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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 16.04.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
The only issue raised by the assessee in various grounds of appeal is against upholding the order of AO-TDS for treating
2 ITA No.4025/M/2015 M/s. L’Oreal India Pvt. Ltd. the contractual payment to M/S Lobo Staffing Solutions Pvt. Ltd. by way of reimbursements and administration work as fee for professional services and further holding that the TDS was liable to be deductible under section 194J of the Act instead of section 194C of the Act.
The facts in brief are that during the year the assessee has made payments amounting to Rs.22,08,80,806/- to M/s. Lobo Staffing Solutions Pvt. Ltd. on which TDS was deducted under section 194C of the Act by treating the same as contractual payments. However, the AO-TDS issued show cause notice to the assessee as to why the payments made to Lobo Staffing Solutions Pvt. Ltd. should not be treated as fee for professional services and as to why the TDS was not deducted under section 194J of the Act. In response the assessee filed the copy of agreement dated 21.12.2011 under which the reimbursements and payments of administrative fee were made to the said company. The assessee submitted before the AO that staff deputed by the said company did not render any professional or technical services and whatever was paid to the said company was towards the contractual payments for which even certificate under section 197(1) of the Act for A.Y. 2011-12 and 2013-14 was issued mentioning the said payments as contractual payments. However, the AO did not find any merit in the submissions of the assessee and treated the payments to the Lobo Staffing Solutions Pvt. Ltd. as technical fee on which TDS was liable to be deducted under section 194J of the Act and raised a demand of Rs.20,68,475/- on account of interest under section 201(1A) of the Act
3 ITA No.4025/M/2015 M/s. L’Oreal India Pvt. Ltd. whereas no demand on account of short TDS was raised as the recipient has duly shown the same as its income and offered the same to tax. It is pertinent to mention that the payments made comprised of three components namely reimbursement of salary, out of pocket expenses and administrative fee on the above two components.
Before the appellate proceedings, the assessee challenged the order passed by AO under section 201(1A) of the Act. The Ld. CIT(A) upheld the order of the AO on the issue by coming to the conclusion that the payments made by the assessee to Lobo Staffing Solutions Pvt. Ltd. was liable for deduction of TDS under section 194J and not under 194C of the Act.
The Ld. A.R. vehemently submitted before us that the assessee made contractual payments for the services to a company Lobo Staffing Solutions Pvt. Ltd for the purpose of carrying out day to day duty and data entry work etc. The employees deputed by the said company were paid salary by the company itself and also incurred expenses on behalf of the assessee which were reimbursed by the assessee. The said company was paid administrative fee over and above the reimbursement charges. The Ld. A.R. submitted that during the year the said company was paid Rs.22,03,74,842/- comprising Rs.19,81,30,302/- towards salary reimbursement, Rs.1,77,02,129/- on account of reimbursement out of pocket expenses and Rs.45,42,411/- as administrative fees and deducted tax at the rate of 2% under section 194C of the Act which worked out to Rs.44,17,617/-. The Ld. A.R. submitted
4 ITA No.4025/M/2015 M/s. L’Oreal India Pvt. Ltd. that the AO disallowed the payments made to the said company under section 40(a)(ia) of the Act for not deducting the tax at source under section 194J. However, the Dispute Resolution Panel reversed the order of AO holding that the assessee had rightly deducted the tax at source under section 194C of the Act and thus deleted the disallowance. The order of DRP has also attained finality. The Ld. A.R. also submitted that its TDS was deducted from payments made to Lobo Staffing Solutions Pvt. Ltd. comprised of three elements viz. (i) reimbursement of salary, (ii) reimbursement out of pocket expenses and (iii) payment of administrative fee. The Ld. A.R. also submitted that there is no requirement of law to deduct TDS on the reimbursement of expenses and if at all the TDS was liable to be deducted there was only administrative fee. The Ld. A.R. submitted that during the year the assessee deducted the TDS amounting to Rs.44,17,617/- whereas the administrative fee was paid to the tune of Rs.45,42,411/- meaning thereby that a tax of 97% has been deducted on the administrative fee paid to the said company. In defense of his argument, the Ld. A.R. cited various decisions wherein it has been held that no TDS is liable to be deducted on the reimbursement of expenses. The decisions relied upon by the Ld. A.R. are listed as under: 1. DCIT vs. Dhaanya Seeds Pvt. Ltd. (64 SOT 15) 2. ACIT vs. Madhyanchal Vidyut (57 taxmann.com 261) 3. Bhagyanagar Gas Ltd. vs. ACIT (29 taxmann.com 220)
Finally, the Ld. A.R. submitted that the assessee has duly complied with all the provisions relating to tax deduction at source and therefore, interest levied under section 201(1A) of
5 ITA No.4025/M/2015 M/s. L’Oreal India Pvt. Ltd. the Act was wrongly imposed by the AO and affirmed by Ld. CIT(A) which should be deleted.
We have heard the rival submissions and perused the material on record. We find that in this case the assessee has engaged the services of a company M/s. Lobo Staffing Solutions Pvt. Ltd. which was rendering services to carry out day to day duty and data entry work for which the assessee was making reimbursements of salary of the deputed staff and also out of expenses incurred by the said company + administrative fee was also paid over and above the reimbursement as stated above. During the year the assessee made payment of Rs.22,03,74,842/- as per details below: Reimbursement of salary - Rs.19,81,30,302/- Reimbursement out of pocket expenses - Rs.1,77,02,129/-
Administrative fees - Rs.45,42,411/-
TDS deducted @ 2% - Rs.44,17,617/-
Pertinent to state that the assessee was also issued certificate under section 197(1) for A.Y. 2011-12 and 2013-14 wherein the assessee was directed to deduct the TDS at source under section 194C of the Act by the ITO-TDS. However, the AO-TDS reached a conclusion that the TDS was required to be deducted at 194J of the Act as the recipient was a recruitment agency and hence the tax was liable to be deducted under section 194J of the Act. Consequently, the demand of Rs.20,68,475/- was raised towards interest for late payment under section 201(1A) of the Act whereas no demand under section 201(1) was raised as the said company
6 ITA No.4025/M/2015 M/s. L’Oreal India Pvt. Ltd. offered the tax in its return of income. The AO while framing the order under section 143(3) read with section 144C dated 31.03.16 disallowed the payments to Lobo Staffing Solutions Pvt. Ltd. under section 40(a)(ia) and added the same to the income of the assessee. The Dispute Resolution Panel directed the AO to make the deletion by holding that the payments to Lobo Staffing Solutions Pvt. Ltd. were a contractual payments and not professional fee and therefore TDS is not required to be made under section 194J. We also find merit in the contention of the Ld. A.R. that even if the payment to the said company by way of administrative fee of Rs.45,42,411/-was liable for TDS u/s 194J of the Act , the assessee has deducted TDS of 44,17,617/- which constitute 97% of the administrative fee. Hence, there is no short deduction of TDS from administrative fee.
In view of the above facts and the legal position as regards non deduction of TDS on the reimbursement of expenses, we are inclined to set aside the order of Ld. CIT(A) and hold that there is no short deduction of TDS and hence there is no default under section 201(1) of the Act. Consequently, there can not be interest under section 201(1A) of the Act.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 09.04.2018.
Sd/- Sd/- (C.N. Prasad) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 09.04.2018. * Kishore, Sr. P.S.
7 ITA No.4025/M/2015 M/s. L’Oreal India Pvt. Ltd. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.