TMI Blog2018 (9) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sumasanka Sponge Iron (P) Ltd., to show that no income accrued to that company out of payment of wages by the assessee through the said company. The assessee also filed before us a copy of the wage register of M/s. Sumasanka Sponge Iron (P) Ltd and and copy of ledger account of M/s. Sumasanka Sponge Iron (P) Ltd to show that the wages of labours were actually paid to the said company and no income of M/s. Sumasanka Sponge Iron (P) Ltd was involved in this transaction. Assessee is not liable to deduct ITDS on the amounts which are purely in the nature of reimbursement to the payee u/s.194C of the Act when the payment to the payee does not involve any taxable income of the payee. We, therefore, set aside the orders of lower authorities and restore the matter back to the file of the Assessing Officer for proper verification of the nature of payment made by the assessee to M/s. Sumasanka Sponge Iron (P) Ltd and re-adjudicate the issue afresh in accordance with law keeping in view the discussion made hereinabove. Business promotion expenses - Held that:- No supporting bills and vouchers were furnished by the assessee. Therefore, we confirm the orders of the lower authorities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing submissions: 1. During the financial year 2009-10, relating to Assessment year 2010-11 Assessee has not deposited ₹ 9,01,844.00 in that Account. 2. Total amount deposited during the year under consideration comes to 1 2,60,436.00. Therefore, the findings made in the Assessment order are not correct. 3. It, being a Savings Account has no relationship with the business of the Assessee and no business transaction was ever deposited in this Account. 4. The Bank Accounts relating to the business of the Assessee are truly and correctly disclosed. Therefore, there is no necessity to disclose this Account in the Business Balance sheet, as such your Assessee has not committed any error in not disclosing it in the Business Balance Sheet. 5. It, being a Savings Account, only the drawings made of ₹ 3,00,000.00 on different dates out of the disclosed profit from the Capital Account were deposited. Therefore, the deposits made in this Account cannot be treated as unexplained income of the Assessee. The bank accounts statements of the assessee is duly verified and found that during the financial year 2009-10 relevant to the assessment year 2010-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, the assessee submitted that M/s. Sumasankar Sponge Iron Pvt Ltd was promoted by his father Shri Bidyadhar Nayak. The unit was sick and that his father alongwith others negotiated with Bank of Baroda and taken over assets and liabilities through the bank. The unit could not turn around due to shortage of raw materials and electricity. As a result, it became idle. Since the assessee was in requirement of labour for his operations, he had accommodated the labour force of M/s. Sumasankar Sponge Iron Pvt Ltd in his unit as it being a tribal and forest area, getting labour was very difficult. That the assessee made payment to labourers of ₹ 3,05,26,865/- through bank account of M/s. Sumasankar Sponge Iron Pvt Ltd and booked the expenditure in his account. M/s. Sumasankar Sponge Iron Pvt Ltd has neither shown any income towards labour charges nor any corresponding expenditure and no cash payment of ₹ 20,000/- to any single person in a day was made. 10. The Assessing Officer was not satisfied with the above explanation of the assessee and, therefore, held that the payment of expenditure was shown in order to reduce profit in order to avoid of payment legitimate tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Labours and earned its income out of it. Therefore, the question of application of section 194C does not arise at all. 3.1 That, since the said company is not a labour contractor and simply acts as a supervision on behalf other Assessee. The question of deduction of Tax on payment of labour charges does not arise at all. Further, since there is no infraction of section 194C of the Act, section 40(a)(ia) of the Act cannot be applied to disallow the labour expenses paid through the Company. 3.2 That, on this issue, your Assessee wants to draw your Honour's kind attention to the TDS provisions contemplated under the Act. On perusal of the said on, it will be revealed that, Tax is not required to be deducted in all expenses claimed by the Assessee. Only those expenses, which forms income in the hand of the recipient needs to be subjected to TDS. Since the payment made through Mis. Sumasankar does not form any income and, therefore question of deduction of Tax at source does not arise at all. 3.3 That, in response to your Honour's query regarding none disclosure of the receipt of labour charges by the said company in its return of income, it may be respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned A. O. verified the above documents and found that, the said amount were paid through banking channels except of ₹ 1,33,875.00. Further, it was also found that, the said payments were made only for accommodation of labour and the said company is neither a labour contractor nor supplier of labour. Further it is also held by the learned A. O in the remand report that the claim of the of the Assessee regarding the payments of ₹ 3,05,26,985.00 has been satisfactorily explained. Therefore, the impugned additions made by the learned A.O. on the ground of want of evidences in support of engagement of labour is now explained with evidences, as such the impugned addition needs to be deleted in the interest of justice. 13. Thereafter, the CIT(A) held as under: 6.5 As it can be seen from page number-5 of the assessment order, the assessing officer made the addition of ₹ 3,05,26,985/- on the ground that the appellant did not submit the contract by which labour was supplied to him by SSEPL and no deduction u/s. 194C has been made by the appellant on payment made to SSIPL. In addition, the assessing officer noticed that SSIPL has not shown receipt of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill make the payment to labour on receipt of payments through account. 4. That, this arrangement is only a temporary arrangement to engage the labour force of the First Party and either party can give two months' notice to terminate this agreement. 5. That the Second Party will not pay any labour benefits such as ESI and EPF which shall be responsibility of the First Party. 6.8 I have also gone through the confirmation letter dated 30.9.2010 written by SSIPL to the appellant whose relevant portion is as below: - On your request, We here by conform you that, We have received ₹ 3,05,26,985/- ( Three Crore Five Lakhs Twenty-Six Thousand Nine Hundred Eighty-Five) only towards labour payment for providing engagement to our labour. We further clarify that for safety, security to avoid disputes of our labours who were working under you at different times. We have requested you to hand over the payment to us. So that we can distribute it among out labours. We further clarify that, we are neither a labour contractor nor we are engaged in supply of labour. We simply provided our labour for facilitate your work and to save that our labour are getting their i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove submission, reliance was placed on the decision of Visakhapatan Bench of the Tribunal in the case of ACIT vs. M/s. Veera Associates in ITA No.332/Vizag/2016 for A.Y. 2007-08 order dated 21.2.2018 and Delhi Bench of the Tribunal in the case of ITO vs. M/s. Deepak Bhargawa in ITA No.343/Del/2012 for A.Y. 2007-2008 order dated 13.11.2014. 16. We find that Visakhapatnam Bench of the Tribunal in the case of M/s. Veera Associates (supra) has held as under: 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. During the previous year relevant to the assessment year 2007-08, the assessee has paid a sum of ₹ 4,83,71,049/- to M/s Aditya Spinners. As per the profit loss account enclosed along with the return of income, the assessee submitted that ₹ 43,71,049/- was conversion charges, which is a contract amount and the TDS was deducted. The remaining amount of ₹ 4,36,13,708/- was conversion expenses which was reimbursed to the contractor on actual basis hence TDS ia not applicable. In fact, this was the actual expenses incurred by the contractor for executing the contract, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, in our opinion, the reimbursable expenditure received by the assessee for the purpose of rendering services cannot form part of the total income. Therefore, it has to be excluded. 22. We have also carefully gone through the judgement of the Calcutta High Court in CIT Vs. Sanderson Morgaon (1970) 75 ITR 433. In the case before the Calcutta High Court a firm of socilicitors received money from their clients. The question arose before the Calcutta High Court was whether the money received by the solicitors in the course of their professional activities would form part of the total income or not. The Calcutta High Court held that the money received by the solicitors was not revenue receipt. It was further held that when a solicitor received money from his clients he does not do so as a trading receipt but he receives the money from the principal in capacity as an agent. Therefore, the money received does not have any profit making quality. In this case also the money was received by the assessee on behalf of their clients for incurring the expenditure. Therefore, the money received did not have the profit making quality as held by the Calcutta High Court. In our opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city. Even the income received from such money must equally be held by the solicitor in a fiduciary capacity. What the solicitor actually does with the income, i.e., whether he appropriates it to himself or not is a matter of no consequence. If the solicitor appropriates the interest accrued on such deposit to himself that would amount to a breach of his fiduciary relationship and whatever may be the consequences in law would follow. But his unauthorized act of converting any part of the corpus or even the income derived therefrom would not convert those moneys held by him for his benefit. Accordingly, it was held that the interest income which was neither disclosed in the return of income nor adjusted to the clients was held to be not taxable. In the case before us the facts are almost similar. The assessee received the money as a reimbursement after incurring the expenditure. In the case before the Bombay High Court, the money was received by the solicitor in advance. In the case before us the money was received after incurring the expenditure by way of reimbursement. Therefore, the reimbursable expenditure received by the assessee cannot form part of the total income In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the recipient has admitted the entire receipt as income and filed the return of Income. Following the decision of coordinate bench in the case of B. Dwarakanatha Reddy Vs. DCIT in ITA Nos.703 704/Hyd/2015, dated 11/09/2015 we hold that provisions of section 40(a)(ia) of the Act are not applicable provided the payer has offered the amount for tax purpose and have paid or deemed to have paid the taxes on such income. Since the recipient has already has admitted the income and paid the taxes and the amount in question was reimbursement of expenses, we hold that the addition made by the A.O. u/s 40(a)(ia) of the Act is unsustainable and accordingly, we uphold the order of the Ld. CIT(A) and dismiss the revenue s appeal. 10. In the result, the appeal filed by the revenue is dismissed. 17. We find that the Delhi Bench of the Tribunal in the case of M/s. Deepak Bhargawa (supra) has held as under: 6. We have heard rival submission and perused the material on record. As regards the disallowance of ₹ 18,16,637/- made by the AO, these were payments made to M/s Sai Dutta Clearing Agency and Sh. Kamal Sehgal. The aforesaid clearing and forwarding agencies had been rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries [2011] 9 taxmann.com 120 (Rajkot). 6.5. The Tribunal Bench of the Rajkot in the case of DCIT Vs. Choice Sanitary Industries (supra) held that: We have considered the rival submissions and gone through the material placed before us. The ld. DR relied upon the order of the Assessing Officer whereas the ld. AR relied upon the order of the CIT(A). We find that the main objections of the Assessing Officer in making the disallowance are that as per CBDT circular 715 dated 08.08.1995, the reimbursement of actual expenses cannot be deducted from the commission charges paid by the assessee. The ld. CIT(A) drawing support from the co- ordinate bench decision in the case of ITO v. Dr.Willmar Schwabe India (P) Ltd. [2005] 95 TTJ (Delhi) 53 wherein it has been held that the circular is applicable only in cases where the bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses held that the circular was not applicable in the case of the assessee as C F agent raised two separate bills, one for the commission and the other for the reimbursement of expenditure. 6.6 Similarly the jurisdictional Bench of the Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the material on record. 8. In order to answer the substantial questions of law raised by the revenue, it is apt to refer to Section 194J of the Act, the relevant provision reads thus: 194J- Fees for professional or technical services. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of - (a) ** ** (b) fees for technical services, (ba) ** ** (c) ** ** (d) ** ** shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to (ten) per cent of such sum as income-tax on income comprised therein: 9. A reading of this provision discloses that, an amount equal to ten percent of such sum as income-tax has to be deducted on income comprised therein, by a person not being an individual or a HUF, who is responsible for paying a resident any sum towards fees for technical services as per Clause (b) of Section 194J(1) of the Act, the relevant factor is income comprised . To attract this provision, there must be an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act, it is to facilitate the collection of tax lawfully leviable under the Act. In view of the factual finding of the appellate authorities that the payment made by KSL and ML to HSL for various expenses incurred would be a reimbursement and not a fee for technical services, Section 194J of the Act is not attracted. 14. The CBDT in the circular number 715 dated 03.08.1995 has clarified that the reimbursement cannot be deducted out of the bill amount for the purpose of TDS. The Assessing Officer's view is against the intent of the said circular. 15. This Court in Karnataka Power Transmission Corporation Ltd. v. Dy. CIT [2016] 67 taxmann.com 259/238 Taxman 287/383 ITR 59 (Kar) while considering the applicability of Section 194A of the Act has observed that, Section 194A of the Act mandates the tax deductor to deduct 'income tax' on any income by way of interest other than income by way of interest on securities. The phrase 'any income' and 'income tax thereon' if read harmoniously, it would indicate that the interest which finally partakes the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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