The Kolkata bench of Income Tax Appellate Tribunal (ITAT) in ACIT v. Devendra Kumar Dugar, observed that TDS provisions under the Income Tax Act will not be applicable when there is no element of income and there is mere reimbursement made.
The assessee is manufacturer of inverter drives and control panel and also involved in trading of switchgear items.During the year under consideration, the assessee entered into a royalty-cum-reimbursement agreement with CECO and as per the said agreement, certain service charges for contract job work were to be reimbursed by the assessee to CECO. The assessing Officer, while completing assessment, found that the payment to CECO is reimbursement of expenses as shown by CECO in its P&L Account as receipt or income and expenses are claimed against this income by CECO. He further observed that CECO gives some services as claimed by assessee and the assessee makes payment against it. Since the nature of payment is contractual payment or payment for managerial support and the assessee was required to deduct TDS under section 194C of the Income Tax Act.
The Tribunal noted that all direct expenses made by CECO have to be reimbursed by the assessee. It was also noted that the order of first appellate authority, contained a chart of statement of expenses where for all expenses paid TDS was deducted. “Further in the judgment of the Delhi ITAT in case of Dr. Willmar Schwabe India (P) Ltd., supra it is crystal clear proposition of law that when there is no element of income and there is mere reimbursement made there is no question of deduction of TDS. In the instant case, we arrive at our considered view that assessee made payment to CECO by way of reimbursement only.”
Read the full text of the order below.
