TMI Blog2012 (4) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order at page-4 has given details of the payment and the TDS deducted by KWGL, which is as under: Alongwith return of income, the assessee filed a TDS certificate received from M/s. Knowledge Works Global Pvt. Ltd. The contents of the certificates are reproduced below: Date Amount paid/received (Rs) TDS (Rs.) Surcharge (Rs) Education Cess(Rs) Total Tax deposited (Rs) Cheque/ DD/Cash BSR Code of the branch Date of deposit Challan No./Transfer voucher No. 30.4.05 164,634.00 62,050 6,205/- 1,365.00 69,620/- 712379 220912 10.5.05 3 30.4.05 169,410.00 63,850 6,385/- 1,405.00 71,640/- 812434 220912 7.6.05 79 30.4.05 178,165.00 67,150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to establish the facts in this regard. 4. Further, AO has stated that on behalf of KWGL, M/s. Sudit Parekh Co., Chartered Accountant vide their letter dt. 26.12.2008 stated that there was a typographical mistake in their letter dt. 5.10.2008. The contents of said letter dt. 26.12.2008 are stated by AO in para 3.9 at page-5 of assessment order which reads as under: In reply to the said notice, our client has furnished a detailed reply dt. 5th October filed in your office on 7th October. In the aforesaid letter, there is a typographical mistake that has crept in inadvertently. In the first paragraph, while giving the nature of transactions entered into with M/s. Datamatics Softworld Pvt. Ltd., it has been wrongly mentioned that the assessee provided facilities management services to M/s. Datamatics Softworld Pvt. Ltd., and for which fees are received by the assessee from the said company. The correct position is that it is M/s. Datamatics Softworld Pvt. Ltd., which provided the said facility management services to Knowledge Works Global Ltd. and for which fees were paid by Knowledge Works Global Ltd., to Datamatics Softworld Pvt. Ltd., You may note from the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths of May 2005 to September 2005, details of which are as under: May 2005 ₹ 14,07,254 June 2005 ₹ 14,79,986 July 2005 ₹ 17,90,750 August 2005 ₹ 18,89,930 September 2005 ₹ 19,36,214 Total ₹ 85,04,134 Therefore, the reversal entries were passed by the appellant company as well as by the M/s. Knowledge Works Global Ltd. as mutually agreed between both the parties, which is evident from the copy of account of the appellant company in the books of M/s. Knowledge Works Global Ltd. received by the Id. AO which is the Annexure A to the assessment order. Accordingly, in effect, the appellant company has received the following amounts which are included under the head Other income in the hooks of the appellant company (1) Facility Management Services for April 2005 13,67,582 Less Service tax 1,26,582 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant company has raised monthly bills in respect of Facility Management Services rendered for the month of April 2005 to March 2006. The copy of agreement providing facility management services entered between M/s. Knowledge Works Global Ltd. and the copy of termination of agreement between the two companies were submitted. Copy of the ledger account of M/s. Knowledge Works Global Ltd. was also submitted which was submitted before the AO. From the perusal of these documents, it is noticed that the agreement of providing facility management services dated 4/8/2004 was terminated vide termination agreement dated 31/ 03/2006. According to this agreement, the appellant has reversed the entries in the ledger account in the month of May 2005 to September 2005 which show the payment of ₹ 85,04,134/-. The reversal entries were passed by the appellant company as well as M/s. Knowledge Works Global Ltd. has mutually agreed between both the parties. The ledger account of the appellant company in the books of accounts of M/s. Knowledge Works Global Ltd. which is made a part as annexure- A of the assessment order. These reversal entries are clearly_ shown on 31/03/2006. The argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of ₹ 79,51,827/- to the income of the assessee. 9. On the other hand, Ld. AR made his submissions on the lines of submissions made before authorities below. He further submitted that there was an agreement between assessee and KWGL for providing Facility Management Services and referred copy of agreement dt. 4th August, 2004 placed at pages 43 to 48 of Paper Book. He submitted that assessee raised bills for the month of April 2005 to September, 2005 and entered the amount of bills in its books of account. He submitted that KWGL also credited said bills in its books of account and deducted TDS on the basis of bills raised but actually no payment was made for bills raised for the months from May 2005 to Sept 2005. Therefore, reversal entry was passed by assessee-company as well as KWGL in their books of account as mutually agreed between the parties. He submitted that ultimately agreement was cancelled on 31.3.2006 and referred pages 49 to 52 of Paper Book at which copy of termination agreement is placed. Ld. AR submitted that as per said agreement, it was mutually agreed between assessee and KWGL to terminate the agreement of providing Facility Management Services with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee received the payment of bills for the month of April, 2005 of ₹ 12,41,000/-. However,KWGL on the basis of bills raised by assessee deducted TDS aggregating to ₹ 5,24,792/- but actually did not made payment to assessee. We observe that AO has not doubted the genuineness of ledger accounts of assessee in the books of KWGL which was obtained by him from KWGL and copy of it annexed as annexure-A to assessment order. The AO himself has given in the tabular form the details of payment and TDS in para 3.5 at page- 4 of assessment order and is also stated herein above in para-2. It is observed that assessee received payment of ₹ 12,41,000/-, but TDS deducted is at ₹ 5,24,792/-. Considering the amount of TDS deducted and the payment received by assessee, we find substance in the contention of Ld. AR that KWGL deducted TDS on the basis of bills raised by assessee but actual payment was not make for all the bills which were raised by assessee for the months of April, 2005 to September, 2005. We observe from the copy of agreement dt. 31.3.2006 placed at pages 49 to 52 of paper Book that both parties mutually agreed to terminate the agreement of providing Facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that the said payment has been made by assessee directly to sister concern DTL and not to the employees of DTL and therefore this payment is nothing but contract for availing professional manpower from its sister concern and hence assessee was required to deduct TDS u/s. 194J of I.T. Act. Since assessee has not deducted TDS on the said payment, AO as per provisions of Sec. 40(a)(ia) of I.T. Act disallowed said claim of assessee of ₹ 1,34,68,702/-. Being aggrieved, assessee filed appeal before First Appellate Authority. 15. On behalf of assessee, submissions made before Ld. CIT(A) are stated in para 6.3 of impugned order, which reads as under: Before me, the appellant has submitted as under: The appellant company is having on its payroll only two employees to whom salary is paid totaling to ₹ 19.50.455/-. Further, to render these services, the appellant company has taken help of some of the employee s of M/s. Datamatics Technologies Ltd. (DTL) and reimbursed a sum of ₹ 1,30,77,210/- to M/s. DTL towards part of salary which is paid by them to all the employee s, but since they have rendered part of their services to the appellant company, this amount is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company and M/s. Datamatics Technologies Ltd.(DTL) has entered into an agreement dated 15/4/2004 in which the appellant company was entitled to use the manpower of DTL as and when required for their assignment. As per clause VII of the agreement, the assessee company has to reimburse the salary for the services of software course to DTL. It was also agreed that the assessee company will only reimburse the cost the only profit element. For this purpose, the assessee company had made a payment of Rs.l.34.68.702/- to M/s DTL. The AO has raised objection that why TDS as per provisions of section 194J has not been deducted on this payment. Accordingly, by invoking the section 40(a)(ia), the AO has made addition of Rs.l,34,68,702/-. The objection raised by the AO are that the copy of agreement was not furnished before him and the payment was covered u/s. 194J of the I.T. Act. Finally, the AO has concluded that the agreement nothing but the contract for availing professional man power to the sister concern to be used with other parties. 6.5 On the other hand, the appellant has argued that the case of the appellant is only reimbursement of salary paid to the employees of M/s. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .43 crores and the expenses reimbursed at ₹ 1.68 crores were not income by way of fees for technical services. 6.6 The objection of the AO that copy of agreement was not produced during the assessment proceedings, therefore, a remand report was called for from the AO to examine the agreement and specifically clause VII which relates the payment of reimbursement of salary to the employees of M/s DTL. The AO submitted its remand report. Copy of the same was also provided to the appellant for his comments. The appellant has argued that the AO has not given its comment on clause VII which provides that appellant company will reimburse the cost incurred for services of software professionals to M/s DTL without any profit element. Secondly, the AO has relied on the circular on 715 dated 8/8/1995. To counter this, the appellant has relied on the Willmar Schwabe (supra) in which the Hon ble Tribunal has held that this circular is applicable only in the case where the bills are raised for gross amount inclusive of professional fees as well as reimbursement of actual expense which is not applicable to the facts of this case. The decision of Mumbai Tribunal Special Bench in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTL, copy placed at page 34 to 41 of Paper Book and submitted that as per para-7 of it, assessee was to reimburse DTL the cost incurred for the actual services rendered. The Ld. AR submitted that no TDS is required to be deducted on reimbursement of expenses and to substantiate his submission relied on the following cases. 1) M/s. Utility Powertech Ltd. Vs ACIT (2010-TIOL-545-ITAT-Mum) 2) M/s. Stratcap Securities (I) Pvt. Ltd. Vs ACIT (2011-TIOL-163-ITATMum 3) Emersons Process Management India(P) Ltd. Vs ACIT (2011) 47 SOT 157 4) Special Bench ITAT Mumbai in the case of Mahindra Mahindra Ltd Vs DCIT-30 SOT 374(Mum)(SB) 5) ITO Vs Dr. Willmar Schwabe India (P) Ltd. 3 SOT 71 (Del) 6) United Hotels Ltd. Vs ITO 2 SOT 267 (Del) and 7) Decision of Jurisdictional High Court in the case of CIT Vs Siemens Aktiongesellschaft ( 310 ITR 320)(Bom) He submitted that if there is a reimbursement of salary of personnel deputed with assessee by sister concern and also reimbursement of expenses on travel etc, no element of income is involved and assessee is not required to deduct tax on the reimbursement amount and accordingly provisions of Sec. 40(a)(ia) cannot be applied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as before Ld. CIT(A) in respect of employees. The above facts have not been disputed by department at the time of hearing of appeal. Now the question arises as to whether on the reimbursement of expenses by assessee to DTL, assessee was required to deduct TDS or not. 24. The Special Bench of ITAT Mumbai in the case of Mahindra Mahindra Ltd Vs DCIT (supra) has held that reimbursement of expenses does not have income element and hence it cannot assume character of income deemed to accrue or arise. The Delhi Bench of ITAT in the case of ITO Vs Dr. Willmar Schwabe India (P) Ltd.(supra) has held that when the bills are raised for reimbursement of actual expenses, the reimbursement of such expenses do not attract provisions of Sec. 194J of the Act and assessee company is not liable to deduct at source from such reimbursement. Further facts of the case of United Hotels Ltd. Vs ITO (supra) are akin to the facts of the case before us. In the said case, assessee company availed services of the personnel like accounts executive, engineer, chef. Etc. of its group hotels employed by Indian Hotels Co. Ltd. (IHC) pursuant to an agreement entered into by assessee and IHC and assessee rei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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