee for a previous assessment year. This issue had also been considered by the High Court in a previous case, where the appeal was dismissed.

In conclusion, the High Court held that no question of law arose in the present case, and therefore, the Tax Appeal was dismissed.