TaxTMI 
TaxTMI 
2013 (1) TMI 156
X X X X Extracts X X X X
X X X X Extracts X X X X
....Steels Limited - towards services availed for operating and maintaining an integrated Steel plant, are in the nature of reimbursement? & (2) Whether, on the facts of the case and in law, the CIT (A) was right in holding that the said payments made towards services availed for operating and maintaining an integrated steel plant do not attract the provisions of s.194J of the Act since the company - M/s. Hospet Steels Limited - charged their services on cost to cost basis and no income was accrued to M/s. Hospet Steels Limited? 3. As the issues raised in these appeals, being identical and interlinked, they were heard, considered together and disposed off, for the sake of convenience and clarity, in this common order. 4. Further, as the issues raised in the cases of (i) M/s. Mukund Limited; and (ii) M/s. Kalyani Steels Limited for both the AYs [2008-09 and 2009-10] are identical, for the sake of clarity and appreciation of facts, the issues raised in the case of M/s. Kalyani Steels Limited are taken up for adjudication and the findings recorded hereunder will hold good in the case of M/s. Mukund Limited for both the AYs as well. Reverti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.................... The payments made by KSL and ML to HSL is at cost which is apparent from the profit and loss account of HSL and notes to accounts of all the companies for various years; It is also evident from the SAA that no service charges is paid or payable to HSL from KSL and ML. The assessment order for the year 2000-01 by the then ACIT, Circle 1, Bellary in the case of HSL states that the expenditure incurred by HSL is reimbursed by KSL and ML in the agreed ratio. In my opinion, the AO is not justified in rejecting the contention that the payments are on cost to cost basis and, hence, reimbursements. While, he himself has stated so in the assessment order for the year 2008-09 u/s 143(3) that HSL charges KSL and ML on cost to cost basis as per the SAA, he cannot take a different view while assessing the TDS return of the appellant. Base(d) on the above, in my opinion, the payments made by KSL and ML is in the nature of reimbursements." 6.1. After having considered the payments as reimbursements and also after due examination as to whether such reimbursements were liable for TDS u/s 194J of the Act, as recorded in his appellate order, the CIT (A) made the following observat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d failed to appreciate the facts which proved that the payments made were not mere reimbursement of expenses, but, the payments made were towards services availed for operating and maintaining of an integrated steel plant which was in the nature of technical and managerial service; - that HSL, KSL and the assessee were independent entities and HSL was carrying on its business independently and not an agent of either of the assessee or ML; - that HSL is a service company and manage an integrated steel plant for KSL and the assessee; and that the entire staff and manpower including labourers required for operating and maintaining the said integrated steel plant for rendering services to the assessee and KSL were employed by HSL; - that the assets owned by HSL were used for the purpose of rendering services to the assessee and KSL; - that HSL charged amounts aggregating to Rs.20.76 crores and Rs.20.11 crores [FY 2007-08] and Rs.25.91 crores and Rs.19.44 crores [for FY 2008-09] respectively from KSL and the assessee towards services rendered for operating and managing an integrated steel plant; &....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the assessee does not pay any sum to HSL by way of fees for professional services or royalty or for that matter any sum referred to in clause (va) of s. 28 so as to invite the provisions of s. 194J; - That the assessee reimbursed its portion of administrative costs including employee and contract labour relates costs incurred by HSL for and on behalf of the assessee and ML; - That the said reimbursement was on cost to cost basis and the said payment does not comprise of any income component; as required under s.194J for liability to deduct tax at source. Further, the said payment was not in the nature of fees for professional services or technical services or royalty or compensation in restraint of trade; - That there was no profit element embedded in the payments made by the assessee and ML to HSL; Relies on in the case of Brij Bhushan Lal Parduman Kumar v. CIT (1978) 115 ITR 524 (SC) - That the reimbursement was not regarded as income in the hands of the recipient in the following cases: * ITO v. M/s. CGI Information Systems & Management - 2009; &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ucted. The following case laws vouch such proposition: * ITO v. Dr. Willmar Schwabe India (P) Ltd (2005) 95 TTJ 53: (2005) 3 SOT 71 (Del); * ITO v. M/s. Opera Global Pvt. Ltd; * Jaipur Vidyut Vitran Nigam Ltd v. DCIT (2009) 123 TTJ (JP) 888; * ACIT v. Modicon Network (P) Ltd (2007) 14 SOT 204 (Del); * Cholamandalam MS General Insurance Co. Ltd (2009) 309 ITR 356 (AAR) 7.2.1. In conclusion, it was pleaded that the findings of the CIT (A) require to be sustained and that of the Revenue's appeals be dismissed. During the course of hearing, the learned AR had furnished two voluminous paper books which contained, among others, copies of (i) Strategic Alliance Agreement (SAA) entered into between the assessee, ML and HSL; (ii) annual reports; (iii) debit notes, (iii) case laws etc., 8. We have carefully considered the rival submissions, perused the relevant case records and the documentary evidences produced by the learned AR in the shape of paper books coupled with various case laws. 8.1. The moot question now for consideration is as to whether the assessee's case falls....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so agree to pay to JVC service charges as may be agreed upon between the parties and the J VC." 8.2.1. In the supplementary agreement [dated 10.8.1999] to SSA dated 16.5.1998, Sub-para 2. 2(c) of Chapter 2 on Page 24 of the Principal Agreement was substituted by the following paragraph: "It is agreed by and between the parties to this Agreement that JVC is an outcome of the Strategic Alliance between the parties and will only be acting as conduit pipe for and on behalf of the Strategic Alliance constituents and no remuneration will be paid to JVC." [Refer: Page 135 of PB - AR] 8.2.2. However, the AO [DCIT (TDS)] had, in pursuance of action u/s 133A of the Act in the premises of the assessee, arrived at a conclusion that the payments made by the assessee and ML to HSL cannot be said to be a mere reimbursement of expenses, but, towards services availed from HSL. Further, he had asserted that the payments by the assessee to HSL were in the nature of fees towards professional and technical services within the meaning of the provisions of s. 194J of the Act and, accordingly, the assessee was treated as 'an assessee in default' in accordance with the provision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obligations. As rightly argued by the learned AR, the said reimbursement was on cost to cost basis and the same is evident from the P&L account and debit notes raised by HSL on the assessee and ML for the concerned assessment years. Therefore, the said payments did not comprise of any income component. Thus, in our considered view, the reimbursement of such expenses incurred by HSL cannot be categorized as in the nature of fees towards professional and technical services. 8.2.6. We shall now look into the judicial view on the issue - whether the reimbursement can be regarded as income in the hands of the recipient? (i) In the case of CIT v. Dunlop Rubber Co. Ltd reported in (1983) 142 ITR 493 (Cal), the Hon'ble Calcutta High Court has held as under: "The Tribunal was right in arriving at the view that the amounts received by the assessee were by way of recoupment of the expenses incurred on the research Department maintained by the assessee in London. The research carried on by the assessee was for the benefit of all concerned, including the Indian Company. It was for sharing of the expenses of the research which was utilized by the su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof. 8. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words 'chargeable under the provisions of the Act' in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. [See: Vijay Ship Breaking Corpn v. CIT (2009) 314 ITR 309 (SC)]." (ii) The earlier Bench of this Tribunal had, in the case of ITO v. M/s. CGI Information Systems & Management Consultants Pvt. Ltd reported in 2009 held thus: "6. The Bangalore Bench in the case of BIAL v. ITO, Bangalore in ITA No.536 to 539/Bang/2006 vide order dated 17th December, 2007 has held that no TDS is required to be deducted when it is reimbursement o....