2020 (3) TMI 938 - AT - Income Tax

Tribunal allows part of assessee's appeal, rejects disallowance of expenses, directs review of interest levy.

M/s. Total Oil India Pvt. Ltd. Versus Asst. Commissioner of Income-tax Circle – 11 (3) (1), Mumbai And Dy. Commissioner of Income-tax Circle – 11 (3) (1), Mumbai Versus M/s. Total Oil India Pvt. Ltd.

The Tribunal partly allowed the assessee's appeal, rejecting the disallowance of demurrage expenses and reimbursement of salary costs. It directed the ... TDS u/s 195 - Disallowance of reimbursement of demurrage charges u/s 40(a)(ia) - whether the status of a person making the expenditure has to be a non-resident before the provision to section 172 of the Act can be invoked ? - HELD THAT:- On a perusal of the order of the Tribunal we find that this issue has been decided in favour of the assessee by the Coordinate Bench following the decision of the Hon'ble Bombay High Court in the case of the CIT v. Dempo and Co. Pvt Ltd. [2016 (2) TMI 308 - BOMBAY HIGH COURT] Once section 172 falls in Chapter XV titled as Liability in Special Cases – Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195. - Decided in favour of assessee. TDS u/s 192 - Reimbursement of salary cost which was on account of availing personnel services from its AE’s who were sent to India at secondment - HELD THAT:- As perusing the orders of the authorities below and the decision of the Coordinate Bench in assessee's own case for the A.Y. 2010-11 [2019 (10) TMI 972 - ITAT MUMBAI] we find that the Coordinate Bench of the Tribunal dismissed appeal of the revenue and sustained the order of the Ld.CIT(A) in deleting the disallowance of expenses relating to reimbursement of salary cost as noticed that the employees who were serving in India or deputed in India had already deducted tax at source u/s 192 of the Act. The provision of TDS is not applicable on reimbursement of deputation expenses to foreign AE. The CIT(A) has relied upon the decision in the case of Burt Hill Design (P) Ltd. [2017 (3) TMI 1515 - ITAT AHMEDABAD] . The facts are not distinguishable at this stage. No law contrary to the law relied by the Ld. Representative of the assessee has been produced before us. In view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage - Decided against revenue. Issues Involved:1. Disallowance of reimbursement of expenses under section 40(a)(ia) of the Act.2. Reimbursement of demurrage expenses.3. Levy of interest under section 234D.4. Short grant of interest under section 244A.5. Reimbursement of salary costs and related relocation expenses.Detailed Analysis:1. Disallowance of reimbursement of expenses under section 40(a)(ia) of the Act:The assessee contested the disallowance of reimbursement of demurrage expenses made to non-residents, including group entities, under section 40(a)(i) due to alleged non-deduction of taxes at source under section 195. The Tribunal found that this issue had been decided in favor of the assessee in previous years (A.Y. 2010-11, 2011-12, and 2012-13) by the Coordinate Bench, which followed the decision of the Hon'ble Bombay High Court in the case of CIT v. Dempo and Co. Pvt Ltd. The Tribunal observed that the payments were pure cost reimbursements without any service element, thus not attracting TDS under section 195. Consequently, the Tribunal allowed the assessee's claim.2. Reimbursement of demurrage expenses:The Tribunal noted that the demurrage charges were purely reimbursements for costs incurred by the group entities on behalf of the assessee. The AO had characterized these reimbursements as fees for technical services taxable under section 9(1)(vii), which the Tribunal found incorrect. The Tribunal upheld the view that these reimbursements did not contain any service element and were not liable to TDS under section 195. The CIT(A)'s earlier decision in favor of the assessee for A.Y. 2008-09 was also considered, and the Tribunal allowed the assessee's claim, setting aside the disallowance.3. Levy of interest under section 234D:The assessee contested the levy of interest under section 234D amounting to INR 24,09,189. The Tribunal found this ground to be consequential and restored the matter to the file of the Assessing Officer to decide in accordance with the law.4. Short grant of interest under section 244A:The assessee claimed a short grant of interest under section 244A amounting to INR 37,78,627. The Tribunal directed the Assessing Officer to examine the claim and decide in accordance with the law, setting aside this ground to the file of the Assessing Officer.5. Reimbursement of salary costs and related relocation expenses:The revenue appealed against the CIT(A)'s decision that the reimbursement of salary costs for personnel seconded to India was not liable to TDS under section 195. The Tribunal noted that this issue had been decided in favor of the assessee for A.Y. 2010-11 by the Coordinate Bench, which held that the reimbursement of salary costs did not constitute fees for technical services (FTS) and was subject to TDS under section 192, not section 195. The Tribunal found that the seconded employees worked under the control and supervision of the Indian company, and the payments were purely reimbursements without any service element. The Tribunal rejected the revenue's appeal and sustained the CIT(A)'s order, deleting the disallowance.Conclusion:The Tribunal allowed the assessee's appeal partly, rejecting the disallowance of demurrage expenses and reimbursement of salary costs, and directed the Assessing Officer to reconsider the levy of interest under section 234D and the short grant of interest under section 244A. The revenue's appeal was dismissed.