TDS — Matter remitted to AO to decide whether the payments made to the parent company on account of reimbursement of expenses

Addl. CIT Vs India Index Services and Products Ltd. ITAT, Mumbai

ITA No. 1950/Mum/2010

Assessment Year: 2006- 2007

T.R. Sood, AM and Asha Vijayaraghavan, JM

Decided on: 16 March 2011

Counsel appeared:

Anandee Nath Mis shra for the appellant

Shailesh S. Shah for the respondent

Order

Asha Vijayaraghavan, JM:

This appeal filed by the Revenue is directed against the order dated 18.12.2009 passed by the ld. CIT(A)-21 for the Assessment Year 2006- 07.

2. The facts of the case are that assessee- company was a joint venture between National Stock Exchange of India Ltd. and CRISIL set up in May, 1998 to provide a variety of indices and index related services and products for the Indian Capital Markets. The Assessing Officer noted that under the head “Operating Administration and Other Expenses” the assessee had claimed an expenditure of Rs. 22,08,793/- towards the deputed personnel cost. The said payment was claimed to be made to National Stock Exchange of India Ltd. and CRISIL who were the two holding companies of the assessee company. The AO asked as to why the TDS was not deducted on said payments. The assessee explained to the AO that it is a joint venture between NSEIL and CRISIL who had deputed their staff to perform work for the assessee. Both parent companies incurred employment related costs with respect to all the employees on their payrolls including the ones deputed to the assessee. The salaries paid by parent companies to the employees of assessee company were reimbursed by the assessee on the actual basis for the period of work. The assessee argued before the AO that deputed personnel cost was actual reimbursement to its parent company on account of salary payments to employees on their payrolls who were deputed to assessee- company. Being reimbursement of expenses, no TDS was required.

3. The AO was of the opinion that though assessee claimed the expenses as reimbursement but had not able to prove with any documentary evidence of the working that it was merely a reimbursement and the assessee had paid only the cost incurred by the holding company. In absence of all these details it was not possible to accept the assessee’s contention that the payments made were made for reimbursement. The AO thereafter discussed the term “Work” and “income comprised therein” by relying on Supreme Court’s decision in the case of Associated Cement Co. v CIT 201 ITR 435. The AO held that as per the provisions of Sec. 194C/194J the tax should have been deducted on the sums paid by the assessee company to its holding company towards the services of deputed personnel. Since the TDS was not paid, the AO disallowed the expenses u/s. 40(a)(ia) of the Act.

4. On further appeal before the Ld. CIT(A) the AR of the assessee filed written submissions explaining therein that the payment made to its parent companies were actual reimbursement of expenses pertaining to personnel deputed with the assessee company. He argued that the said payment were pure reimbursement towards sharing of deputed personnel cost and there was no element of profit, payment was not made towards any service contract and also that holding companies had deducted TDS u/s. 192 of the Act from the salaries paid to the personnel deputed and reimbursed by the assessee. In its written submission the assessee relied on various case laws. The assessee also argued that sufficient details were filed during the assessment proceedings in support of its argument that the expenditure was reimbursement of personnel expenses. The assessee requested that the dis allowance made by the AO should be deleted.5.  The Ld. CIT(A) deleted the dis allowance made by the AO by observing as under:

“I have considered the facts of the case. It was an admitted fact that personnel deployed with the appellant were on payroll of parent company who paid salary to those personnel on which TDS was duly deducted by them. The appellant has also argued that the details of reimbursement of expenses were produced before the AO. In the facts and circumstances, there was no dispute that the payment made by the appellant company to the parent company towards deputed personnel was reimbursement of expenses. There are number of decisions of Tribunals and Courts stating that in case of reimbursement of expenditure, the provisions of TDS are not applicable. Therefore, disallowance made by the AO is hereby deleted.”

6.  Aggrieved by the order of the Ld. CIT(A), Revenue is in appeal before us. Before us the Ld. Counsel for the assessee Shri Shailesh S. Shah argued that the payments were pure reimbursement towards sharing of deputed personnel cost and there was no element of profit. Further argued that payment was not made towards any service contract and also that holding companies had deducted TDS u/s. 192 of the Act from the salaries paid to the personnel deputed and reimbursed by the assessee. He further argued that all details were filed during the assessment proceedings before the AO in support of its argument that the expenditure was reimbursement of personnel expenses.

7.  The Ld. Departmental Representative Shri Anandee Nath Misshra contradicted the same statement of the assessee that the details were filed before the AO. The Ld. Counsel for the assessee and the DR thus made a contradictory statement with respect to the fact that the details have been furnished before the AO. In these circumstances, we deem it fit to set aside the issue to the file of the AO to verify the details of expenditure and examine whether the payments were actual reimbursement of expenses pertaining to personnel deputed with the assessee company. However the AO shall restrict himself to the evidences which have been submitted before the Ld. CIT(A) while deciding the issue in accordance with law.