Techknowledgy Interactive Partners P. Ltd. Vs ITO (ITAT Mumbai)
The ITAT, Mumbai in the matter of Techknowledgy Interactive Partners P. Ltd. v. ITO [ITA No. 350/MUM/2009 dated January 9, 2023] has held that no tax is required to be deducted at source on amount reimbursed to the director of the company. Further, when tax has been deducted at source by the assessee while receiving software consultancy services, disallowance cannot be done by the Revenue Department. Further, directed the Revenue Department to verify whether the assessee was merely a trader of a software and held that, if the purchases of software is traded goods and supplied to another client and not for the use of the assessee, no tax is required to be deducted at source.
Facts:
Techknowledgy Interactive Partners P. Ltd. (“the Appellant”) is engaged in the business of trading in software and software products.
The Appellant had filed its return of income on October 31, 2005, declaring a total income of INR 3,64,579/-. The Revenue Department (“the Respondent”) after scrutiny assessment under Section 143(3) of the Income Tax Act, 1961 (“the IT Act”), passed a final assessment order dated December 20, 2007, assessing a total income of INR 19,16,750/-.
The Respondent made disallowances under Section 40(a)(ia) on account of non-deduction of tax at source on payment car hire charges which was reimbursed to the directors of the company; software consultancy charges paid to one M/s Orbit Software and software consultancy charges paid to one M/s Springfield Organics. The Appellant preferred an appeal, however, the Appellate Authority also confirmed the order of the Respondent vide order dated September 29, 2008 (“the Impugned Order”).
Being aggrieved, this appeal has been filed.
The Appellant contended that it had made tax deduction at source on the payment made to M/s Orbit Software and despite that, the Respondent disallowed the deduction holding that tax deduction was not made at source. Further, payment to M/s Springfield Organics was made for purchasing a software, which the appellant further supplied to one of its clients and softwares developed specifically for a client is held to be goods and sales tax was to be levied and hence, no tax was required to be deducted at source. Further, the provision of Section 40(a)(ia) of the IT Act is not applicable on reimbursement the payments made by the directors of the company as car hire charges.
Issue:
Whether the Respondent was right in passing the Impugned Order disallowing deductions as sought by the Appellant?
Held:
The ITAT, Mumbai in ITA No. 350/MUM/2009 held as under:
Held that, tax is not required to the deducted at source from payments made in the nature of reimbursements to the directors of the company towards car hire charges and therefore the addition was required to be deleted.
