Reimbursement of expenses is not subject to TDS when it is a pure expense recovery, not service consideration.

Reimbursement of expenses paid to a sister concern for purchases made on behalf of the assessee was not liable to tax deduction at source under section 194J because the amount was not income, profit, margin, or consideration for any service. The underlying supplier payment had already suffered TDS and been remitted to the Government, so the reimbursement retained its character as a pure expense recovery. As no tax was deductible on that payment, the basis for treating the assessee as an assessee in default under section 201(1) failed, and the consequential interest under section 201(1A) was also not sustainable.

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Issues: Whether reimbursement of expenses paid by the assessee to its sister concern was liable to tax deduction at source under section 194J of the Income-tax Act, 1961, and whether the assessee could be treated as an assessee in default with consequential interest under section 201(1A).

Analysis: The payment in question was found to be a reimbursement of expenses incurred by the sister concern for purchases made on behalf of the assessee. The record showed that the original payment to the supplier had already suffered tax deduction at source and been remitted to the Government. The payment did not represent income, profit, margin, or consideration for any service rendered by the recipient to the assessee. In these circumstances, the nature of the payment remained reimbursement and not a payment attracting TDS under section 194J. Once no tax was deductible on the reimbursement, the foundation for treating the assessee as an assessee in default under section 201(1) also failed, and the consequential levy of interest under section 201(1A) could not survive.

Conclusion: The payment was not liable to TDS as reimbursement of expenses, and the assessee was not an assessee in default; the demand of interest also was not sustainable.

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