2017 (3) TMI 263 - AT - Income Tax

TDS u/s 194C - TDS liability - expenses reimbursed by the assessee - nature of expenses - Held that - There existed a royalty-cum-reimbursement agreement between the assessee and CECO and as per the said agreement certain service charges for contract job work were to be reimbursed by the assessee to CECO e.g. (i) royalty for use of the name of CECO, (ii) reimburse of direct expenses made exclusively by CECO for the business of the assessee and (iii) payment for services and reimbursement will be based on practical aspect and requirement of funds. Therefore, this clause is clear about the fact that all direct expenses made by CECO have to be reimbursed by the assessee. At the same time, we observe from the order of the Ld. CIT(A) itself wherein there is a chart of statement of expenses where for all expenses paid TDS was deducted and i.e. evident from the chart. Therefore, there is no loss to the revenue in the entire transaction. Further in the judgment of the Delhi ITAT in case of Dr. Willmar Schwabe India (P) Ltd. 2005 (3) TMI 398 - ITAT DELHI-D it is crystal clear proposition of law that when there is no element of income and there is mere reimbursement made there is no question of deduction of TDS. In the instant case, we arrive at our considered view that assessee made payment to CECO by way of reimbursement only. Therefore, we find no infirmity with the findings of the Ld. CIT(A) and the relief granted to the assessee is sustained. This ground of appeal of revenue is dismissed. 9. Ground Nos. 1 and 3 are general in nature and hence, need no adjudication.

Summary

Issues:
1. Nature of payment to CECO Electronics Pvt. Ltd. - reimbursement or contractual?
2. Requirement of TDS deduction on the payment made to CECO.

Analysis:

Issue 1: Nature of Payment to CECO Electronics Pvt. Ltd.
The appellant contended that the payment of ?49,53,046 made to CECO was contractual in nature and required TDS deduction. The AO disallowed the amount under section 40(a)(ia) of the Income-tax Act, stating it was reimbursement. The AO's reasons included CECO showing the payment as income, lack of supporting bills, and previous years' payments being contractual. The AO concluded it was a contractual payment for managerial support, necessitating TDS deduction. However, the assessee argued that TDS was duly deducted on each expenditure and no double taxation should occur. The CIT(A) noted that the expenses were incurred on behalf of the assessee, and as per Tribunal judgments, no TDS was required on reimbursements. The CIT(A) held that section 40(a)(ia) did not apply to these expenses, thus deleting the addition.

Issue 2: Requirement of TDS Deduction
The AO's stance was that TDS was required on the payment to CECO under section 194C. The assessee maintained that TDS was deducted wherever applicable, and no additional amounts were paid to CECO. The CIT(A) referred to Tribunal decisions supporting that reimbursements do not necessitate TDS deduction. The Delhi ITAT case of Dr. Willmar Schwabe India (P) Ltd. was cited to emphasize that when payments are reimbursement in nature, TDS deduction is not mandated. The ITAT concurred with the CIT(A) and upheld the relief granted to the assessee, dismissing the revenue's appeal.

Conclusion:
The ITAT upheld that the payments to CECO were reimbursement in nature, not requiring TDS deduction. The judgments cited and the royalty-cum-reimbursement agreement supported this conclusion. The ITAT found no fault in the CIT(A)'s decision, leading to the dismissal of the revenue's appeal. Grounds 1 and 3, being general, were not further discussed, and the appeal of the revenue was ultimately dismissed.