Document Fragment View
Fragment Information
Showing contexts for: section 194J in Income Tax Officer vs Dr. Willmar Schwabe India (P) Ltd. on 3 March, 2005Matching Fragments
8. The second issue which is raised in ground No. 2 of the Revenue's appeal relates to the failure of the assessee to deduct tax at source from payments made to M/s Indochem Techno Consultants for financial years 1995-96 to 1998-99 which have been held to be outside the ambit of Section 194J by the learned CIT(A).
9. The assessee entered into an agreement with M/s Indochem Techno Consultants to provide consultancy in connection with manufacture of medicines. As per the terms and conditions of the agreement with the consultant, the assessee was required to pay a fixed amount of professional charges to the consultant and reimbursement of car maintenance expenses . based on actuals. The assessee-company in accordance with the agreement made payments as professional charges and also reimbursed the car maintenance expenses during the relevant years. The AO was of the view that the reimbursement of the expenses were also a part of the professional fee paid to the consultant and the same was covered under Section 194J of the Act and the company was liable to deduct TDS @ 5 per cent on all the reimbursements and payments made to professionals. Reliance was placed by the AO on question No. 30 of Board's Circular No. 715, dt. 8th Aug., 1995, which is reproduced below :
"Q. No. 30. Whether the deduction of tax at source under Sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ?
Ans. Sections. 194C and 194J refer to any sum paid obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source."
In view of the above clarification, the AO held that the company has failed to deduct tax on the reimbursements made to M/s Indochem Techno Consultants and was treated to be assessee in default in respect of the tax along with interest under Section 201(1A) of the Act amounting to Rs. 13,150 and Rs. 6,090 for financial years 1995-96 to 1998-99. Before the learned CIT(A), it was explained by the assessee that an agreement was entered into by a consultancy agreement with M/s Indochem Techno Consultants Ltd. and in terms of the said agreement, it was to pay consultancy fee and also to provide a car to the consultants for the purpose of carrying out their functions. Referring to the provisions of Section 194J, it was pointed out that it is only the fee for rendering the technical/professional services which would be liable for deduction of tax at source and not any other amount which is not in the nature of fee paid by the assessee. Reliance was placed on behalf of the assessee-company to the Board's Circular No. 714, dt. 3rd Aug., 1995, wherein it was clarified in paragraph No. 2 that deduction of tax at source under Section 194J @ 5 per cent of the sum as income-tax has to be only on the income comprised of such sum. It was submitted that the reliance by the AO on reply to question No. 30 as per Circular No. 715, dt. 8th Aug., 1995, was misplaced since the said clarification applies only if there is a composite bill which does not differentiate between the reimbursement and other sum. It was pointed out that in the case of the assessee, there was no composite bill but separate bills had been raised for fee for technical services and reimbursement of actual expenses. It was, therefore, contended on behalf of the assessee that there being no income included in the amount of reimbursement which was on the basis of actual expenses incurred by the consultant on petrol and maintenance of the car, the same cannot be subject to TDS as part of gross bill under Section 194J. Convinced by the submissions made on behalf of the assessee-company, the learned CIT(A) found no justification in the action of the AO in treating it as assessee in default for the short deduction of tax on this count and also in charging interest under Section 201(1A) by observing as under:
"I have considered the submissions of the assessee. As per the terms of the agreement, the consultant was provided with a car by the assessee who was to bear the maintenance cost of the same. The consultant was submitting separate bills for his consultancy charges and separate bills for car maintenance and petrol expenses to the assessee. The payment for maintenance of the car expenses provided by the assessee is, therefore, reimbursement of the actual expenses incurred by the consultant and cannot be included by way of fee for the technical services rendered by him. I agree with the contention of the Authorised Representative that reimbursement of actual expenses cannot have an element of income as mentioned in the Circular No. 715, dt. 3rd Aug., 1995, issued by the CBDT. The answer to question No. 30 mentioned in Circular No. 715 is with regard to submission of gross amount of bills including reimbursement. This only clarifies that reimbursement cannot be deducted out of the bill amount for the purpose of tax deduction at source. However, when separate bills are to be given for the professional/technical fee and reimbursement of actual expenses, then, in my view, provisions of Section 194J will apply only to the bills for professional/technical fee and not the separate bill for reimbursement of actual expenses. The action of the learned AO in determining a short deduction of tax on the amounts reimbursed on actual basis to the consultants for the respective financial years and charging of interest under Section 201(1A) of the Act was, therefore, not justified and is deleted."
12. After considering the rival submissions and perusing the relevant material on record, we find no infirmity in the impugned order of learned CIT(A) on this issue. It is observed that as agreed by and between the assessee-company and M/s Indochem Techno Consultants Ltd., a vehicle was to be provided by the assessee-company to the said consultant for attending to its work and thus, the assessee-company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by them on the assessee-company in addition to bills for fees payable on account of technical services and since the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by Section 194J requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dt. 8th Aug., 1995, relied upon by the AO in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses and the same, therefore, was not applicable to the facts of the present case, where bills were raised separately by the consultants for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, we are of the view that the provisions of Section 194J were not applicable to the reimbursement of actual expenses and the assessee-company was not liable to deduct tax at source from such reimbursement. In that view of the matter, we uphold the impugned order of learned CIT(A) on this issue and dismiss the relevant grounds of the Revenue's appeal.