Reimbursement of actual expenses did not attract TDS where documents showed no income or profit element.

Reimbursement of actual expenditure supported by debit notes, salary details, bills, vouchers and other contemporaneous records did not attract tax deduction at source because the sums were passed on without any profit or income element. On those facts, the payment retained the character of reimbursement rather than income in the recipient's hands, so TDS liability under Chapter XVII-B did not arise. The consequential demand treating the assessee as an assessee in default, together with interest under section 201(1A), was therefore not sustainable.

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Issues: Whether tax deduction at source was required on reimbursement of actual expenses paid by the assessee to its joint venture constituent, and whether the consequential demand and interest under section 201 were sustainable.

Analysis: The assessee produced debit notes, employee-wise salary details, bills, vouchers, and other supporting material to show that the payments were only reimbursement of expenditure incurred by the joint venture constituent on behalf of the assessee. The evidentiary record showed that the amounts were passed on on an actual basis, without any profit or income component. Once the reimbursement was established as genuine and supported by documents, the payment did not assume the character of income in the hands of the recipient and the obligation to deduct tax at source did not arise. The basis adopted by the lower authorities for treating the assessee as liable to deduct tax was therefore not sustainable on these facts.

Conclusion: TDS was not deductible on the reimbursed expenditure, and the assessee could not be treated as an assessee in default or saddled with interest under section 201(1A).

Ratio Decidendi: Reimbursement of actual expenditure, when supported by contemporaneous documentary evidence and lacking any income or profit element, does not attract tax deduction at source under Chapter XVII-B.

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