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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 ..... y holding payment of actual costs salaries reimbursements viz. Rs. 3,08,66,545/- and Rs. 40,63,698/- to Jindal Power Limited as composite payment of fees for services and expenses without appreciating that there is a direct co-relation between actual expenditure incurred by Jindal Power Limited and that recovered from the appellant company. 3. That the Commissioner of Income Tax (Appeal) - XVII, New Delhi has grossly erred on facts and in the circumstances of the case and in law in holding that there is no agreement between the appellant and Jindal Power Limited for reimbursement of salaries. 4. That the Commissioner of Income Tax (Appeal) - XVII, New Delhi has grossly erred on facts and in the circumstances of the case and in law in not appreciating that the provisions of sec. 4o(a)(ia) applied only to those amounts which were remaining payable as on the last day of the previous year whereas in the appellant's case the two sums viz. Rs. 3,08,66,545/- and Rs. 40,63,698/- on account of salary expenditure and travelling expenditure stood paid during the previous year. 5. That the Commissioner of Income Tax (Appeal) - XVII, New Delhi has grossly erred on facts and in the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the income tax act was passed determining the total income of the assessee of Rs. 35097046/- compared to the returned income of Rs. 166803/- incorporating the above disallowance of Rs. 34930243/-. The assessee aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A). Proceedings before the Ld. CIT (A) 6. The assessee contended the same argument before the Ld. CIT (A), which were contended before the Ld. AO. Assessee further submitted that the assignment of duties was on a temporary basis and expenditure was only in the nature of reimbursement of actual expenses incurred. Further, the tax deduction at source on the employee was discharged by M/s Jindal Power Ltd and therefore there was no payment in the nature of a contract payment made by the appellant to that company. 7. The Ld. CIT (A) held that there is no agreement specifying the expenses to be incurred and whether any fee was to be paid to M/s Jindal Power Ltd for deputing the personnel. He held that this composite amount which is being stated as reimbursement and therefore tax should have been deducted thereon u/s 194C of the income tax act. He further held that in his view provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein the Bombay High Court has held that assessee paid certain amount to sister concern by way of the reimbursement of salaries because their employees were deputed to the assessee there was no requirement to deduct tax at source from the said payments. He further submitted that in the case of the appellant salaried employees were deputed on different dates as per the requirement of the project carried out by the appellant company of which details name of the personnel, designation, monthly salary, time for the deputation period is furnished to the assessing officer in as many as in 6 out of 20 cases the persons have been deputed in the middle of the month. He further relied upon the decision of the Hon'ble high court in case of CIT versus vector shipping services Private Ltd. He further relied on the decision of the coordinate bench in ITAT in assistant Commissioner of income tax versus Karma energy limited 191 ITR 552, to submit that when the expenditure have already been paid no tax deduction at source is required to be made. In the end he relied upon the decision of the Hindustan Coca-Cola beverages private limited versus CIT 293 ITR 226 that no disallowances called for unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source. According to the provisions of section 194C of the income tax act any payment made for the work carried out is subject to tax deduction at source under section 194C of the income tax act. Further, according to provisions of section 194J of the income tax act any payment made for fees for technical services is also subject to tax deduction at source. Therefore, the argument of the assessee that memorandum of Association of the recipient company 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. 12. Further, we have perused the page No. 12 of the paper book wherein the letter dated 9 July 2009 is issued by Jindal power Ltd to the assessee company wherein it has been stated that that reimbursement of salary, wages, rents, transportation and other expenses incurred by that company during the financial year 2009 - 10 on behalf of the assessee is required to be reimbursed. Along with that letter at page No. 13 details of the persons who are deputed by j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that tax is required to be deducted under section 194J of the income tax act, as it is a fees for technical services paid by the assessee to Jindal power Ltd, in the form of reimbursement of salary as well as travelling expenses. 13. Assessee has also stated that there is an agreement between the parties which is placed at page no 12 of the paper book. We have perused the same. It is a letter dated 9/7/2009 written by Jindal Power limited to the assessee with a direction to pay the salary, wages, rent, transportation and other expenses incurred by that company for the F Y 2009-10 on behalf of assessee. There is no reference about the quality of staff that is required to be provided, what are the terms and conditions of the deputation would be there, where this staff would be deployed etc. Even otherwise this letter, which is claimed to be an agreement, is after incurring of the cost by that company. Therefore, it is apparent that there is no understanding between the parties about this reimbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the assessee and not the consultant to the assessee. Further, in that particular case, the tribunal held that the amount paid was salary. Here in the present case the amount was not paid as a salary but reimbursement of multiple costs incurred for employment of those persons in the form of salary, wages, rents, transportation, and other expenses, which is apparent at page No. 12 of the paper book. Therefore, the decisions relied upon by the Ld. authorized representative do not apply to the facts of the case. 17. The second decision relied upon by the Ld. authorized representative was with respect to the Monsanto Biotech India private limited wherein it has been held that on the issue of reimbursement of the expenditure provisions of section 194C does not apply and therefore no disallowance can be made. In that particular case, the AO has not disputed that the impugned amount was in the nature of reimbursement expenses on cost-to-cost basis. In the present case, the Ld. assessing officer has disputed that this amount is paid for the purpose of work carried out by the recipient of the income. In view of this, the about decision does not apply to the facts of the case. 18. Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch event, "it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso". 10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201(1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under: "Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) The recipient has paid the tax due on the income declared by him in such return of income; And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed." 11. The first proviso to Section 201(1) of the Act has been inserted to benefit the Assessee. It also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non-deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a) (ia), as we see it, is aimed at ensuring that expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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) of the income tax act and if the assessee is able to satisfy the Ld. assessing officer 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 accordance with the law. In view of this ground No. 5 of the appeal of the assessee is accepted and allowed. 23. In th ..... 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