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TMI Blog2019 (10) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 194C of the Act though the provisions of Section 194C of the Act do not apply to the facts of the present case and as such there is no obligation on the Appellant to deduct tax at source on the reimbursements made by it to its Affiliates. 2. The Ld. CIT(A), erred in law, by departing from the well-established principle of consistency particularly where, no demands have been raised and/or adverse orders have been passed on account of non-deduction of tax in respect of reimbursements made to the Appellant's Affiliates under section 194C of the Act, since inception of the Appellant Company. 3. The Ld. CIT(A) has erred in ignoring the observations contained in the order passed by the Hon'ble Supreme Court in the Appellant's own case and the guidelines issued by the Reserve Bank of India, governing the Appellant's business operations. 4. The Ld. CIT(A) erred in holding the Appellant to be an assessee in default for failing to deduct tax at source under section 194C of the Act on the reimbursements made by the Appellant to its Affiliates, even though: a. The Affiliates are not acting as agents of the Appellant and are not providing any services or suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. A statement of Mr. Pramul Saxena, Chief Financial Officer of the appellant was also recorded by the Assessing Officer (AO) u/s 131 of the Act. Subsequently, in response to a query raised by the AO vide show cause notice dated 22.02.2016 to explain why it should not be treated as an assessee in-default for failing to deduct tax at source u/s 194C of the Act on the reimbursement of vouchers to various affiliates during the year, the assessee filed a reply vide letter dated 08.03.2016 explaining why the provisions of section 194C of the Act are not applicable to reimbursements made by the appellant to various affiliates. However, the AO was not convinced with the said reply of the assessee and observed that (i) the appellant has not mentioned quantum of receipts and payments made in its P&L account attached with the audit report, (ii) no qualification statement has been made by the auditor in the notes to audit on why he opted to exclude receipts from the clients/customers and payments made to affiliates in its P&L account and audit report, (iii) the appellant is making TDS on certain payments made to one category of affiliates i.e. Caterers ; however no TDS is being made on payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 194C of the Act and hence claim made by the appellant that payments made by it to affiliates namely Restaurants/Supermarkets are not liable to TDS u/s 194C is not acceptable, (ix) the agreement of the appellant is not with employees, but with corporate/firm to whom these employees belong to; further payment to the appellant is made by corporate/firm from its current account not by employees from their own account which the appellant has claimed to be reimbursing on behalf of the employees under the alternate and PSS Act, (x) the appellant is not simply reimbursing, it is doing much more, like collecting service charges from affiliates, binding them with contract agreement, processing of claim forms of affiliates etc. and providing service to employees who are not directly connected with it, (xi) affiliates render service to the employees of the appellant's customers pursuant to the contract agreement signed with the appellant and the appellant is making payments to these affiliates for the services provided by them after deducting its commission/other charges; the assessee has tried to convert the issue of payment being made under contractual agreement into "an agreement" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the AO treated the appellant as defaulter within the meaning of section 201(1) and directed the appellant to pay tax of Rs. 32,82,40,000/- being tax not deducted at source u/s 194C and not deposited in the Government account u/s 201(1) and interest of Rs. 13,91,32,320/- u/s 201(1A) of the Act. 6. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). Having examined the facts of the case and the contentions of the appellant, the Ld. CIT(A) observed that (i) in this business model, payments are received by the appellant-company by issuing of Sodexo vouchers to customer companies; the appellant in turn makes payment to affiliate companies after verification by redeeming the vouchers and these kind of transactions can be described as 'cash management service charges' which broadly refers to an area of finance involving a full range of advance products and services to efficiently process receivables and payables, (ii) it is apparent that if a payment is made by a person to any payment systems company authorized by RBI under sub-section (2) of section 4 of the PSS Act for any of the mentioned services or activity therein, no deduction of tax under Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a simple example of purchase and sale of goods, rather the transaction takes place pursuant to and in terms of the written commercial contract made between the two parties ; even the terms and conditions of contract between the two parties at para numbers 4, 5, 6 and 14 of the agreement indicate specified duties of the Restaurants beyond normal course of their business, (xii) this is not a case of reimbursement as in the case of reimbursement, the full amount of the bill is paid by the party making the reimbursement ; however, in the present case the vouchers are reimbursed after deducting service charges, (xiii) if the accounting aspects of the transaction is examined, in case of reimbursement of expenses the amount paid by Sodexo should be the expenses incurred by the affiliates, however, the actual transaction entry is that the amount paid by Sodexo to the various affiliates has been shown as receivables or a trading receipt on the income side ; in case of reimbursement of expenses, generally one party bills the other party the said amount which he has incurred as expenses also in their books of account and will receive the payment as reimbursement. Observing as above, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Issuance and Operation of Prepaid Payment Instruments in India" dated 01.07.2015 issued by RBI and argue that the appellant is specifically allowed to make "reimbursement" to its affiliates out of an escrow account maintained by the appellant under the scheme as laid out by RBI in the said Circular. It is explained that reimbursement of the value of the vouchers does not part take the nature of income in the hands of the payee/recipient and, therefore, no tax is deductible at source in respect thereof. The Ld. counsels point out that the Hon'ble Supreme Court in the case referred above concluded that the appellant is not making any payment to the affiliates and the only role played by the appellant in the whole transaction is reimbursement of the face value of the meal vouchers. It is explained that even if it is regarded that payment is made by the appellant, the same is for the purchase of food by the employees of the customer and not for any work performed and the appellant is only acting as a facilitator who discharges the obligation of the employees arising from the employees purchasing food items from the affiliates. Referring to clause 24 of the agreement between the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses' the face value of the vouchers to the affiliates, (ii) there is no contract for 'work' between Sodexo and the affiliates as contemplated u/s 194C of the Act ; the affiliates neither do any work for the appellant nor supply any labour to the appellant and (iii) there is no element of income comprised in the reimbursement as the income for the affiliate has accrued at the point of time when the sale of food has taken place. Further stating that the real character of the transaction is the facility by the customers as employers to their employees, the Ld. counsels explain that the customer makes payment to the appellant for the purchase of the meal vouchers and the value of the meal vouchers is a perquisite in the hands of the employees and accordingly, a part of salary of the employee and TDS in respect thereof is deductible u/s 192 of the Act by the employer. Thus it is stated that the appellant does not make payments to the affiliates but it is the employees that make such payment to the affiliates for the purchase of food items through meal vouchers as an alternative to making cash payment. Concluding that there is no element of income arising from the reimbursement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings in the survey, the order in earlier years will have no binding effect in the current year. In Instalment Supply (Pvt.) Ltd. v. UoI, AIR 1976 SC 53, it is observed by the Hon'ble Supreme Court that in tax matters, there is no question of res judicata because each year's assessment is final only for that year and does not govern later years. 9.1 As mentioned hereinbefore, the contentious issue here is whether the payments made by the appellant to its affiliates are 'reimbursement' or not. 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 127 TTJ 25 (Bang-Trib), it is observed that the following parameters are essential for a payment to be regarded as reimbursement: * The actual liability to pay should be of the person who reimburses the money to the original payer. * The liability should be clearly determined, it should not be an approximate or varying amount. * The liability should have crystallized. In other words, the reason given that payments that were never required but were made just avoid a potential pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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