2019 (10) TMI 1066 - AT - Income Tax

TDS u/s 194C - obligation to deduct tax at source on the reimbursements made by it to its Affiliates - HELD THAT - The appellant claims it as reimbursements, whereas the revenue disputes it. Therefore, it would be pertinent to examine below the co-ordinates of reimbursements . In Bovis Lend Lease (I) P. Ltd. v. ITO 2009 (8) TMI 853 - ITAT BANGALORE it is observed that the following parameters are essential for a payment to be regarded as reimbursement - (a) The actual liability to pay should be of the person who reimburses the money to the original payer. (b)The liability should be clearly determined, it should not be an approximate or varying amount. (c)The liability should have crystallized. Reason given that payments that were never required but were made just avoid a potential problem may not qualify. (d)There should be a clear ascertainable relationship between the paying and reimbursing parties. Therefore, reimbursement by an unconnected person may not qualify. (e)The payment should first be made by somebody whose liability it never was and the repayment should then be made to that person to square off the account. (f)Three parties should exist in a case of reimbursement-a payer, a payee and a reimburser (i.e. the person reimbursing the amount of the payer). Further it is well settled that the basic ingredient is that there is no profit element in the amount reimbursed. Some examples of documents to be considered in the context of transactions involving reimbursements , which are Written agreement between the parties, Invoices or debit notes raised by the parties and Agreement entered by lead company with third parties and invoices raised by the third parties towards reimbursable expenses incurred by the lead company. Having examined the materials available on record, we find that the parameters as mentioned above have not been examined by the AO or the CIT(A). Further, it is observed that the documents which could lead to it have not been filed completely by the appellant before the AO or the Ld. CIT(A). Therefore, we set aside the order of the CIT(A) and restore the matter to the file of the AO of make a de novo order after giving reasonable opportunity of being heard to the appellant. We direct the appellant to file the relevant documents/evidence before the AO. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Whether the assessee is liable to deduct tax at source under Section 194C of the Income Tax Act on reimbursements made to its affiliates.
2. Whether the payments made by the appellant to its affiliates are considered reimbursements or not.
3. Whether the principle of consistency applies in this case given the appellant's history of non-deduction of tax.
4. Whether the appellant's operations and agreements with affiliates constitute a "contract" under Section 194C.
5. Whether the appellant can be treated as an assessee in default under Section 201/201(1A) of the Act.

Detailed Analysis:

Issue 1: Liability to Deduct Tax at Source under Section 194C
The appellant argued that Section 194C, which mandates tax deduction at source for payments made under a contract for carrying out any work, does not apply to reimbursements made to its affiliates. The affiliates are not providing any services or supplying any goods under a contract with the appellant, and there is no consideration paid to the affiliates by the appellant. The appellant contended that the payments were merely reimbursements for meal vouchers used by employees of its customers, which do not constitute "work" under Section 194C.

Issue 2: Nature of Payments - Reimbursements or Not
The appellant maintained that the payments made to affiliates were reimbursements for the face value of meal vouchers used by employees of its customers. The appellant argued that these payments do not include any profit element and are made out of an escrow account as per RBI guidelines. The revenue, however, contended that the payments were not mere reimbursements but were part of a contractual agreement involving services rendered by the affiliates, thereby attracting TDS under Section 194C.

Issue 3: Principle of Consistency
The appellant argued that the principle of consistency should apply, as no demands or adverse orders had been passed in previous years for non-deduction of tax on similar reimbursements. The revenue countered that findings from a survey conducted under Section 133A (2A) revealed non-compliance with Chapter XVIIB provisions, and hence, previous years' assessments do not bind the current year's assessment.

Issue 4: Existence of a Contract under Section 194C
The revenue argued that the appellant had entered into contracts with its customers and affiliates, making the payments to affiliates liable for TDS under Section 194C. The AO observed that the affiliates performed specific work under these contracts, and the payments made by the appellant were not simple reimbursements but were made pursuant to these contractual agreements. The CIT(A) upheld this view, noting that the transactions involved more than mere reimbursement and included service charges and other obligations under the contracts.

Issue 5: Treatment as Assessee in Default under Section 201/201(1A)
The AO treated the appellant as an assessee in default for failing to deduct tax at source on payments made to affiliates and directed the appellant to pay the tax and interest. The CIT(A) confirmed this order, finding that the payments were made under contractual agreements and attracted TDS under Section 194C.

Conclusion:
The Tribunal found that the parameters to determine whether the payments were reimbursements had not been adequately examined by the AO or the CIT(A). The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for a de novo examination, directing the appellant to provide relevant documents and evidence. The appeals were allowed for statistical purposes, and the decision for AY 2013-14 was applied mutatis mutandis to AYs 2014-15, 2015-16, and 2016-17.