2010 (3) TMI 287 - HC - Income Tax

Sharing of expenses - Taxability of Reimbursement of expenses levy of interest u/s 234B , the Tribunal held that though there was a conflict between the judgment of the Kerala High Court, which was relied upon by the Commissioner of Income Tax (Appeals) and the judgment of the Calcutta High Court in the case of CIT V/s. Dunlop Rubber Company Limited 1982 (2) TMI 24 - CALCUTTA High Court it would follow a view which was favourable to the assessee, consistent with the judgment in Vegetable Products Limited 2008 -TMI - 6382 - SUPREME Court . - held that - Reimbursement of expenses are not taxable

Summary

Issues:
1. Whether charges towards reimbursement of expenses can be included in income?
2. Whether non-inclusion of charges towards reimbursement of expenses would violate the law?
3. Whether the deletion of levy of interest under Section 234B of the Act was justified?

Analysis:
1. The appeal involved the question of whether charges towards reimbursement of expenses should be included in income for assessment year 1998-1999. The assessee had a contract with another party for the supply of a compressor and deputed technicians for inspection. The Commissioner of Income Tax treated the reimbursement of expenses as taxable income, relying on previous court decisions. However, the Tribunal differentiated between fees for technical services and reimbursement of expenses. It held that reimbursement should not be included in taxable income, following a favorable view consistent with previous judgments.

2. The second issue raised was whether the non-inclusion of charges towards reimbursement of expenses would violate the law by partially taxing income on a net basis. The Tribunal considered conflicting judgments but ultimately sided with a view favorable to the assessee. The High Court referred to previous cases where reimbursement of expenses was not considered taxable income. It cited the judgment in Commissioner of Income Tax V/s. Siemens Aktiongesellschaft, where it was held that reimbursement of expenses cannot be regarded as a revenue receipt and should not be taxed.

3. The third issue concerned the deletion of levy of interest under Section 234B of the Act. The counsel for the Revenue conceded that this issue was covered against the Revenue by a previous judgment of the Division Bench. As a result, the High Court found that this question also did not raise any substantial legal issue. Consequently, the appeal was dismissed, and no costs were awarded.