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TMI Blog2017 (10) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany does not cover the clause of the manpower supply does not help the case of the assessee. In any case the recipient of income is engaged in the provision of services in power sector which is part of the object of that company and same is also the business of the assessee company. The bills are with respect to the Senator Travels private limited which have been reimbursed by the assessee company to that company. In view of this, it is apparent that when the persons deputed by the Jindal Power Ltd to the assessee company were of the level of executive and going up to the level of Executive Director, it cannot be said to be the reimbursement of salary expenditure when it is coupled with several expenditure of domestic and international travelling for the business of the company. Further, it is also important that all these persons were throughout working for the company as well as with Jindal power Ltd. In view of this, it is apparent that those persons were working for the projects of the company and Jindal Power Ltd has been paid by the assessee as remuneration for getting work done from Jindal Power Ltd. Therefore, according to us, the Ld. CIT (A) has correctly adjudicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recipient of the income and when the recipient of income has paid tax on that particular income - Held that:- No difficulty in accepting the argument of the Ld. authorized representative that if the tax has been paid by the recipient of the income on the income in holding the transactions and no disallowance should be made in the hands of the assessee. In view of this we set aside this issue back to the file of the Ld. assessing officer to allow the benefit of the 2nd proviso to the section 40 a (ia) and if the assessee is able to satisfy the AO that the recipient of the income has offered the income in its return of income on furnishing the section 139 of the income tax, incorporated such income in its return of income, has paid the due tax thereon and he furnishes requisite certificate as prescribed therein that no disallowance be made. Therefore, if the assessee would like to have the benefit of this particular proviso by furnishing requisite certificate is an mentioned in the provisions of section 201 of the income tax act, the appellant may furnish to the ld AO same within 60 days of the order and the Ld. assessing officer may consider the claim of the assessee in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw in ignoring the remedial amendment in second proviso to sub-clause (ia) of clause (a) of section 40 by the Finance Act, 2012 whereby the appellant shall not be deemed to be in default to deduct and pay tax under the provisions of Chapter XVII-B of the Act. Facts of the case. 3. The assessee is a company engaged in business of an execution of engineering procurement, construction and commissioning of power plants in Power sector. It filed its return of income on 28/09/2010 showing income of ₹ 166803/- under section 115 JB of the income tax act, 1961. During the course of assessment proceedings on the basis of the details filed by the assessee, The Ld. assessing officer noted that assessee has debited the salary expenses and travelling expenses paid to M/s Jindal Power Limited for the workforce and find that company has sent the employees on deputation to serve the assessee company. Therefore, according to the Ld. AO payment to M/s Jindal Power Ltd was made for carrying out the work of supplying the personnel and for rendering of certain services to the assessee company. Therefore, according to the Ld. assessing officer, tax should have been deducted under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his view provisions of section 194J would be applicable to the facts of the case as all senior management person qualified to render the professional and technical services were deputed by the sister concern of the assessee. Therefore he confirmed the disallowance under section 40a (ia) of the income tax act. Therefore, vide order dated 18/11/2013 appeal of the assessee was dismissed. Assessee, aggrieved with the order of the Ld. CIT (A) preferred an appeal before us. Arguments of the Ld. authorized representative 8. The Ld. authorized representative submitted a brief synopsis of his written argument which contends as under:- a. The appellant employed personnel requisitioned from Jindal Power Ltd on different dates to work on project executed by the appellant company. On deputation, such employees were to discharge the duties of employment under the supervision and control of the appellant company. For administrative reasons the salary and expenses of such employee have been paid by the Jindal Power Ltd which have been misconstrued as being in the nature of contract payment under section 194C for work carried out by Jindal power limited. Its memorandum of articles doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowances called for under section 40a (ia) in case of non-deduction of tax at source. b. With respect to the ground No. 4 and 5 he says that that assessee has not been deemed to be an ‗assessee in default to deduct tax under Chapter XVII B of the income tax act, 1961 and therefore the disallowance may please be deleted. c. In the end, he submitted that assessee has though not deducted tax at source, but same has been paid by the recipient of the income and is already considered the same in its income, no disallowance can be made in the hands of the assessee. Submission of the revenue. 9. The Ld. departmental representative vehemently contested the facts of the case and submitted that when the assessee has incurred certain expenditure for the purpose of carrying out its own work from sister concern. It is covered under the provisions of section 194C of the act and the tax should have been deducted thereon. He further submitted that it is not the payment of the salary but it is the payment for work or fees for technical services or contract services by the assessee to the Jindal Power Ltd. He further submitted that merely because the tax has been deducted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of the persons who are deputed by jindal power Ltd are mentioned. The list of such persons shows that there are 20 persons who have been deputed by the recipient company to the assessee and the statement is titled as statement of sharing of the employees cost for deputation period. The 20 employees mentioned in those list are in the designation of junior executive, executive, assistant manager, deputy manager, manager, senior manager, senior deputy general manager, assistant general manager, assistant vice president, senior general manager, vice president, and also Executive Director. The total of the salary of these persons are stated to be ₹ 3086 6545/. The Department of these persons is EPC, which is the main function of the assessee company. Looking to the profile of the company and also the profile of the persons who have been deputed it is important to note that out of 20 people 10 persons were drawing salary of more than ₹ 10 lakhs per annum, 5 persons were drawing salary more than ₹ 20 lakhs and two persons were drawing salary of more than ₹ 50 lakhs per annum. Therefore it is apparent that the persons deputed by the recipient of the income ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no understanding between the parties about this reimbursement. Further in some of the employees there is sharing of the cost where as in some of the employees there is no share of cost to Jindal Power limited. In view of this it cannot be said that it is a pure reimbursement of expenses which does not require TDS. 14. The assessee also could not establish that what kind of staff it has of its own to execute the kind of work it is earning revenue for. It has earned the revenue of ₹ 190942881/- for the year where the total cost of salary reimbursed is ₹ 30866545/- which is almost 20 % of the work billing. Hence in absence of the facts that how the work are executed by the assessee whether it fully by the staff on loan or it has its own staff also, it is not possible to accept the contention that reimbursement of salary coupled with other reimbursement of international and domestic travel is reimbursements of expenses simplicitor escaping withholding tax liability. 15. The next contention of the assessee is that all these expenses have already been paid and therefore the tax requirement deduction applies only in case of payment outstanding at the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of this, the about decision does not apply to the facts of the case. 18. With respect to decision of Honourable Bombay High court in 32 Taxmann.com 271 in CIT V OCB Engineers there was a finding of fact that the payments made by the respondent assessee to its sister concerns was reimbursement for the salaries of the employees who have been deputed by the sister concerns to work with the respondent assessee. The impugned order records that it is not the case of the revenue that the assessee had made any payment for consideration extraneous to any allegation that the amounts paid to its sister concerns were over and the above the salaries due to the employees. In the present case, firstly, the lower authorities have not given such a finding of fact but in fact, they have disputed that it is for carrying out work/ professional fees. Further in the present case there is payment of domestic and international travelling expenses. Therefore on facts the issues are distinguishable. 19. Similarly we have also perused the other case laws cited before us, but we are not convinced for the reasons given that on the sum tax should not have been deducted as it is reimbursement of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 11. The first proviso to Section 201(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfillment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a)(ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40(a)(ia) and Section 201(1) of the Act is that as long as the payee/resident (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the det ..... X X X X Extracts X X X X X X X X Extracts X X X X
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