2019 (6) TMI 485 - HC - Income Tax

Revision u/s 263 by CIT - non deduction of TDS on reimbursement of cost - assessee had not furnished any facts as to how the time spent by employees was determined and whether the amount was actually spent by the recipient of reimbursement of expenses - HELD THAT - For earlier assessment years, this Court had by an order 2019 (2) TMI 1638 - BOMBAY HIGH COURT dismissed the Revenue's Income Tax Appeal on the ground that the payment made for reimbursement of costs, deduction at source is not necessary - Decided against revenue

Summary

Issues:
1. Justification of the ITAT in holding that the Assessing Officer formed a correct view regarding reimbursement of expenses.
2. Justification of the Tribunal in holding that there is no requirement to deduct tax at source on reimbursement of cost in the absence of documentary evidence.

Analysis:

Issue 1:
The appeal before the High Court stemmed from a judgment of the Tribunal, where the Revenue challenged the decision of the Commissioner enhancing revisional powers under Section 263 of the Income Tax Act, 1961. The Tribunal had held that the Commissioner was not justified in enhancing the revisional powers and that disallowance under Section 40A of the Act was also not warranted. The crux of the matter revolved around the Assessing Officer's view on the reimbursement of expenses amounting to ?3,17,36,719. The key question was whether the ITAT was justified in holding that the Assessing Officer had formed a possible correct view, especially when the assessee had not provided details on how the time spent by employees was determined and whether the reimbursement amount was actually spent by the recipient. The High Court noted that in a previous judgment, it was held that when payments are made for reimbursement of costs, deduction at source is not necessary, as confirmed by the Supreme Court's decision and consistent rulings by the High Court. Consequently, the High Court dismissed the appeal, relying on the precedent and the nature of the payment being reimbursement of costs.

Issue 2:
The second question for consideration was whether the Tribunal was justified in holding that there is no requirement to deduct tax at source on reimbursement of cost in the absence of documentary evidence proving that the reimbursement did not involve an income element. The Tribunal's decision was based on the understanding that the payment in question was in the nature of reimbursement of costs, specifically administrative costs like employee expenses, rent, finance, and legal corporate recharge. The Tribunal found that the Revenue failed to dislodge these factual findings, leading to the conclusion that the payment was indeed a reimbursement of costs. Citing previous judgments and the consistent legal position on such cases, the High Court upheld the Tribunal's decision and dismissed the Income Tax Appeal. The Court emphasized that in cases of reimbursement of costs, the liability to deduct tax at source does not arise, aligning with established legal principles and precedents.

In conclusion, the High Court's judgment affirmed the Tribunal's decision, emphasizing the nature of the payment as reimbursement of costs and the absence of a requirement to deduct tax at source in such cases. The legal analysis focused on precedent, factual findings, and the consistent legal position on reimbursement of expenses in income tax matters.