Case Law Details
Ray + Keshavan Design Associates Pvt. Ltd Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that as software is procured from somewhere else and allotted to ground companies including the assesse, such cost allocated without any markup is reimbursement of expense and the same is not liable for TDS under section 195 of the Income Tax Act.
Facts- AO observed that, the assessee reflected ₹ 1,36,405/-as reimbursement to M/s. Brand Union Worldwide Ltd-London. From the details filed by the assessee, it was observed that, the payment was made as annual charges against invoices raised for usage of Microsoft Office license, email and Abot Photoshop being proportionate there-of cost incurred by the M/s. Brand Union Worldwide Ltd-London. The assessee submitted that, the charges were paid without any markup, which was in turn payable by M/s.Brand Union Worldwide Ltd. It was the submitted that, it was reimbursement of expenses, and, there is no income embedded in it, that accrues or arises in India. The Ld.AO dissatisfied with the submissions came to conclusion that, the amount deserves to be disallowed under section 40(a)(ia) of the Act for non-reduction of TDS under section 195 of the Act.
Conclusion- Held that the payment made by the assessee is towards license fee in respect of the use of software. The said issue is no more res integra by the decision of Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs CIT. It is not the case of revenue that there is a transfer of right to use in respect of these software is owned by Brand Union worldwide Ltd. It is also not disputed by the revenue that, these software are developed by the parent company. Instead we note that Brand Union worldwide Ltd., has been procured these software and has allotted to the group companies, against which, cost have been allocated. Such an allocation cannot be held to be ‘royalty’ in order to be subjected to TDS provisions.
As Brand Worldwide Ltd., procures these software from somewhere else and is shared to the assessee along with other group companies against a proportionate cost, without any markup, the reimbursement of such expenses by assessee cannot be held liable for TDS.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal is filed by assessee against order dated 16/03/2020 passed by the Ld.CIT(A)-12, Bangalore for assessment year 2011-12 on following revised grounds of appeal:
“1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in holding that the reimbursement of expenses of Rs.1,36,405/- to appellant’s associated enterprises were sums chargeable to tax in India and hence, inadmissible under section 40(a)(i) of the Act as tax has not been deducted at source thereon.
2. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in holding that on car rent of Rs.5,04,027/- tax was deductible under Section 194C of the Act and not under Section 1941 of the Act and hence, erred in confirming the disallowance under section 40(a)(ia) of the Act as tax has not been deducted at source.
3. On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in not directing the AO to grant credit for tax deducted at source of Rs. 8,45,868/- and Rs. 14,31,331/- claimed by the appellant for the year under appeal.
4. On the facts and circumstances of the case and in law, it should be held that the education cess, including secondary and higher education cess (cess) is not inadmissible as per section 40(a)(ii) of the Act and hence, the amount of cess of Rs.8,44,189/- or such other amount as may be determined for the assessment year under reference should be allowed as an admissible deduction in computing the total income.
5. It is humbly submitted that the reliefs as prayed for hereinabove should be granted.
6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
2. Brief facts of the case are as under:
2.1 The assessee is a company and is engaged in the business of brand consulting and designing. For year under consideration, the assessee filed its return of income on 24/11/2011, declaring total income of ₹ 8,78,04,626/-. Subsequently, on 28/03/2013 the assessee revised the return of income at ₹ 8,72,54,626/-.
2.2 The case was selected for scrutiny and statutory notice under section 142(1) and 143(2) was issued to assessee. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed details as called for.
2.3 The Ld.AO observed that, assessee claimed TDS credit amounting to ₹ 1,18,01,000/-, in the revised return of income. 2.4 The Ld.AO called upon assessee to explain the details in respect of the credit claimed by the assessee. In response, it was submitted that, corresponding receipts were declared against the credit claimed by assessee. The Ld.AO was of the view that, the corresponding receipts were not fully accounted for in the year under consideration and therefore ₹ 8,45,868/- was disallowed.
2.5 The Ld.AO further observed that, the assessee received interest on fixed deposit from bank amounting to ₹ 40,33,450/-on which, TDS of ₹ 4,03,351/- was deducted. The Ld.AO noted that, the assessee claimed the credit of TDS, but declared income of ₹ 40,32,944/-. The Ld.AO thus added the balance amount of ₹ 506/- to the returned income of assessee.
3. The Ld.AO observed that, the assessee reflected ₹ 1,36,405/-as reimbursement to M/s. Brand Union Worldwide Ltd-London. From the details filed by the assessee, it was observed that, the payment was made as annual charges against invoices raised for usage of Microsoft Office license, email and Abot Photoshop being proportionate there-of cost incurred by the M/s. Brand Union Worldwide Ltd-London. The assessee submitted that, the charges were paid without any markup, which was in turn payable by M/s.Brand Union Worldwide Ltd. It was the submitted that, it was reimbursement of expenses, and, there is no income embedded in it, that accrues or arises in India. The Ld.AO dissatisfied with the submissions came to conclusion that, the amount deserves to be disallowed under section 40(a)(ia) of the Act for non-reduction of TDS under section 195 of the Act.
4. The Ld.AO further observed that, the assessee made payments in respect of taxi hire charges without deducting TDS under section 194C of the Act. The contention of the assessee was that, the expenditure incurred was in respect of rent for use of car. It was also submitted that the payments were made to various people, and, none of the payment exceeded ₹ 1,80,000/-, and therefore no TDS was deducted as per the provisions of section 194I of the Act. Dissatisfied with the submissions of the assessee, the Ld.AO disallowed ₹ 5,04,027/- under section 40(a)(ia) of the Act.
4.1 Aggrieved by the additions made by the Ld.AO, the assessee preferred appeal before the Ld.CIT(A).
4.2 The Ld.CIT(A) partly granted relief to assessee by granting the credit of the TDS in respect of the income offered by assessee.
5. Aggrieved by the order of the Ld.CIT(A), assessee is on appeal before this Tribunal.
5.1 At the outset the Ld.AR submitted that there was delay of 24 days in filing the present appeal. The Ld.AR submitted that, the present appeal should have been filed on or before 19/12/2020. The Ld.AR submitted that, due to Covid-19 pandemic, the consultant’s office was closed, thereby causing the delay.
It is submitted that, the last date of filing the appeal falls during the period covered by the provision of section 3(1)(b) of the Taxation and Other Laws (Relaxation and Amendment to certain provisions) Act, 2020, read with the order of Hon’ble Supreme Court dated 23/03/2020 was effective. The Ld.SR.DR, could not controvert the submissions and prayer by the Ld.AR.
6. We note that the last date of filing the present appeal falls during the Covid -19 Pandemic. During the relevant period, the limitation stood automatically extended by virtue of order passed by Hon’ble Supreme Court (supra). Therefore, the delay in filing the present appeal stands condoned.
Accordingly the present appeal is admitted to be adjudicated on the issues raised by assessee there.
7. Ground No.1 is in respect of the disallowance under section 40(a)(i) of the Act, in respect of the reimbursement of expenses of ₹ 1,36,405/-.
7.1 The Ld.AR submitted that, these were the annual charges paid towards the Microsoft license, email scanning and Abot photoshop. The Ld.AR referred to the invoices raised by Brand Union worldwide Ltd., placed at page 66 of paper book. It is submitted that, the payment represents the assessee’s share of cost, which has been allocated by the Brand Union Worldwide Ltd., and there is no profit element in such reimbursements. The Ld.AR referred to schedule 12 of the audited accounts, for the year ended 31/03/2011, where the expenses are debited under the head communication costs.
On the contrary the Ld.SR.DR relied on orders passed by authorities below.
We have perused submissions advanced by both sides in light of records placed before us.
8. We note that, the payment made by the assessee is towards license fee in respect of the use of software. The said issue is no more res integra by the decision of Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt.Ltd. vs CIT reported in (2012) 432 ITR 471. It is not the case of revenue that there is a transfer of right to use in respect of these software is owned by Brand Union worldwide Ltd. It is also not disputed by the revenue that, these software are developed by the parent company. Instead we note that Brand Union worldwide Ltd., has been procured these software and has allotted to the group companies, against which, cost have been allocated. Such an allocation cannot be held to be ‘royalty’ in order to be subjected to TDS provisions.
9. As Brand Worldwide Ltd., procures these software from somewhere else and is shared to the assessee along with other group companies against a proportionate cost, without any markup, the reimbursement of such expenses by assessee cannot be held liable for TDS.
Accordingly this ground raised by assessee stands allowed.
10. Ground no. 2 raised by assessee is against the disallowance under section 40(a)(ia) of the Act, in respect of car rent expenses incurred by assessee amounting to ₹ 5,04,027/- The Ld.AR submitted that, these are simple hire of vehicles and are subjected to provisions of section 194I of the Act. Assessee in the present case rented cabs without a chaffeur. The Ld.AR submitted that, except for payment made to Gutenbarg, the other payments did not exceeded the threshold limit of ₹ 180,000/-, and therefore, there was no obligation to deduct tax at source under section 194I of the Act.
11. The Ld.AR submitted that, provisions of section 194C are not applicable, as the assessee has not hired any equipment or machinery. In support of this contention, he placed reliance on the decision of Hon’ble Supreme Court in case of Associated Cement Co Ltd vs. CIT reported in (1993) 301 ITR 435.
On the contrary the Ld.SR.DR relied on orders passed by authorities below.
We have perused submissions advanced by both sides in light of records placed before us.
12. We note that the disallowance is on account of hiring of vehicles by assessee with individuals. The revenue is not alleging that the payment made to person are contractors. It is a submission of the Ld.AR that there is no principal agent relationship and therefore provisions of section 194C are not applicable. In the present facts of the case the conditions do not satisfy to be covered under section 194C of the Act.
We note that, the assessee has deducted TDS u/s. 194I in respect of one of the lessor, from whom vehicle was taken on lease and that, the payment exceeded the threshold limit of ₹ 1,80,000/-. There is no malafide intention of assessee to evade tax. In respect of the remaining payments, the threshold limit did not exceed and therefore TDS need not have been deducted. We therefore direct the Ld.AO to delete the disallowance made in respect of the same.
According to does ground raised by assessee stands.
13. Ground No.3 raised by assessee is against the TDS credit not granted to assessee. The Ld.AR submitted that, corresponding income and reimbursement of costs and expenses in respect of the tax deducted at source was offered to tax for the year under consideration. It is submitted that the TDS credited as per 26 AS has to be granted to assessee in the year under consideration, though part of the corresponding income was offered to tax in the earlier year.
On the contrary, the Ld.Sr.DR submitted that, the issue may be remanded to the Ld.AO for verification, based on the submissions made by the Ld.AR.
14. The submissions of the Ld.AR is that, in the event part of the corresponding income to the tax deducted at source of ₹ 8,45,868/-has been offered as income in the previous year, assessee must be granted credit of tax deducted at source for the year under consideration in accordance with form 26AS. Assessee is directed to file all relevant details in support of the scheme. The Ld.AO shall verify the evidence is filed by assessee and consider the claim in accordance with law.
Needless to say that proper opportunity of being heard must be granted to assessee.
Accordingly this ground raised by assessee stands allowed for statistical purposes.
15. Ground No.4 raised by assessee is in respect of the short deduction at source amounting to ₹ 1,11,48,993/-. The Ld.AR referred to page 121 of the paper which is in order passed by the Ld.DCIT Circle 1(1)(2) dated 24/02/2020. This is in order in response to the letter by Ld. CIT(A) calling for remand report to verify available TDS as per the database. The Ld.DCIT filed the report dated 24/02/2020 mentioning the availability of credit as per e-TDS database amounting to ₹ 1,11,14,993/-.
16. We therefore direct Ld.AO to grant the TDS available to then assessee as per the remand report dated 24/02/2020.
According this ground raised by assessee stands allowed. In the result appeal filed by assessee stands allowed for statistical purposes.
Order pronounced in open court on 04th April, 2022.
Author Bio
