TMI Blog2015 (7) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... urt affirms the ITAT’s ruling on the first question of law and holds that the AO had erroneously added the amounts to the assessee’s income on account of sale of development rights for AY 2007-08 and AY 2008-09. - Decided against revenue. Non-deduction of TDS on the payments made on reimbursement of service charges - Disalllowance u/s 40(a)(ia) - Held that:- in the instant case, it is undisputed that M/s DLF Land Ltd. had deducted TDS on the payments made by it under various heads on behalf of the assessee. Further, it is also not disputed that the assessee deducted TDS on the service charge paid by it to M/s DLF Land Ltd. on the reimbursement expenses. In such circumstances, this Court holds that the entire amount paid by the assessee to M/s DLF Land Ltd. is entitled to deduction as expenditure. Neither provision obliges the person making the payment to deduct anything from contractual payments such as those made for reimbursement of expenses, other than what is defined as "income". The law thus obliges only amounts which fulfil the character of "income" to be subject to TDS in such cases; for other payments towards expenses, the deduction to those entitled (to be made by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action in respect of which advance of ₹ 3038.65 crores was received from M/s DLF Ltd. and also the transaction of ₹ 446.30 crores with M/s Caitlin Builders and Developers Private Limited ( CBDL ), later known as M/s DLF New Gurgaon Homes Developers Pvt. Ltd. The assessee responded that it had entered into an agreement with the said companies for development of land and in pursuance of the agreement, it had also advanced sums to certain Land Owning Companies (LOCs) which were engaged in acquiring licenses from relevant State authorities as well as land from various land-holders. The AO observed that M/s DLF Ltd., for financial year ending 31.03.2007, treated the advance given to the assessee as stock . Similarly, CBDL had also shown the same treatment in the annual accounts under the head money and advance advance for land purchased . Based on this, the AO sought an explanation from the assessee as to why these advances received from M/s DLF Ltd. and CBDL should not be treated as sale for the purpose of determining total income. The AO inferred that since the assessee was in the business of purchase and sale of development rights, it had sold development rights in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell dated 02.08.2006, the assessee agreed to assign or transfer the development rights to M/s DLF Ltd. or its affiliate and the MoU dated 06.12.2006 entered into with CBDL established that the development rights purchased by the assessee till 06.12.2006 were sold to M/s DLF Ltd. The payment received by the assessee pursuant to such sale of development rights was now being claimed as advance received by the assessee.The assessee s submission that the same was shown as income for subsequent assessment years is nothing but deferment of tax liability to other years. 8. On the second issue arising in ITA No. 507 of 2013, learned counsel submits that the assessee ought to have deducted TDS on the total amount reimbursed by it to M/s DLF Land Ltd., and the TDS actually deducted by the assessee towards M/s DLF Land Ltd. s service charge does not suffice. Therefore, the CIT(A) and ITAT were wrong in deleting the addition of ₹ 19,09,83,236/- made by the AO. Submissions on Behalf of Assessee: 9. Mr. Ajay Vohra, learned senior counsel appearing on behalf of the assessee supports the findings of the CIT(A) and ITAT and submits that the AO erroneously added the amounts on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred. During AY 2008-09, the assessee reimbursed ₹ 19,69,83,236/- and also paid service charges @ 5% on it amounting to ₹ 98,49,106/-. It deducted TDS amounting to ₹ 10,35,057/- and deposited the said amount. Since the reimbursement of expenses was not taxable, learned senior counsel submits that the assessee was not required to deduct TDS on the entire amount.Reliance is placed on this Court s rulings in CIT v. Industrial Engineering Projects Pvt. Ltd., 202 ITR 1014 (Delhi) and CIT v. Fortis Health Care Ltd., [2009] 181 Taxman 257 and the Supreme Court s decision in Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT, [2007] 293 ITR 226 (SC). Analysis and Conclusions: Question No. 1 12. The assessee was engaged in the business of development of land for various purposes. It acquired development rights from various LOCs, who were also responsible for obtaining the necessary licences from statutory authorities. The Revenue s case is based on the premise that the assessee sold development rights of certain land to M/s DLF Ltd. and CBDL and the income generated from the same was not disclosed. However, the ITAT rejected the Revenue s contention on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule 7 of the auditor s report for AY 2007-08 which states that sale of developed plots is recognised in the financial year in which the agreement to sell executed . Pertinently, the financial statement for AY 2008-09 states that [s]ale of development rights is recognized on accrual basis in the financial year in accordance with the terms of the agreements entered into with the customers .According to the Revenue, the alleged sale by the assessee to M/s DLF Ltd. and CBDL was of development rights acquired from LOCs. However, as held above, since no rights were in fact sold in the two assessment years in question by the assessee to either M/s DLF Ltd. or CBDL, no income from such sale can be brought to tax by the Revenue. 15. The assessee follows the accrual system of accounting. The accrual system of accounting takes into consideration all gains and losses pertaining to the accounting period for which income is being ascertained, irrespective of whether income has been actually received or whether expenses were paid out. Similarly, every receipt is not treated as an income of the assessee. The assessee s accounting policy is provided for in Accounting Standard 4, Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had held that it is only the amount that exceeds the expenditure incurred by the agent that would be liable to tax. More recently, this Court in Fortis Health Care Ltd. (supra) has also held that amount received towards reimbursement of expenses is not taxable under the Act. 19. In the instant case, it is undisputed that M/s DLF Land Ltd. had deducted TDS on the payments made by it under various heads on behalf of the assessee. Further, it is also not disputed that the assessee deducted TDS on the service charge paid by it to M/s DLF Land Ltd. on the reimbursement expenses. In such circumstances, this Court holds that the entire amount paid by the assessee to M/s DLF Land Ltd. is entitled to deduction as expenditure. 20. In arriving at the aforesaid conclusion, this Court derives support from the Gujarat High Court s decision in Commissioner of Income Tax-III v. Gujarat Narmada Valley Fertilizers Co. Ltd. (in Tax Appeal No. 315 of 2013, decided on 25.06.2013), where the facts were similar to those in the present case. The Court therein rejected the revenue s contention that non-deduction of TDS on reimbursement expenses would lead to disallowance of such reimbursement expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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