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2017 (10) TMI 1081 - AT - Income TaxTDS u/s 194J - non deduction of tds on certain expenditure incurred for the purpose of carrying out its own work from sister concern - payments made to M/s Jindal Power Ltd in view of the various debit notes issued for salary and travelling of the personnel deputed by them to serve the assessee company which is a task carried out by that company - contention of the assessee is that the memorandum and articles of Association of the assessee as well as the company does not provide that they are engaged in the business of manpower services - Held that:- According to us, such an argument is not germane to the concept of tax deduction at source. According to the provisions of section 194C of the income tax act any payment made for the work carried out is subject to tax deduction at source under section 194C of the income tax act. Further, according to provisions of section 194J of the income tax act any payment made for fees for technical services is also subject to tax deduction at source. Therefore, the argument of the assessee that memorandum of Association of the recipient company does not cover the clause of the manpower supply does not help the case of the assessee. In any case the recipient of income is engaged in the provision of services in power sector which is part of the object of that company and same is also the business of the assessee company. The bills are with respect to the Senator Travels private limited which have been reimbursed by the assessee company to that company. In view of this, it is apparent that when the persons deputed by the Jindal Power Ltd to the assessee company were of the level of executive and going up to the level of Executive Director, it cannot be said to be the reimbursement of salary expenditure when it is coupled with several expenditure of domestic and international travelling for the business of the company. Further, it is also important that all these persons were throughout working for the company as well as with Jindal power Ltd. In view of this, it is apparent that those persons were working for the projects of the company and Jindal Power Ltd has been paid by the assessee as remuneration for getting work done from Jindal Power Ltd. Therefore, according to us, the Ld. CIT (A) has correctly adjudicated that tax is required to be deducted under section 194J of the income tax act, as it is a fees for technical services paid by the assessee to Jindal power Ltd, in the form of reimbursement of salary as well as travelling expenses. There is no reference about the quality of staff that is required to be provided, what are the terms and conditions of the deputation would be there, where this staff would be deployed etc. Even otherwise this letter, which is claimed to be an agreement, is after incurring of the cost by that company. Therefore, it is apparent that there is no understanding between the parties about this reimbursement. Further in some of the employees there is sharing of the cost where as in some of the employees there is no share of cost to Jindal Power limited. In view of this it cannot be said that it is a pure reimbursement of expenses which does not require TDS. The assessee also could not establish that what kind of staff it has of its own to execute the kind of work it is earning revenue for. It has earned the revenue of ₹ 190942881/- for the year where the total cost of salary reimbursed is ₹ 30866545/- which is almost 20 % of the work billing. Hence in absence of the facts that how the work are executed by the assessee whether it fully by the staff on loan or it has its own staff also, it is not possible to accept the contention that reimbursement of salary coupled with other reimbursement of international and domestic travel is reimbursements of expenses simplicitor escaping withholding tax liability. The next contention of the assessee that all these expenses have already been paid and therefore the tax requirement deduction applies only in case of payment outstanding at the end of the year and not whatever has been paid during the year does not stand in view of the decision in the case of Palam Gas Services v. CIT [2017 (5) TMI 242 - SUPREME COURT] as concluded that section 40(a)(ia) covered not only those cases where the amounts were payable but also where it was paid. Thus we confirm the finding of the Ld. CIT (A) that the disallowance under section 40 a (ia) has been correctly made as the tax should have been deducted under chapter XVII-B of the income tax act on payments made by the assessee to Jindal Power Ltd. - Decided against assessee. Assessee in default when the assessee has paid certain expenditure to the recipient of the income and when the recipient of income has paid tax on that particular income - Held that:- No difficulty in accepting the argument of the Ld. authorized representative that if the tax has been paid by the recipient of the income on the income in holding the transactions and no disallowance should be made in the hands of the assessee. In view of this we set aside this issue back to the file of the Ld. assessing officer to allow the benefit of the 2nd proviso to the section 40 a (ia) and if the assessee is able to satisfy the AO that the recipient of the income has offered the income in its return of income on furnishing the section 139 of the income tax, incorporated such income in its return of income, has paid the due tax thereon and he furnishes requisite certificate as prescribed therein that no disallowance be made. Therefore, if the assessee would like to have the benefit of this particular proviso by furnishing requisite certificate is an mentioned in the provisions of section 201 of the income tax act, the appellant may furnish to the ld AO same within 60 days of the order and the Ld. assessing officer may consider the claim of the assessee in accordance with the law. - Decided partly in favour of assessee.
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