PR. COMMISSIONER OF INCOME TAX vs. MS H.P BUS STAND MANAGEMENT AND DEVELOPMENT AUTHORITY SHIMLA

HIGH COURT OF HIMACHAL PRADESH, SHIMLA.

ITA No. 26/2015 with ITAs No.27, 28 & 29 of 2015

Date of decision: September 11, 2017

(1) ITA No. 26/2015 Pr. Commissioner of Income Tax

.....Appellant

Versus

M/s. H. P. Bus Stand Management & Development Authority

.…Respondent

(2) ITA No. 27/2015 Pr. Commissioner of Income Tax

.....Appellant

Versus

M/s. H. P. Bus Stand Management & Development Authority

.…Respondent (3) ITA No. 28/2015 Pr. Commissioner of Income Tax

.....Appellant

Versus

M/s. H. P. Bus Stand Management & Development Authority

.…Respondent

(4) ITA No. 29/2015 Pr. Commissioner of Income Tax

.....Appellant

Versus

M/s. H. P. Bus Stand Management & Development Authority .…Respondent

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Coram: The Hon’ble Mr. Justice Sanjay Karol, Acting Chief Justice. The Hon’ble Mr. Justice Ajay Mohan Goel, Judge. Whether approved for reporting?1 Yes

For the appellant(s) : Mr. Vinay Kuthiala, Sr. Advocate with Ms.Vandana Kuthiala, Advocate in all the appeals

For the respondent(s) : M/s. Vishal Mohan, Sushant Keprate

and Jai Vardhan Khurana, Advocates

in all the appeals

Sanjay Karol, Acting Chief Justice. (Oral) All the appeals stand admitted on following substantial questions of law:

i) Whether the Hon’ble ITAT has erred in law in holding that the payments made by the assessee i.e. H.P. Bus Stand Management Development Authority, Bus Stand, Shimla to HRTC are not liable for deduction of tax at source as per provisions of Chapter XVII of the I.T. Act, 1961?

ii) Whether the Hon’ble ITAT has erred in upholding the order of ld. CIT(A) deleting the addition made by AO u/s 40(a)(ia) of the I.T. Act, 1961, especially in view of the judgment of the Hon’ble Punjab & Haryana High Court in the case of P.M.S. Diesel Vs. CIT-2, Jalandhar & others, dated 29.4.2015, (ITA No.716 of 2009)?

1 Whether the reporters of Local Papers may be allowed to see the judgment?

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4 is the meaning of expression “professional services and fees for technical services”.

5 thereto, such work was being carried out by HRTC itself. Since the development authority had no independent establishment and infrastructure of its own to carry out the objects, a decision was taken to have the same executed through the employees of HRTC. This arrangement was to continue till such time the development authority developed its own infrastructure. Since ongoing projects were required to be executed, which was so done in public interest, as per the arrangement arrived at, certain payments were released by the development authority in favour of HRTC. The expenditure was to be shared by way of reimbursement.

6 of Income Tax (Appeals) vide order dated 30.06.2014 (Annexure P-2) in the following terms:

“5. I have considered the submissions of the appellant and carefully gone through the case history and jurisdictional ITAT order relied upon by the assessee. The Hon’ble ITAT, Chandigarh Bench ‘A’ while deciding the issue of applicability of provisions of section 194j of the Act, in ITA No. 761, 762, 763 & 764/Chd.2012 for the assessment years 2009-10- to 2012-13 vide order dated 31/12/2013, on page 4 to 6 vide para 13 have allowed

the appeal of the assessee. The relevant and effective part of the Tribunal’s order is reproduced hereunder:- “After considering the rival submissions, we find that the assessee authority ……………………….. From the above, it becomes clear that the authority had some full time staff for which it was paying itself. Help of the HRTC was taken in the forum of staff and certain other facilities at pre-defined percentage of salary was reimbursed e.g. salaries of various Divisional Mangers/Regional Managers was to be reimbursed @10%. Similarly in case of Junior Engineer 50% of salary was to be reimbursed. Therefore, the assessee authority was basically not having infrastructure and taking help of HRTC and was reimbursing the expenditure to the HRTC. The provisions of TDS i.e. Section 194j are not applicable if it’s only a case of reimbursement of expenditure. The reason for the same is very clear. For example if HRTC

7 is giving salary to its Divisional Manger, it will deduct full tax and pay the same accordingly. If the assessee authority deduct the tax on account of salary to Divisional Manger then that would amount to double deduction of taxes of the salary of Divisional Manger which is not possible. The assessee is not paying lump sum charges to the HRTC which can be construed as service charge. It is only reimbursement of pre- determined rates………………… Therefore, we are of the opinion that no tax was required to be deducted u/s 194j. Accordingly, we set aside the order of the ld. CIT (A) and hold that no tax is deducible by the assessee authority.” 5.1 Respectfully following the decision of the Hon’ble ITAT in the assessee’s own case (supra) and in order to keep up judicial consistency the addition made by the A.O. is not sustainable and the same is ordered to be deleted. The appellant succeeds on this ground of appeal for the assessment years 2009-10, 2010-11 & 2011-12.”

9 Similarly, no service, which can be termed to be technical service, was provided by HRTC to the development authority, so also no managerial, technical or consultancy services were provided. The arrangement was purely simple. The staff of HRTC was to carry out the work of development and management of the development authority till such time, the said authority developed its infrastructure and the expenditure so incurred by HRTC was to be apportioned on the agreed terms. It is only pursuant to such arrangement, the development authority disbursed the payment to HRTC and, as such, in our considered view, no amount of TDS was required to be deducted on the same. It is only a reimbursement of an expense so incurred by HRTC.

10 specifically held that “reimbursement of expenses can, under no circumstances, be regarded as revenue receipt” and therefore, it is not liable to income tax. The Court relied upon the Supreme Courts decision in CIT v. Tejaji Farasram Kharawalla Ltd., { 1968 } 67 ITR 95 (SC), where the Court had held that it is only the amount that exceeds the expenditure incurred by the agent that would be liable to tax. More recently, this Court in Fortis Health Care Ltd.(supra) has also held that amount received towards reimbursement of expenses is not taxable under the Act.

11 lead to disallowance of such reimbursement expenditure. The Court noted that the payee therein had already deducted tax on the various payments made by it to third parties (such as towards transport charges and other charges). Since the payments made by the assessee therein were only for the reimbursement of expenses incurred by the payee on behalf of the assessee, the Court held that no TDS was required to be deducted by the assessee. A special leave petition preferred by the revenue against the High Courts decision was dismissed by the Supreme Court on 17.1.2014 (in SLC CC No. 175 of 2014). This Court is also supported in its reasoning by the text of Section 194C (TDS for “work”) and Section 194J (TDS of income from “professional services”- the latter expression defined expansively by Section 194J(3) Explanation (a). Neither provision obliges the person making the payment to deduct anything from contractual payments such as those made for reimbursement of ITA Nos. 627/2012 & 507/2013 Page 11 expenses, other than what is defined as “income’. The law thus obliges only amounts which fulfill the character of “income” to be subject to TDS in such cases; for other payments towards expenses, the deduction to those entitled (to be made by the payee) the obligation to carry out TDS is upon the recipient or payee of the amounts.”

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(Sanjay Karol),

Acting Chief Justice

11th September, 2017 (Ajay Mohan Goel), (rana)

Judge.