2016 (8) TMI 646 - AT - Income Tax

TDS u/s. 194H - Disallowance made u/s. 40(a)(ia) - Held that - We find that the assessee had entered into an agreement with the principal on one hand and on the other hand agreements were signed with the subagents, that the subagents were to file monthly bills of travel expenses to the assessee, that she had to submit the bills to the principal, that the principal, on being satisfied about the genuineness of the expenditure, had to make a payment to the assessee, that assessee would be making the payments to the subagents as per the agreements entered into with them, that the AO had made some independent enquiries, that the subagents had admitted to have received the reimbursement, that the AO did not consider the said fact while passing the assessment order. The agreements, entered in to by the assessee with the principal and the agents, clearly indicates that the assessee was to reimburse the actual expenditure incurred by her subagents. In our opinion, there is no need to quote any authority to hold that no tax is to be deducted for reimbursing an expenditure. The AO had not brought on record that the reimbursement had income element embedded in it. It was pure and simple case of reimbursing the expenditure incurred by the sub-agents. We find that the FAA had clearly brought out the distinction between the commission received from the principal and the reimbursement received by the assessee, in his order. He has specifically held that provisions of section 194H of the Act would be applicable for the commission payment. In our opinion, his order does not suffer from any legal or factual infirmity. Therefore, upholding his order we decide the effective ground of appeal against the AO.

Summary

Issues:
1. Disallowance made under section 40(a)(ia) of the Income Tax Act.
2. Whether the payment in question was reimbursement or commission payment.
3. Applicability of section 194H of the Income Tax Act.

Analysis:
1. The Assessing Officer (AO) disallowed a sum under section 40(a)(ia) of the Act, treating the entire payment as commission payment subject to TDS. The AO held that the reimbursement expenses incurred by the agents were part of the commission payment and thus liable for disallowance. The First Appellate Authority (FAA) analyzed the agreements between the assessee and her agents and concluded that the reimbursement of expenses did not constitute income in the hands of the recipient, hence not subject to TDS. The FAA deleted the disallowance of the reimbursed amount, distinguishing it from commission payments.

2. The AO contended that the payment was commission and invoked section 194H. The FAA, after examining the agreements, confirmed that the payment was reimbursement for actual expenses incurred by subagents, not commission. The FAA held that the AO failed to consider the confirmation from parties receiving reimbursements. The Tribunal concurred with the FAA's findings, emphasizing the distinction between commission and reimbursement, upholding the FAA's decision and dismissing the AO's appeal.

3. The Departmental Representative argued that the payment was commission, while the Authorized Representative cited relevant case laws supporting the reimbursement nature of the payment. The Tribunal observed that the agreements clearly outlined the reimbursement process for actual expenses incurred by subagents. The Tribunal upheld the FAA's decision, emphasizing that no tax deduction was required for reimbursing expenses, and the payment in question was not subject to TDS under section 194H.

In conclusion, the Tribunal upheld the FAA's order, dismissing the AO's appeal. The decision highlighted the distinction between commission and reimbursement payments, emphasizing that reimbursement of actual expenses did not attract TDS under section 194H.