Tds applicability on reimbursement

[pradeep kataria]

Co. X is using the services of CHA. CHA raises two bills for each transaction, in one bill he claims his agency charges etc. and another bill he claims the reimbursment of expenses incurred on behalf of Company X. Whether the COmpany X is suppose to deduct TDS on Reimbursement bill also. Please clarify with relevant citiation/Notification etc.

[Surender Gupta]

The issue which I understand is to determine the nature of transaction. Whether it is in the nature of reimubrement of expenses which is incurred by the CHA on behalf of company or the cost in the hands of CHA. Once it is said that CHA has incurred the expenses on behalf of company and reproduce the original consignment note before the company without making any profit out of it, I think company should deduct TDS on such transaction. However, w.e.f. 1-10-2009 on production of PAN, no tds would be deducted from transporter.

[pradeep kataria]

Dear Mr. Surender Thanks for your reply. As per your opinion, we should not deduct if profit element in not included in CHA bill. Will you please cite any case law etc. in its support. Pradeep Kataria

[Rama Krishana]

The concept is new one and the issue would be decided by the courts in due course. But since the bare provisions of law itself clear, you may refer to provision of rule 5 of the Service Tax (Determination of Value) Rules, 2006 - where the CHA is acting as pure agent, he is not liable to include or pay service tax on the GTA service. Where you are paying amount of GTA through agent, it is your liability.

AI Summary

TDS on reimbursements: characterization as pure reimbursement or consideration determines withholding obligation.
TDS on payments to a CHA depends on whether charges are true reimbursements or consideration. If the CHA incurs expenses on behalf of the company, reproduces original receipts and takes no profit, those amounts are treated as reimbursements and their withholding treatment requires scrutiny; one view in the discussion says the company should deduct TDS on such transactions, though administrative rules affect transporters upon production of PAN. Where a CHA acts as a pure agent, service tax need not be levied on passed-through amounts, but tax or withholding consequences may rest with the principal when payments for carriage are routed through an agent.