Reimbursement of expenses not “Work” to fall within the ambit of TDS under section 194C

ITAT Delhi in a recent judgment has held that reimbursement of respective shares in composite expenses incurred by the group companies is not covered under deduction of tax at source (TDS) liability u/s 194C.

Case Details:

ITA No.130/Del/2013 ; CO No.98/Del/2013 Assessment Year : 2009-10

DCIT vs. Desiccant Rotors International Pvt. Ltd

Date of order: 10/03/2016

Facts of the case:

The assessee was engaged in manufacturing of heat recovery and environment control systems such as Rotors, heat recovery wheels, energy recovery ventilators, etc. During the year under consideration, the assessee made payment, inter alia, of Rs.73,11,674/- to the persons specified u/s 40A(2)(b) on account of reimbursement of expenses. The AO observed that no deduction of tax at source was made. On being called upon to explain as to why the assessee failed to deduct tax at source u/s 194C of the Act, the assessee submitted that certain composite expenses were incurred by the group companies and the assessee paid its share in such expenses. Not convinced, the AO made disallowance u/s 40(a)(ia) of the Act which was deleted by FAA, CIT(A).

Excerpts from ITAT Judgment:

We have heard the rival submissions and perused the relevant material on record. The assessee paid a sum of Rs.70.95 lac to M/s Bry Air (Asia) Pvt. Ltd., Rs.96,499/- to M/s Delair India Pvt. Ltd. and Rs.1.19 crore to M/s Insent Commercial P. Ltd., totaling to Rs.73.11 lac. These three are group companies of the assessee all of which are situated at 21-C, Udyog Vihar, Gurgaon. Apart from payment of lease charges to M/s Bry Air (Asia) Pvt. Ltd., on which proper deduction of tax at source was made, the assessee also reimbursed its share in commons costs like electricity, telephone, diesel for generator, etc., on actual basis without any mark-up. The ld. AR has invited our attention towards the bifurcation of total electricity and telephone expenses, etc., on the basis of actual use for which common payments were made and the assessee paid its share on the basis of actual usage of electricity, telephone, etc. What the group companies have recovered from the assessee is its share in such common expenses incurred on cost to cost basis. We are unable to comprehend as to how payment to the group concerns towards reimbursement of expenses can be characterized as ‘Work’ to fall within the ambit of section 194C requiring withholding of tax. In our considered opinion, the ld. CIT(A) correctly appreciated the facts in deleting the disallowance u/s 40(a)(ia) of the Act on this issue.

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