2011 (12) TMI 104 - HC - Income Tax

TDS u/s 194J or 195 - global management services and VSAT uplinking - reimbursement of the expenses - held that - The ITAT found that in respect of assessment years 2001-02 and 2003-04, similar appeal of the revenue had been dismissed holding that no such tax at source was deductible and the provisions of Section 40(a)(i) of the Act were not attracted. - this is the view already taken by this Court in the case of this very assessee affirming the earlier decision of the Tribunal (2008 -TMI - 65399 - ITAT DELHI-F) and we see no reason to deviate from the same.

Summary

Issues:
Assessment of expenses for global management services and communication uplink charges, disallowance of expenses for failure to deduct tax at source, applicability of Section 40(a)(i) of the Income Tax Act, 1961, appeal against the order of the assessing officer, appeal before the CIT(A), appeal before the ITAT, challenge to the Tribunal's order by the revenue, comparison of Section 194J and Section 195 of the Act, nature of expenses and obligation to deduct tax at source, reimbursement of expenses incurred by the parent company, interpretation of tax deduction provisions, precedent set by previous judgments.

Analysis:
The case involved the assessment of expenses by a private limited company engaged in chain management, logistics, and freight forwarding services, including global operations with affiliates in over 100 countries. The assessing officer disallowed expenses paid to the parent company in the USA for global management services and communication uplink charges due to the failure to deduct tax at source as per Section 40(a)(i) of the Income Tax Act, 1961. The CIT(A) allowed the appeal, citing the deletion of similar additions in earlier assessment years. The revenue appealed before the ITAT, which upheld the decision based on precedents from previous assessment years.

The revenue challenged the ITAT's order, arguing that tax should have been deducted at source for the payments made, including global management expenses, communication uplink charges, and other expenses. The revenue contended that the case fell under Section 195 of the Act, emphasizing the obligation to deduct tax at source or seek recourse under Section 195(2) or Section 197. However, the assessee's counsel countered, stating that the expenses were reimbursement for costs incurred by the parent company and were not chargeable to tax, hence not triggering the TDS provisions under Section 194J or Section 195.

The High Court upheld the assessee's argument, emphasizing that tax deduction at source is applicable to income, not expenses, and cited the decision in Van Oord ACZ India (P) Ltd. v. CIT to support the non-deductibility of tax on reimbursement expenses. The Court noted that the same view was previously affirmed in the case of the same assessee in earlier judgments, and no substantial question of law arose in the present case. Therefore, the appeal was dismissed based on established precedents and interpretations of tax deduction provisions.