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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 ..... 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 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant; b. The Affiliates are not carrying out any work for the Appellant; c. The Appellant does not pay any consideration to the Affiliates; d. Section 194C of the Act does not apply to transactions in the nature of reimbursements ; e. There is no contract to carry out any work between the appellant and the affiliates; and f. The affiliates are not acting as Contractor/Sub-Contractor for the Appellant. 3. The assessee has also filed an additional ground of appeal No. 7 which is as under : On the facts and in the circumstances of the case, and in law, the appellant submits that the Ld. CIT(A) grossly erred in treating the appellant as an assessee in default u/s 201/201(1A) and charging interest when the appellant denied its liability to be taxed at all. 4. As the above additional ground of appeal No. 7 is closely linked with the original grounds of appeal, we admit it for adjudication. 5. Briefly stated, the facts of the case are that the appellant is a private limited company registered under the Companies Act, 1956. It is authorized by the Reserve Bank of India (RBI) u/s 7 of the Payment Settlement System Act, 2007 (in short PSS Act ) to carry on the business of operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lishments, (iv) RBI gives license to operators of pre-paid instruments only to protect the public interest and to regulate the issue of pre-paid payment instruments in the country ; this license does not give blanket sanction to the appellant not to follow any of the provisions of the Income Tax Act applicable to it, (v) in the case of the appellant, the money for issuance of pre-paid instruments is received from clients/customers who are mainly big corporates/firms who pay the money from their account and obtain the prepaid instruments from the appellant and give these instruments to their employees for actual use; for this the corporates/firms are getting deduction of expenditure u/s 17 of the Act, without attracting any tax on the expenditure made ; the employees use the appellant s coupons at different affiliates which are in agreement/contract with the appellant and obtain food and other articles, (vi) the ultimate beneficiary in the appellant s coupons is the employee of a corporate who is not paying money for the services used or who is not the client of the appellant and he is a completely third party who never comes in touch with the appellant; whereas in credit card/debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; (xii) all the affiliates have to do specific work before claiming reimbursement from the appellant; after processing of reimbursement claim by affiliates, amount payable is determined by the appellant and it is final and affiliates should also pay service charges and delivery charges to the appellant, which clearly proves that it is more than reimbursement and affiliates are acting as agents to the appellant in serving clients/customers of the appellant through contract arrangement made which falls under 194C and making the appellant liable to make TDS on all payments made to affiliates, (xiii) the transaction between the appellant and affiliates cannot be held as contract for sale of goods since rights of ownership or title are not coming to either the appellant or corporate/firm, instead ownership/title on food and other articles are getting transferred to employees of corporate with whom neither the appellant nor affiliates are having contract, (xiv) the decision in the case of Sodexo SVC India Pvt .Ltd. v. State of Maharashtra 2016 (331) ELT 23 (SC) relied on by the appellant is distinguishable as the said decision has been given in the context of whether Sodexo Meal Voucher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the customer to the appellant-company is not covered by the notification ; however, the reverse is not true , (iii) when the payment is made by the appellant to its affiliates, then the said Notification is not applicable and does not come to the rescue of the appellant from the purview of TDS provisions (iv) the appellant is making payment to three types of affiliates namely Caterers, Restaurants and Supermarket for services rendered to holders of its Sodexo coupons, the appellant has paid to the Caterers on which TDS has been made and paid by the company; the appellant was not able to clearly differentiate as to why on this amount TDS has been made by them while for the remaining affiliates, it has failed to make TDS, (v) after comparing the nature of work of the two parties namely, the Caterers to whom tax deduction has been made and the other affiliates, there is no distinction discernible in the nature of services performed by the two entities, (vi) the activities described to be carried out by the affiliates are not at all carried out for or on behalf of Sodexo ; if the said activities are not carried out by the affiliates, then it would be prejudicial to their interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement between Sodexo and affiliates, all the three ingredients of section 194C of the Act viz., any sum paid, a work contract and contract between two parties are categorically present and therefore Sodexo was liable to deduct tax at source on such payments being made by it to its affiliates. Thus he confirmed the order u/s 201(1)/201(1A) treating Sodexo as an assessee in default for failing to deduct tax at source u/s 194C of the Act. 7. Before us, the Ld. counsels for the appellant submit that as per the RBI Guidelines formed in this regard, the appellant is required to maintain an escrow account with a scheduled commercial bank which is exclusively used for the purpose of operating the payment system. The money collected against the issuance of vouchers is to be compulsorily deposited in the escrow account directly by the customers and the same can only be used to reimburse the vouchers presented for reimbursement by the affiliates. It is stated that the appellant is not making payment to the affiliate for any work or supply of labour and it is merely reimbursing to the affiliate, the value of the coupons that they have collected from their customers in lieu of cash, as an alter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affiliate and not for the performance of any work. Further, referring to the CBDT Circular No. 715 dated 08.08.1995, it is stated that serving of food items/sale of eatables was not subject to TDS u/s 194C. Relying on the decision in the case of Sodexo SVC India P. Ltd. (supra), the Ld. counsels submit that (i) the said vouchers are an alternate mode of payment, being pre-paid payment instruments under the PSS Act, (ii) the role played by the appellant was to facilitate reimbursement of the face value of the vouchers presented to it by the affiliates, (iii) when the vouchers are redeemed, the appellant reimburses to the affiliate the face value of the voucher, (iv) the appellant is only a facilitator and a medium between the affiliates and customers, it is only the affiliates who are getting the money for the goods/food and not the appellant, who only gets service charges for the services rendered, both to the customers as well as the affiliates, (vi) the amount received by the appellant from its customers is only used for reimbursement of the face value of the vouchers and this amount is never accounted for nor used as income in the hands of the appellant; the said amount rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ship Breaking Corporation v. CIT [2009] 314 ITR 309 (SC), GE India Technology Centre P. Ltd. v. CIT [2010] 327 ITR 456 (SC), DIT (Int. Tax.) v. A.P. Moller Maersk A/S [2017] 392 ITR 186 (SC), CIT v. Industrial Engineering Projects P. Ltd. [1993] 202 ITR 1014 (Del), CIT v. DLF Commercial Projects Corporation [2015] 379 ITR 538 (Del), ADIT (IT) v. Wizcraft International Entertainment P. Ltd. [2011] 8 ITR (Trib) 334 (Mum) . Further reliance is placed by the Ld. counsels on the decision in East India Hotels Ltd. v. CBDT (2010) 320 ITR 526 (Bom), All Gujarat Federation of Tax Consultants v. CBDT (1995) 214 ITR 276 (Guj), Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) and Birla Cement Works v. CBDT (2001) 248 ITR 216 (SC). 8. On the other hand the Ld. Departmental Representative (DR) submits that in the instant case, the presentation of coupons to Sodexo and encashment thereon, by no means represent reimbursement of expenses; only those establishments who have entered into a contractual agreement with Sodexo are eligible to become affiliates of Sodexo and thereby liable to be paid by Sodexo ensuring the subsistence of the contract. It is argued by him that since the payment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement by an unconnected person may not qualify. 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. 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. 9.2 We may mention here some examples of documents to be considered in the context of transactions involving reimbursements , which are listed below. Written agreement between the parties. Invoices or debit notes raised by the parties. Agreement entered by lead company with third parties and invoices raised by the third parties towards reimbursable expenses incurred by the lead company. 9.3 Having examined the materials available on record, we find that the parameters as mentioned at para 9.1 hereinabove have not been examined by the AO or the Ld. 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 orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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