Income Tax Appellate Tribunal - Bangalore
M/S Kalyani Steels Ltd.,, Bellary vs Department Of Income Tax on 6 December, 2012
Page 1 of 20 1 ITA Nos.859 to 862/Bang/2011
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI GEORGE GEORGE K, J.M
ITA Nos. 859 & 860/Bang/2011
(Assessment years 2008-09 & 2009-2010)
The Deputy M/s Mukund Ltd., Hospet
Commissioner of Road, Ginigra, Koppal Dist.
Income Tax, TDS vs TAN : BLRMO 3569 G
Circle, Bellary.
(Appellant) (Respondent)
ITA Nos.861 & 862/Bang/2011
(Asst. Years 2008-09 & 2009-2010)
The Deputy M/s Kalyani Steels Ltd.,
Commissioner of Hospet Road, Ginigra,
Income Tax, TDS vs Koppal Dist.
Circle, Bellary. TAN : BLRKO 2325 B
(Appellant) (Respondent)
Date of Hearing : 06.12.2012
Date of Pronouncement : 18.12.2012
Appellant by : Shri Bijoy Kumar Panda, Addl. CIT
Respondent by : Shri Chytanya K. K., Advocate
ORDER
PER BENCH :
These four appeals filed by the Revenue are directed against the separate orders of the learned CIT (A), Hubli, all dated 27.7.2011 in the cases of (i) M/s. Mukund Limited and (ii) M/s. Kalyani Steel Limited, Ginigra.
The relevant assessment years are 2008-09 and 2009-10.Page 2 of 20 2 ITA Nos.859 to 862/Bang/2011
ITA Nos.859 & 860/B/11 - in the case of M/s. Mukund Limited & ITA Nos.861 & 862/B/11 - in the case of M/s.Kalyani Steel Limited
2. The Revenue has, in its four appeals, raised identical issues for the AYs 2008-09 and 2009-10 which are listed as under:
(1) Whether, on the facts of the case and in law, the CIT (A) was right in holding that the payments made by the assessee to another incorporated company - M/s. Hospet Steels Limited -
towards services availed for operating and maintaining an integrated Steel plant, are in the nature of reimbursement? & (2) Whether, on the facts of the case and in law, the CIT (A) was right in holding that the said payments made towards services availed for operating and maintaining an integrated steel plant do not attract the provisions of s.194J of the Act since the company - M/s. Hospet Steels Limited - charged their services on cost to cost basis and no income was accrued to M/s. Hospet Steels Limited?
3. As the issues raised in these appeals, being identical and inter- linked, they were heard, considered together and disposed off, for the sake of convenience and clarity, in this common order.
4. Further, as the issues raised in the cases of (i) M/s. Mukund Limited; and (ii) M/s. Kalyani Steels Limited for both the AYs [2008-09 and 2009-10] are identical, for the sake of clarity and appreciation of facts, the issues raised in the case of M/s. Kalyani Steels Limited are taken up for adjudication and the findings recorded hereunder will hold good in the case of M/s. Mukund Limited for both the AYs as well.
Reverting back, the issues, in brief, are as under: Page 3 of 20 3 ITA Nos.859 to 862/Bang/2011
5. The assessee company ['the assessee' in short] engaged in the business of steel manufacturing. The assessee along with M/s. Mukund Limited - also engaged in the business of steel manufacturing - has entered into a Strategic Alliance Agreement [SAA] on 16.5.1998 for setting up steel making facilities. According to SSA, both the assessees have promoted M/s. Hospet Steels Limited as a joint venture company for the smooth functioning of all the plants as one composite manufacturing unit. In accordance with the SAA, the assessee had installed iron making and steel rolling facilities and Mukund Limited had installed steel making facilities. The other additional facts which are relevant to the present case are that -
(i) the share capital of Hospet Steel Ltd [HSL] was held by the assessee and Mukund Ltd [ML] in equal proportion and the investment in the steel making facilities has been made by SSA components in the ratios of 41.38% and 58.62%;
(ii) according to SSA, both the assessees [the assessee and Mukund Limited] have agreed to reimburse the HSL the expenditure incurred in the course of administering the plant operations on cost to cost basis. Thus, the expenses which could be incurred towards hot metal making and steel rolling activities were allocated to the assessee and that of the expenses incurred on steel making activities were allocated to ML and the common expenses and corporate expenses were met from the Strategic alliance constituents in above mentioned ratios. 5.1. In the meanwhile, there was an action u/s 133A of the Act in the premises of the assessee and ML for both the assessment years under dispute and after due consideration of the assessee's explanation, the assessing officer had passed an order u/s 201 and 201(1A) of the Act, Page 4 of 20 4 ITA Nos.859 to 862/Bang/2011 treating the assessee as 'an assessee in default' and, accordingly, levied interest u/s 201(1A) of the Act for not deducting tax at source u/s 194J of the Act in respect of the reimbursements made to HSL for both the assessment years under consideration.
6. Aggrieved, the assessee took up the issue before the CIT (A) for relief. After due consideration of the submission made by the assessee during the course of appellate proceedings, the CIT (A) had recorded his findings as under:
"10.5. ........................... The payments made by KSL and ML to HSL is at cost which is apparent from the profit and loss account of HSL and notes to accounts of all the companies for various years; It is also evident from the SAA that no service charges is paid or payable to HSL from KSL and ML. The assessment order for the year 2000-01 by the then ACIT, Circle 1, Bellary in the case of HSL states that the expenditure incurred by HSL is reimbursed by KSL and ML in the agreed ratio. In my opinion, the AO is not justified in rejecting the contention that the payments are on cost to cost basis and, hence, reimbursements. While, he himself has stated so in the assessment order for the year 2008-09 u/s 143(3) that HSL charges KSL and ML on cost to cost basis as per the SAA, he cannot take a different view while assessing the TDS return of the appellant. Base(d) on the above, in my opinion, the payments made by KSL and ML is in the nature of reimbursements."
6.1. After having considered the payments as reimbursements and also after due examination as to whether such reimbursements were liable Page 5 of 20 5 ITA Nos.859 to 862/Bang/2011 for TDS u/s 194J of the Act, as recorded in his appellate order, the CIT (A) made the following observations at para 11.11 of his order thus:
"11.11. In view of the above factual position, various case laws on the matter, in my considered opinion, the payments made by KSL and ML to HSL for various expenses incurred by it on their behalf and as per their instructions, would be a reimbursement only and not a 'fee for technical services' and, hence, not liable for deduction of tax at source u/s 194J of the Income-tax Act, 1961."
6.2. With regard to the applicability of Board's Circular No.715 dated 8.8.1995 as relied on by the AO, the CIT (A) had, after careful consideration of the assessee' contentions as well as the perusal of the said Circular, recorded his findings which are extracted as under:
"12.1. I have gone through the submissions of the counsel and the AO's order. In my considered view, assessing officer's reliance on the Circular is out of place in the present context. The CBDT in the Circular No.715 dated on 3.8.1995 has clarified that the reimbursements cannot be deducted out of the bill amount for the purpose of TDS. In the present case, all the payments were made as per the agreement only by, the Kalyani Steels Ltd. Hence, for such reimbursements, TDS cannot be made.
13. In view of my finding as discussed above, the assessee cannot be considered as an assessee in default u/s 201 of the Income-tax Act, 1961 and consequently, levying of interest u/s 201(1A) does not arise......"Page 6 of 20 6 ITA Nos.859 to 862/Bang/2011
7. Aggrieved, the Revenue has come up before us with the present appeals. During the course of hearing, the submissions made by the learned D R are summarized as under:
- that the assessee had made payments to HSL towards managerial and technical services rendered by way of operating and maintaining of an integrated steel plant;
- that the payments made by the assessee to HSL were in the nature of fees towards professional and technical services within the meaning of the provisions of s. 194J; and that the assessee had failed to deduct tax at source in respect of the said payments in accordance with the provisions of s. 194 J of the Act;
- that the CIT (A) had wrongly held that the payments made to HSL were in the nature of reimbursement and there was no element of profit and, hence, no TDS was deductible from such payments. However, he had failed to appreciate the facts which proved that the payments made were not mere reimbursement of expenses, but, the payments made were towards services availed for operating and maintaining of an integrated steel plant which was in the nature of technical and managerial service;
- that HSL, KSL and the assessee were independent entities and HSL was carrying on its business independently and not an agent of either of the assessee or ML;
- that HSL is a service company and manage an integrated steel plant for KSL and the assessee; and that the entire staff and manpower including labourers required for operating and maintaining the said integrated steel plant Page 7 of 20 7 ITA Nos.859 to 862/Bang/2011 for rendering services to the assessee and KSL were employed by HSL;
- that the assets owned by HSL were used for the purpose of rendering services to the assessee and KSL;
- that HSL charged amounts aggregating to Rs.20.76 crores and Rs.20.11 crores [FY 2007-08] and Rs.25.91 crores and Rs.19.44 crores [for FY 2008-09] respectively from KSL and the assessee towards services rendered for operating and managing an integrated steel plant;
- that the CIT (A) had erred in holding that no TDS was required as there was no element of profit in the payments which were made on cost to cost basis. As provided u/s 194J, TDS has to be deducted irrespective of the fact whether the deductee was making profit or not;
Relies on the case laws:
• CIT v. American Express Bank Ltd 18 Taxman.com 221 (Delhi) [2012];;
• Timken India Ltd 143 Taxman 257 (2005) - Authority for Advance Rulings, New Delhi; & • Transmission Corporation of A.P Ltd v. CIT 105 Taxman 742 (SC) (1999).
7.1. In conclusion, it was pleaded that the orders of the CIT (A) require to be reversed and those of the AO be restored. 7.2. On the other hand, the learned AR present contradicted the version of the Revenue. The submissions made by the learned AR are summed up as under:
Page 8 of 20 8 ITA Nos.859 to 862/Bang/2011
- that the payment made by the assessee to HSL was in the nature of reimbursement on cost to cost basis. Further, no service charges have been levied by HSL in respect of the transactions undertaken by it and, thus, the said payment does not constitute income in the hands of HSL and, therefore, the assessee was not liable to deduct tax at source u/s 194J of the Act;
- that the Annual Report (2007-08) of HSL [ paragraph 2 of Annexure referred to Note No.7 of Schedule 8] reads as under:
'The Company is an outcome of the Strategic Alliance between Kalyani Group and Mukund Group and is acting as a conduct (sic) conduit pipe for and on behalf of the strategic alliance constituents and, hence, no remuneration is payable to it. The respective parties reimburse all the expenses incurred by the company, in performance of its obligations, to the company. All the expenses which can be directly identified with the Hot Metal making and steel roll activities and steel making activity are allocated to KSL and ML respectively, while all common expenses and corporate expenses (other than provision for gratuity and leave encashment to staff) are recovered from the strategic alliance constituents...."
- That as evident from the above, HSL incurs the common costs and allocates proportionate portions to ML and the assessee in the agreed manner. However, HSL does not charge any amount as service charges;
- That as from the facts of the case, it is evident that the assessee does not pay any sum to HSL by way of fees for professional services or royalty or for that matter any sum referred to in clause (va) of s. 28 so as to invite the provisions of s. 194J;Page 9 of 20 9 ITA Nos.859 to 862/Bang/2011
- That the assessee reimbursed its portion of administrative costs including employee and contract labour relates costs incurred by HSL for and on behalf of the assessee and ML;
- That the said reimbursement was on cost to cost basis and the said payment does not comprise of any income component; as required under s.194J for liability to deduct tax at source. Further, the said payment was not in the nature of fees for professional services or technical services or royalty or compensation in restraint of trade;
- That there was no profit element embedded in the payments made by the assessee and ML to HSL;
Relies on in the case of Brij Bhushan Lal Parduman Kumar v. CIT (1978) 115 ITR 524 (SC)
- That the reimbursement was not regarded as income in the hands of the recipient in the following cases:
• ITO v. M/s. CGI Information Systems & Management - 2009- TIOL-668-ITAT-BANG;
• BIAL v. ITO (2008) 115 TTJ (Bang)477;
• CIT v. Fortis Health Care Ltd (2009) 181 Taxman 257 (Delhi); • CIT v. Tata Engg. & Locomotive Co. Ltd (2000) 245 ITR 823 (Bom)
- Thus, the judicial views (supra) reiterate that the reimbursement of expenditure does not partake the character of income;
- That in the present case:
(i) the payment made by the assessee to HSL was only reimbursement made in respect of the cost incurred by HSL on behalf of the assessee;Page 10 of 20 10 ITA Nos.859 to 862/Bang/2011
(ii) the said payment does not have any element of income in the hands of HSL;
(iii) the said payment was not towards any services availed by the assessee; &
(iv) the said payment was not in the nature of fee for availing technical services or professional charges;
- thus, the payment made by the assessee to HSL was an out and out reimbursement in respect of the cost incurred by HSL on behalf of the assessee without any profit element; Inapplicability of TDS provision on reimbursement which does not have any element of income embedded therein:
- that the Hon'ble Apex Court in the case of Transmission Corporation of A.P Ltd & Anr v. CIT (1999) 239 ITR 587 (SC) had held that certain receipt is considered as part of gross receipts it is essential that such receipt constitutes an income or has income embedded therein;
- that in the present case, there is a SAA which clearly indicates that HSL is a conduit pipe and that the annual reports of all three companies (the assessee, HSL and ML) emphasize this fact unambiguously;
- that the following case laws amply support the proposition that the TDS provision i.e., the liability to deduct tax arises only in cases where the payment made constitutes income in the hands of the recipient liable to tax under the I.T. Act:
• GE India Technology Centre P Ltd v. CIT & Anr (2010) 327 ITR 456 (SC);
• Vijay Ship Breaking Corporation and others v. CIT (2009) 314 ITR 309 (SC); & • CIT (Intl. Taxation) & Anr v. Illinois Institute of Technology (India) P. Ltd (2010) 321 ITR 49 (Kar) Page 11 of 20 11 ITA Nos.859 to 862/Bang/2011
- That in case of reimbursement of expenses, no tax requires to be deducted. The following case laws vouch such proposition:
• ITO v. Dr. Willmar Schwabe India (P) Ltd (2005) 95 TTJ 53:
(2005) 3 SOT 71 (Del);
• ITO v. M/s. Opera Global Pvt. Ltd - 2012-TIOL-99-ITAT-Del (dt:30.9.2011);
• Jaipur Vidyut Vitran Nigam Ltd v. DCIT (2009) 123 TTJ (JP) 888;
• ACIT v. Modicon Network (P) Ltd (2007) 14 SOT 204 (Del); • Cholamandalam MS General Insurance Co. Ltd (2009) 309 ITR 356 (AAR) 7.2.1. In conclusion, it was pleaded that the findings of the CIT (A) require to be sustained and that of the Revenue's appeals be dismissed. During the course of hearing, the learned AR had furnished two voluminous paper books which contained, among others, copies of (i) Strategic Alliance Agreement (SAA) entered into between the assessee, ML and HSL; (ii) annual reports; (iii) debit notes, (iii) case laws etc.,
8. We have carefully considered the rival submissions, perused the relevant case records and the documentary evidences produced by the learned AR in the shape of paper books coupled with various case laws. 8.1. The moot question now for consideration is as to whether the assessee's case falls within the mischief of s. 194J of the Act or not? 8.2. Kalyani Steels Limited [KSL], Kalyani Ferrous Industries Limited [KFIL] - KSL and KFIL, the constituents of Kalyani Group [KG] - engaged in manufacturing of steel billets, ingots and rolled products and Page 12 of 20 12 ITA Nos.859 to 862/Bang/2011 Mukund Limited [ML] also engaged in the business of manufacture of steel billets, rolled products of various grades of steel and other steel products were desired of manufacturing steel through a more economical and cost effectively have entered into a Strategic Alliance Agreement [SAA] on 16.5.1998 for setting up steel making facilities. Under the SAA, both the companies have installed their plants in close by and in pursuance of the said SAA, the assessee along with ML promoted M/s. Hospet Steels Limited [HSL] for effective functioning of all the plants as one composite manufacturing unit and, accordingly, the assessee had installed iron making and steel rolling facilities and ML had installed steel making facilities with the following terms, namely:
(i) the share capital of HSL was held by the assessee and ML in equal proportion and the investment in the said steel making facilities have been made by SSA constituents in the ratio of 41.38 % (the assessee) :
58.62% (by ML);
(ii) the assessee and ML have agreed to reimburse HSL the expenditure incurred on behalf of the assessee and ML in course of administering the plant operations on cost to cost basis, i.e., all the expenses for hot metal making and steel rolling activities were allocated to the assessee and the expenses incurred for steel making activities to ML;
(iii) all other common expenses and corporate expenses except the provision for gratuity and leave encashment to staff etc., were recovered from SAA constituents in the ratio of 41.38% and 58.62% as agreed upon;
Precisely, it has been subscribed under the caption - C. Payments to JVC in the SAA [Courtesy Page 88 of PB - AR ] as under:
Page 13 of 20 13 ITA Nos.859 to 862/Bang/2011
"The parties agree and undertake to pay the JVC in advance a sum of Rs.20.00 million in the products sharing ratio or such other sum as may be agreed from time to time to facilitate the operation of the plants. All costs and expenses incurred by JVC shall be reimbursed by the parties in the products sharing ratio"
The parties also agree to pay to JVC service charges as may be agreed upon between the parties and the J VC."
8.2.1. In the supplementary agreement [dated 10.8.1999] to SSA dated 16.5.1998, Sub-para 2. 2(c) of Chapter 2 on Page 24 of the Principal Agreement was substituted by the following paragraph:
"It is agreed by and between the parties to this Agreement that JVC is an outcome of the Strategic Alliance between the parties and will only be acting as conduit pipe for and on behalf of the Strategic Alliance constituents and no remuneration will be paid to JVC."
[Refer: Page 135 of PB - AR] 8.2.2. However, the AO [DCIT (TDS)] had, in pursuance of action u/s 133A of the Act in the premises of the assessee, arrived at a conclusion that the payments made by the assessee and ML to HSL cannot be said to be a mere reimbursement of expenses, but, towards services availed from HSL. Further, he had asserted that the payments by the assessee to HSL were in the nature of fees towards professional and technical services within the meaning of the provisions of s. 194J of the Act and, accordingly, the assessee was treated as 'an assessee in default' in accordance with the provisions of s.201 of the Act and interest u/s 201(1A) of the Act was also chargeable against the amount for which no TDS was effected u/s 194J of Page 14 of 20 14 ITA Nos.859 to 862/Bang/2011 the Act. Since the deductee [HSL] had filed its return of income reflecting the payments received from the assessee and ML as receipts in its P & L account, no demand u/s 201 of the Act was raised on the assessee for non- deduction of tax. However, interest u/s 201(1A) of the Act was raised for having failed to deduct tax at source u/s 194J of the Act. 8.2.3. This stand of the AO has been strongly objected by the learned A R. It was the case of the learned A R that the payments made by the assessee to HSL was in the nature of reimbursement on cost to cost basis and that no service charges have been levied by HSL in respect of transactions undertaken by it. Thus, according to the learned AR, the said payment did not constitute an 'income' in the hands of HSL and, therefore, the assessee was not liable to deduct tax at source u/s 194J of the Act. The learned AR also drew the attention of this Bench to the fact that HSL was an outcome of the Strategic Alliance between the assessee and ML group and was acting as a conduit pipe for and on behalf of Strategic Alliance constituents and, hence, no remuneration was payable to HSL. In fact, it was argued, the respective parties have reimbursed all the expenses incurred by HSL in performance of its obligation to them. To substantiate his claim, the learned AR had also invited the attention of the Bench to the Annual Report of HSL (2007-08] wherein it has been unambiguously made it known that the payment was nothing but the reimbursement of the expenses incurred in performance of its obligation.
8.2.4. We have now to analyze - whether the payments made by the assessee and ML to HSL were in the nature of fees towards professional and Page 15 of 20 15 ITA Nos.859 to 862/Bang/2011 technical services as alleged by the AO or reimbursement of the expenses incurred by HSL in performance of its obligations as canvassed by the learned A.R?
8.2.5. As per SAA and also an un-denying fact that the share capital of HSL was held by the assessee and ML in equal proportion and the investment in the said steel making facilities has been made by SAA constituents in the ratio of 41.38 and 58.62 by the assessee and ML respectively. As per the terms of SAA, the assessee and ML have reimbursed the expenses incurred by HSL in performance of its obligations. As rightly argued by the learned AR, the said reimbursement was on cost to cost basis and the same is evident from the P&L account and debit notes raised by HSL on the assessee and ML for the concerned assessment years. Therefore, the said payments did not comprise of any income component. Thus, in our considered view, the reimbursement of such expenses incurred by HSL cannot be categorized as in the nature of fees towards professional and technical services.
8.2.6. We shall now look into the judicial view on the issue - whether the reimbursement can be regarded as income in the hands of the recipient?
(i) In the case of CIT v. Dunlop Rubber Co. Ltd reported in (1983) 142 ITR 493 (Cal), the Hon'ble Calcutta High Court has held as under:
"The Tribunal was right in arriving at the view that the amounts received by the assessee were by way of recoupment of the expenses incurred on the research Department maintained by the assessee in London. The Page 16 of 20 16 ITA Nos.859 to 862/Bang/2011 research carried on by the assessee was for the benefit of all concerned, including the Indian Company. It was for sharing of the expenses of the research which was utilized by the subsidiaries as well as the head office organization, that the payments were made by the Indian Company and received by the assessee. The fact that after the termination what was to happen to these information gathered was not mentioned indicated that it could not be anything but sharing of the expenses because if it had provided that the information would belong either to the parent company or to the subsidiary, then perhaps it might have been contended that payments were either royalty or hiring charges of the information sand as such could be treated as income. But the very fact that the technical data was jointly obtained and the expenses were shared together indicated that it could not be treated as income. The fact was that only 0.67 per cent of the turnover was allowed because of the restrictions imposed by the Government.
Accordingly, the amounts received by the assessee did not constitute income assessable to tax."
With due regards, we have perused the ruling of the Hon'ble Court and of the considered view that the ratio laid down by the Court (supra) is squarely applicable to the facts of the issue on hand.
(ii) The Hon'ble Authority for Advance Rulings, New Delhi in the case of DECTA v. CIT reported in (1999) 237 ITR 190 (AAR) had held that 'the amount of contribution received/receivable to recover part of the cost of technical assistance provided by the applicant under the provisions of its aid programme to the companies assisted by it in India is neither income of the appellant under the provisions of the Income-tax Act nor fees for technical services......"
Page 17 of 20 17 ITA Nos.859 to 862/Bang/20118.2.7. Taking into account the facts and circumstances of the issue and also in conformity with the rulings of the judiciary (supra), we are of the firm view that the reimbursements of payment by the assessee and ML to HSL cannot be regarded as income in the hands of HSL. 8.3. With regard to the applicability or otherwise of the TDS provision on the reimbursement of payments on cost to cost basis, we shall now peruse the judicial pronouncements on a similar issue.
(i) The Hon'ble Supreme court in the case of GE India Technology Cen. (P) Ltd v. CIT reported in (2010) 327 ITR 456 (SC) had held that -
"7.............where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof.
8. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words 'chargeable under the provisions of the Act' in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. [See: Vijay Ship Breaking Corpn v. CIT (2009) 314 ITR 309 (SC)]."
(ii) The earlier Bench of this Tribunal had, in the case of ITO v. M/s. CGI Information Systems & Management Consultants Pvt. Ltd reported in 2009-TIOL-668-ITAT, BANG held thus: Page 18 of 20 18 ITA Nos.859 to 862/Bang/2011
"6. The Bangalore Bench in the case of BIAL v. ITO, Bangalore in ITA No.536 to 539/Bang/2006 = [2008- TIOL-536-ITAT-BANG] vide order dated 17th December, 2007 has held that no TDS is required to be deducted when it is reimbursement of expenses. The Bangalore Bench vide order dated 17th December, 2007 observed that the expenses as incurred by the promoters compensated to them would not involve any profit element also and, therefore, no deduction of tax is required to be made. Following that decision, we hold that no TDS was required to be deducted in respect of expenses reimbursed."
(iii) In the case of CIT v. Expeditors International (India) (P) Ltd reported in (2012) 24 Tax mann.com 76 (Delhi), the Hon'ble Delhi High Court had agreed with the assessee's counsel's argument that 'the payment raised was towards reimbursement of the expenses incurred by the parent company, namely, global management expenses and other expenses. When such payment was not chargeable to tax at all, the collecting machinery provision, whether section 194J or section 195, would not get triggered. According to her (the assessee's counsel), there must be component of income chargeable to tax and only then the question of deduction of tax at source would arise in as much as tax at source is to be deducted on income and not on expenses....' In its ruling, the Hon'ble Court had concluded that, '6.Prima facie, we find force in the argument of learned counsel for the assessee. In any case, this is the view already taken by this Court in the case of this very assessee affirming the earlier decision of the Tribunal....." 8.3.1. In an overall consideration of the facts and circumstances of the issues as deliberated upon in the fore-going paragraphs, the findings of Page 19 of 20 19 ITA Nos.859 to 862/Bang/2011 the learned CIT(A) under consideration and also in conformity of the judicial views on the issues cited supra, we are of the considered view that -
(i) the CIT (A) was justified in holding that the payments made by the assessee and ML to HSL towards services availed for operating and maintaining an integrated steel plant were in the nature of reimbursements; &
(ii) the CIT (A) was also justified in holding that the said payments being in the nature of reimbursements on cost to cost basis and thus, the said payments did not constitute income in the hands of HSL and, therefore, the assessee as well as ML were not liable to deduct tax at source u/s 194J of the Act.
8.3.2. In a nut-shell, there was no infirmity in the findings of the learned CIT (A) and, thus, we are inclined to sustain the same in toto. It is ordered accordingly.
8.3.3. Before parting, we would like to reiterate that the case laws relied on by the learned D R have been kept in view while arriving at the above conclusion.
8.4. As clarified above, the reasons recorded by us in the case of the assessee - M/s. Kalyani Steels Limited - for both the assessment years under consideration are applicable in the case of M/s. Mukund Limited also as the issues raised by the Revenue were identical in the case of M/s. Mukund Limited to that of the present assessee [M/s. Kalyani Steels Limited].
Page 20 of 20 20 ITA Nos.859 to 862/Bang/2011
9. In the result:
(i) The Revenue's appeals for the AYs 2008-09 and 2009-10 in the case of M/s. Kalyani Steels Limited are dismissed; and
(ii) The Revenue's appeals for the AYs 2008-09 and 2009-10 in the case of M/s. Mukund Limited are dismissed;
The order pronounced on the 18th day of December, 2012 at Bangalore.
Sd/- Sd/-
(N BARATHVAJA SANKAR) (GEORGE GEORGE K)
VICE PRESIDENT JUDICIAL MEMBER
Copy to :
1. The Revenue 2. The Assessee 3. The CIT concerned. 4. The CIT(A) concerned. 5. DR 6. GF MSP/ By order Senior Private Secretary, ITAT, Bangalore.