2019 (2) TMI 822 - HC - Income Tax

TDS u/s 192 - disallowing the reimbursement of the salary and related expenses under Section 40 (a) (ia) - Held that - Payment was towards reimbursement of the salary expenses paid towards deputed employees and personnel for doing the work of JV as per the contractual agreement in the Joint Venture Agreement. The employees working for the joint venture were actually not the employees of assessee compnany. The employees and personnel deputed by the company giving such workers on loan to the assessee company continued to be the employer, the assessee merely reimbursed the expenditure in terms of salary structure of the employees to the employer company. There was, therefore, no question of deducting tax at source while reimbursing such costs - Decided in favour of assessee

Summary

Issues:
Challenge under Section 260-A of the Income Tax Act, 1961 regarding disallowance of reimbursement of salary and related expenses under Section 40 (a) (ia) of the Income Tax Act, 1961.

Analysis:
The High Court of Bombay heard an appeal by the Revenue challenging the judgment of the Income-tax Appellate Tribunal (ITAT) regarding the disallowance of reimbursement of salary and related expenses under Section 40 (a) (ia) of the Income Tax Act, 1961. The main question for consideration was whether the ITAT was correct in law in deleting the additions made by the Assessing Officer (AO) in disallowing the reimbursement amounting to ?5,67,80,664. The Court noted that a similar issue was previously considered for the same assessee in another case where the disallowance was overturned. The assessee, a company registered under the Companies Act, had filed its return of income for the assessment year 2010-11, which was scrutinized by the AO resulting in disallowance of expenses under Section 40 (a) (ia) of the Act. The disallowance was related to salary and related expenses paid to another company for employees deputed to work in a joint venture. The Commissioner of Income Tax [Appeals] allowed the appeal, stating that the expenses were reimbursement for the salary and related expenses paid to the other company. The ITAT also upheld this view and dismissed the Revenue's appeal.

The High Court, after hearing the arguments and examining the documents, found no reason to interfere with the ITAT's decision. It was observed that the amount in question was indeed paid as reimbursement of expenditure, and the employees deputed by the other company continued to be its employees, not of the assessee company. The assessee only reimbursed the expenditure based on the salary structure of the employees to the employer company, making tax deduction at the source unnecessary. The Court noted that the ITAT had previously decided a similar issue in favor of the assessee for an earlier assessment year, which had also been upheld by the High Court in a related case. Therefore, the Court concluded that no question of law arose in this matter, and accordingly, the tax appeal was dismissed. Consequently, the appeal by the Revenue challenging the disallowance of reimbursement of salary and related expenses was also dismissed.