TMI Blog2013 (1) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1996 (5) TMI 385 - AUTHORITY FOR ADVANCE RULINGS] the amount of contribution received/receivable to recover part of the cost of technical assistance provided by the applicant under the provisions of its aid programme to the companies assisted by it in India is neither income of the appellant under the provisions of the Income-tax Act nor fees for technical services. Thus taking into account the facts and circumstances of the issue the reimbursements of payment by the assessee and ML to HSL cannot be regarded as income in the hands of HSL. Relying on CIT v. Expeditors International (India) (P) Ltd. [2011 (12) TMI 104 - DELHI HIGH COURT] the said payments being in the nature of reimbursements on cost to cost basis and thus, the said payments did not constitute income in the hands of HSL and, therefore, the assessee as well as ML were not liable to deduct tax at source u/s 194J - in favour of assessee.. - ITA Nos.859 & 860/Bang/2011 And ITA Nos.861 & 862/Bang/2011 - - - Dated:- 18-12-2012 - N. Barathvaja Sankar and George George K, JJ. Appellant Rep by: Shri Bijoy Kumar Panda, Addl. CIT Respondent Rep by: Shri Chytanya K.K, Adv. ORDER Per: Bench: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g unit. In accordance with the SAA, the assessee had installed iron making and steel rolling facilities and Mukund Limited had installed steel making facilities. The other additional facts which are relevant to the present case are that - (i) the share capital of Hospet Steel Ltd [HSL] was held by the assessee and Mukund Ltd [ML] in equal proportion and the investment in the steel making facilities has been made by SSA components in the ratios of 41.38% and 58.62%; (ii) according to SSA, both the assessees [the assessee and Mukund Limited] have agreed to reimburse the HSL the expenditure incurred in the course of administering the plant operations on cost to cost basis. Thus, the expenses which could be incurred towards hot metal making and steel rolling activities were allocated to the assessee and that of the expenses incurred on steel making activities were allocated to ML and the common expenses and corporate expenses were met from the Strategic alliance constituents in above mentioned ratios. 5.1. In the meanwhile, there was an action u/s 133A of the Act in the premises of the assessee and ML for both the assessment years under dispute and after due consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions as well as the perusal of the said Circular, recorded his findings which are extracted as under: 12.1. I have gone through the submissions of the counsel and the AO s order. In my considered view, assessing officer s reliance on the Circular is out of place in the present context. The CBDT in the Circular No.715 dated on 3.8.1995 has clarified that the reimbursements cannot be deducted out of the bill amount for the purpose of TDS. In the present case, all the payments were made as per the agreement only by, the Kalyani Steels Ltd. Hence, for such reimbursements, TDS cannot be made. 13. In view of my finding as discussed above, the assessee cannot be considered as an assessee in default u/s 201 of the Income-tax Act, 1961 and consequently, levying of interest u/s 201(1A) does not arise 7. Aggrieved, the Revenue has come up before us with the present appeals. During the course of hearing, the submissions made by the learned D R are summarized as under: - that the assessee had made payments to HSL towards managerial and technical services rendered by way of operating and maintaining of an integrated steel plant; - that the payments made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee to HSL was in the nature of reimbursement on cost to cost basis. Further, no service charges have been levied by HSL in respect of the transactions undertaken by it and, thus, the said payment does not constitute income in the hands of HSL and, therefore, the assessee was not liable to deduct tax at source u/s 194J of the Act; - that the Annual Report (2007-08) of HSL [paragraph 2 of Annexure referred to Note No.7 of Schedule 8] reads as under: The Company is an outcome of the Strategic Alliance between Kalyani Group and Mukund Group and is acting as a conduct (sic) conduit pipe for and on behalf of the strategic alliance constituents and, hence, no remuneration is payable to it. The respective parties reimburse all the expenses incurred by the company, in performance of its obligations, to the company. All the expenses which can be directly identified with the Hot Metal making and steel roll activities and steel making activity are allocated to KSL and ML respectively, while all common expenses and corporate expenses (other than provision for gratuity and leave encashment to staff) are recovered from the strategic alliance constituents . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edded therein: - that the Hon ble Apex Court in the case of Transmission Corporation of A.P Ltd Anr v. CIT (1999) 239 ITR 587 (SC) had held that certain receipt is considered as part of gross receipts it is essential that such receipt constitutes an income or has income embedded therein; - that in the present case, there is a SAA which clearly indicates that HSL is a conduit pipe and that the annual reports of all three companies (the assessee, HSL and ML) emphasize this fact unambiguously; - that the following case laws amply support the proposition that the TDS provision i.e., the liability to deduct tax arises only in cases where the payment made constitutes income in the hands of the recipient liable to tax under the I.T. Act: GE India Technology Centre P Ltd v. CIT Anr (2010) 327 ITR 456 (SC); Vijay Ship Breaking Corporation and others v. CIT (2009) 314 ITR 309 (SC); CIT (Intl. Taxation) Anr v. Illinois Institute of Technology (India) P. Ltd (2010) 321 ITR 49 (Kar) - That in case of reimbursement of expenses, no tax requires to be deducted. The following case laws vouch such proposition: ITO v. Dr. Willmar Schwab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ML in course of administering the plant operations on cost to cost basis, i.e., all the expenses for hot metal making and steel rolling activities were allocated to the assessee and the expenses incurred for steel making activities to ML; (iii) all other common expenses and corporate expenses except the provision for gratuity and leave encashment to staff etc., were recovered from SAA constituents in the ratio of 41.38% and 58.62% as agreed upon; Precisely, it has been subscribed under the caption - C. Payments to JVC in the SAA [Courtesy Page 88 of PB AR ] as under: The parties agree and undertake to pay the JVC in advance a sum of Rs.20.00 million in the products sharing ratio or such other sum as may be agreed from time to time to facilitate the operation of the plants. All costs and expenses incurred by JVC shall be reimbursed by the parties in the products sharing ratio The parties also 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Bench to the Annual Report of HSL (2007-08] wherein it has been unambiguously made it known that the payment was nothing but the reimbursement of the expenses incurred in performance of its obligation. 8.2.4. We have now to analyze - whether the payments made by the assessee and ML to HSL were in the nature of fees towards professional and technical services as alleged by the AO or reimbursement of the expenses incurred by HSL in performance of its obligations as canvassed by the learned A.R? 8.2.5. As per SAA and also an un-denying fact that the share capital of HSL was held by the assessee and ML in equal proportion and the investment in the said steel making facilities has been made by SAA constituents in the ratio of 41.38 and 58.62 by the assessee and ML respectively. As per the terms of SAA, the assessee and ML have reimbursed the expenses incurred by HSL in performance of its 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant under the provisions of the Income-tax Act nor fees for technical services 8.2.7. Taking into account the facts and circumstances of the issue and also in conformity with the rulings of the judiciary (supra), we are of the firm view that the reimbursements of payment by the assessee and ML to HSL cannot be regarded as income in the hands of HSL. 8.3. With regard to the applicability or otherwise of the TDS provision on the reimbursement of payments on cost to cost basis, we shall now peruse the judicial pronouncements on a similar issue. (i) The Hon ble Supreme court in the case of GE India Technology Cen. (P) Ltd v. CIT reported in (2010) 327 ITR 456 (SC) had held that - 7 .where a person responsible for deduction is fairly certain then 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and ML to HSL towards services availed for operating and maintaining an integrated steel plant were in the nature of reimbursements; (ii) the CIT (A) was also justified in holding that the said payments being in the nature of reimbursements on cost to cost basis and thus, the said payments did not constitute income in the hands of HSL and, therefore, the assessee as well as ML were not liable to deduct tax at source u/s 194J of the Act. 8.3.2. In a nut-shell, there was no infirmity in the findings of the learned CIT (A) and, thus, we are inclined to sustain the same in toto. It is ordered accordingly. 8.3.3. Before parting, we would like to reiterate that the case laws relied on by the learned D R have been kept in view while arriving at the above conclusion. 8.4. As clarified above, the reasons recorded by us in the case of the assessee - M/s. Kalyani Steels Limited for both the assessment years under consideration are applicable in the case of M/s. Mukund Limited also as the issues raised by the Revenue were identical in the case of M/s. Mukund Limited to that of the present assessee [M/s. Kalyani Steels Limited]. 9. In the result: (i) The Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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