Suraj R. Agrawal
Brief of the Case
Delhi High Court in the case of CIT vs. DLF Commercial Project Corp held that There is no obligation to deduct TDS on amounts paid as “reimbursement of expenses” because it do not have the character of income.
A) Facts of the case:
a. Assessee is in the business of developing land for commercial, residential, retail, industrial parks, information technology parks, SEZ, etc.
b. During AY 2007-08, the assessee filed its return reporting an income of ₹1,67,95,360.
c. AO added a sum of ₹ 19,09,83,236/- under Section 40(a)(ia) of the Act for non-deduction of TDS on reimbursement expenditure paid to M/s DLF Land Ltd.
d. The latter entity had deducted TDS on the payments made by it as a facilitator on behalf of the assessee.
e. CIT(A) & ITAT ruled in favour of the assessee and deleted this amount.
f. The assessee entered into an agreement dated 01.04.2007 with the said company to carry out activities like maintenance of books of accounts and getting the accounts audited, maintenance of secretarial records, filing with various statutory authorities etc. M/s DLF Land Ltd. was entitled to service charges @ 5% of the total expenditure incurred.
B) Issue put before Delhi High Court:
Did the Income Tax Appellate Tribunal (ITAT) fall into error in its findings with respect to the addition on account of reimbursement of interest within Section 40(a)(ia) on the issue of non-deduction of TDS on the payments made on reimbursement of service charges?
C) Contentions of Appellant:
D) Contention by Revenue:
E) Ruling of Honorable Delhi High Court:
F) Key Take Away
Section 194C (TDS for “work”) and Section 194J (TDS of income from “professional services”- the latter expression defined expansively by Section 194J (3) Explanation (a)). 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 casesǢ for other payments towards expenses, the deduction to those entitled (to be made by the payeee) the obligation to carry out TDS is upon the recipient or payee of the amounts.
(Author can be reached at CASurajRA@icai.org)