2012 (12) TMI 1153 - AT - Income Tax

Assessee's Payments Deemed Reimbursements, Not Fees: Tribunal Decision Upheld

The Tribunal upheld that payments by the assessee to M/s. Hospet Steels Limited were reimbursements, not fees for technical services, as per the profit ... - Issues Involved:1. Whether the payments made by the assessee to M/s. Hospet Steels Limited towards services availed for operating and maintaining an integrated steel plant are in the nature of reimbursement.2. Whether the said payments attract the provisions of s.194J of the Act.Summary:Issue 1: Nature of Payments as ReimbursementThe Revenue contended that the payments made by the assessee to M/s. Hospet Steels Limited (HSL) were towards managerial and technical services and should be considered as fees for professional services. However, the CIT (A) held that these payments were reimbursements made on a cost-to-cost basis, as evident from the profit and loss account of HSL and the Strategic Alliance Agreement (SAA) between the parties. The Tribunal upheld this view, noting that HSL was acting as a conduit pipe for the strategic alliance constituents and no service charges were levied by HSL. The Tribunal concluded that the payments made by the assessee and M/s. Mukund Limited to HSL were indeed reimbursements and did not constitute income in the hands of HSL.Issue 2: Applicability of s.194JThe Revenue argued that the payments were in the nature of fees for technical services and thus attracted the provisions of s.194J, requiring tax deduction at source (TDS). The CIT (A) disagreed, stating that since the payments were reimbursements with no profit element, they did not attract TDS u/s 194J. The Tribunal supported this conclusion, referencing various judicial precedents that reimbursement of expenses does not partake the character of income and thus does not require TDS. The Tribunal emphasized that the payments were made on a cost-to-cost basis and did not include any income component, thereby falling outside the scope of s.194J.Conclusion:The Tribunal dismissed the Revenue's appeals, affirming the CIT (A)'s decision that the payments made by the assessee and M/s. Mukund Limited to HSL were reimbursements and not fees for technical services, and thus did not attract TDS u/s 194J. The Tribunal found no infirmity in the CIT (A)'s findings and sustained them in toto.