Reimbursement of expenses not income though TDS was deducted on such payments -High Court

Reimbursement of expenses not income though TDS was deducted on such payments u/s 194C or 194H as contract/commission payments -High Court 

Prelude:
Under Section 194C of the Income Tax Act, 1961 every person making payment under contractual obligation for carrying out any work is required to deduct tax at source (TDS). Section 194H places similar responsibility on the person making payment of commission/brokerage income.

Normally, the payments made by the deductor are income in the hands of the receiver and on this analogy only the Income Tax Department (ITD) insists matching the amount of income and TDS as claimed by the assessee with online Form 26AS. Recently, ITD had issued asked taxpayers to ensure that income/receipts matches with Form 16A.

However, a controversy arose with respect to treatment of reimbursement of expenses paid to the assessee on which the payer had deducted tax at source u/s 194C. Whether such reimbursement can be added to the income simply because TDS was deducted thereon?

Reimbursement of expenses not income though TDS was deducted on such payments

ABCAUS Case Law Citation:
ABCAUS 2156 (2017) (12) HC

The Challenge/Grievance:
This income tax appeal was filed under Section 260-A of the Income Tax Act, 1961 (the Act) by the Income Tax Department (ITD/Revenue) against the order passed by the Income Tax Appellate Tribunal (Tribunal/ITAT) deleting the addition made by the Assessing Officer (AO) and upheld by the First Appellate Authority (FAA/CIT-A) with respect to reimbursement of expenses received by the assessee where TDS u/s 194C was deducted thereon.

Brief Facts of the Case:
The respondent assessee was the main distributors of Vodafone for the district. During the course of assessment proceedings, the Assessing Officer noted from Form 26AS downloaded from ITD database that the appellant received income in the nature of contracts and commission from M/s Vodafone on which TDS had also been deducted under section 194C and 194H.

The AO noted that these receipts had not been reflected in the profit and loss account of the assessee. The AO made an addition of the amount reflected in Form 26AS but not appearing in the P&L Account. Aggrieved by the order, the assessee filed an appeal before the CIT(A)who deleted the whole addition with the observation that receipts were on account of reimbursement of salary reimbursement of discount paid to Assistant Distributors. Also, it was noticed that incentive paid directly to retailer, by Vodafone and not routed through the account of the assessee, the question of adding the same as suppressed receipt did not arise and, therefore, was deleted.

Not satisfied with the order, the department filed an appeal before the Tribunal which confirmed the order passed by the CIT(A) on the basis of the order passed by the coordinate Bench of Tribunal under identical facts.

Hence the instant appeal was filed by the revenue before the Hon’ble High Court

Observations made by the High Court:
The Hon’ble High Court observed that CIT-A categorically recorded that the receipt on account of reimbursement of salary, paid to field staff was evident from the details obtained by the assessee from Vodafone and her own ledger account which had been filed before the Assessing Officer. As the entire salary paid had been reimbursed, the assessee had not shown any item in this regard in the profit and loss account. However, this had been clarified by the assessee in the re-casted profit and loss account. Thus, it was rightly concluded by the CIT(A) that there was no justification for adding the said amount as suppressed receipts and, therefore, deleted the same.

The Hon’ble High Court also observed that CIT-A had further recorded that the incentive paid by Vodafone had been made directly to the retailers. Since the said amount was neither due nor received by the assessee, the question of adding the same as suppressed receipts did not arise and, therefore, the same was deleted. As the amount did not form part of the receipts of the assessee, credit for corresponding TDS could not be given to the assessee and the AO was directed not to give credit for this TDS amount.

Also it was observed that the addition on account of receipt of discount was deleted by holding it to be on account of reimbursement of amount paid to Assistant Distributors.

The Hon’ble High Court noted that the Tribunal after examining the entire matter in detail, concurred with the findings recorded by the CIT(A). The issue was decided in favour of assessee by the Tribunal relying upon the decision of the coordinate Bench and the revenue admitted that no appeal had been filed against the said order and has been accepted by the revenue though the tax effect was more than the limit prescribed by the CBDT circular.

Decision/ Conclusion/Held:
The appeal was dismissed.

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