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2018 (5) TMI 152 - HC - Income TaxNot deducting TDS u/s 194J - assessee in default - payment for service charges - whether the payments made by the assessee to M/s. Hospet Steel Limited are reimbursement of expenses on cost to cost basis and does not constitute income component? - Held that - As in Hyderabad Industries Ltd., Vs Income Tax Officer and Another (1991 (1) TMI 134 - KARNATAKA High Court) held that, an amount which will not be included in the total income of a person cannot be considered as income for the purpose of deduction of tax at source at all. The purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act, it is to facilitate the collection of tax lawfully leviable under the Act. In view of the factual finding of the appellate authorities that the payment made by KSL and ML to HSL for various expenses incurred would be a reimbursement and not a fee for technical services, Section 194J is not attracted. Assessee falls outside the scope of Section 194J r/w Section 200 of the Act during the relevant assessment years. Consequently, the provisions of Sections 201 and 201(1A) of the Act are not attracted. We do not find any material irregularity or infirmity in the orders passed by the appellate authorities. - Decided in favour of assessee
Issues:
1. Interpretation of Section 194J of the Income Tax Act, 1961 regarding fees for professional or technical services. 2. Determination of liability to deduct TDS under Section 194J for payments made towards managerial and technical services. 3. Assessment of whether reimbursement of expenses constitutes income component attracting TDS provisions. 4. Consideration of Strategic Alliance Agreement terms in determining the nature of payments made. Issue 1: Interpretation of Section 194J: The High Court analyzed Section 194J of the Income Tax Act, which mandates deduction of income tax on fees for technical services. The court highlighted the requirement that there must be an income component comprised in the payment to trigger the TDS provision. Issue 2: Liability to Deduct TDS: The court examined whether the payments made for managerial and technical services necessitated TDS deduction under Section 194J. It was argued that the nature of services rendered should determine the applicability of TDS provisions, irrespective of the nomenclature used by the parties involved. Issue 3: Reimbursement vs. Income Component: The court considered the argument that reimbursement of expenses does not constitute income and, therefore, does not attract TDS provisions under Section 194J. It emphasized that if no income is reflected in the payments, TDS would not apply, as per the provisions of the Act. Issue 4: Strategic Alliance Agreement Terms: The terms of the Strategic Alliance Agreement were crucial in determining the nature of payments made. The court analyzed the agreement to ascertain whether the payments were towards reimbursement of expenses or fees for technical services, ultimately impacting the liability to deduct TDS. The court referred to relevant legal provisions, including Section 2(24) and Section 190 of the Act, to support its interpretation. It also cited precedents and circulars to elucidate the principles governing TDS deductions. Ultimately, the court dismissed the appeals, ruling in favor of the assessee based on the factual and legal considerations presented in the case.
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