2016 (10) TMI 250 - HC - Income Tax

TDS u/s 194C - tds liability on reimbursement expenditure - Held that - A bare reading of Section 194C of the Act would indicate that it does not cover reimbursement of expenditure incurred separately not as a part of the consideration for the work done by the agent / contractor. Further the view taken by the CIT(A) as well as by the impugned order of the Tribunal on facts that the payments made to the agent for the freight paid by it on the respondent assessee s behalf was in fact, reimbursement of expenses. This is so evidenced by Airlines bills which show the respondent assessee as the person responsible to make the payment. This finding of fact by two Authorities is not shown to be perverse.Tribunal was justified in holding that the reimbursement expenditure is not liable to the TDS u/s 194C - Decided against revenue

Issues:
1. Interpretation of Section 194C of the Income Tax Act, 1961 regarding reimbursement expenditure.
2. Tax deduction at source (TDS) liability on reimbursement expenses.
3. Disallowance of expenditure by the Assessing Officer.
4. Appeal to the Commissioner of Income Tax (Appeals) [CIT(A)].
5. Tribunal's decision on separate billing for reimbursement.
6. Justification of Tribunal's decision in light of Section 194C and CBDT Circular No. 715.

Analysis:

1. The judgment concerns an appeal challenging the Income Tax Appellate Tribunal's order regarding the Assessment Year 2009-10 under Section 260A of the Income Tax Act, 1961. The main issue revolves around the interpretation of Section 194C of the Act concerning the liability of Tax Deducted at Source (TDS) on reimbursement expenditure.

2. The respondent, engaged in the export business, faced scrutiny over unreimbursed tax on freight and clearing charges. The Assessing Officer disallowed the expenditure, leading to an appeal to the CIT(A). The CIT(A) found that the reimbursement for freight charges was supported by separate invoices and not part of the services rendered, thus allowing the appeal partially.

3. The Revenue further appealed to the Tribunal, which upheld the CIT(A)'s decision based on precedents where separate billing for reimbursement exempted TDS liability. The Tribunal's decision was grounded in the distinction between reimbursement and service charges, leading to the dismissal of the Revenue's appeal.

4. The Revenue contended that the reimbursement expenditure fell under Section 194C. However, the Court found that Section 194C did not cover separate reimbursement expenses unrelated to the work done by the agent/contractor. The factual findings by the CIT(A) and the Tribunal were deemed reasonable and not perverse, leading to the rejection of the proposed substantial question of law.

5. Ultimately, the Court dismissed the appeal, emphasizing that the question posed did not raise any substantial legal issues. The judgment highlights the importance of distinguishing between reimbursement and service charges under Section 194C, supporting the Tribunal's decision based on factual evidence and legal interpretation.

6. In conclusion, the judgment clarifies the treatment of reimbursement expenditure under Section 194C of the Income Tax Act, emphasizing the necessity of separate billing and the absence of TDS liability for such expenses unrelated to the contracted work. The decision underscores the significance of factual findings and legal reasoning in tax matters, providing guidance on interpreting relevant provisions to determine tax obligations accurately.

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