HIGH COURT OF HIMACHAL PRADESH, SHIMLA. ITA No. 26/2015 with ITAs No.27, 28 & . 29 of 2015 .P Date of decision: September 11, 2017 H (1) ITA No. 26/2015 Pr. Commissioner of Income Tax Appellant of Versus M/s. H. P. Bus Stand Management & Development Authority rt . Respondent (2) ITA No. 27/2015 ou Pr. Commissioner of Income Tax Appellant C Versus M/s. H. P. Bus Stand Management & Development Authority . Respondent h (3) ITA No. 28/2015 ig Pr. Commissioner of Income Tax Appellant H 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 2 Coram: . .P Hon ble Mr. Justice Sanjay Karol, Acting Chief Justice. Hon ble Mr. Justice Ajay Mohan Goel, Judge. Whether approved for reporting?1 Yes H For appellant(s) : Mr. Vinay Kuthiala, Sr. Advocate with Ms.Vandana Kuthiala, Advocate in all of appeals For respondent(s) : M/s. Vishal Mohan, Sushant Keprate and Jai Vardhan Khurana, Advocates in all appeals rt Sanjay Karol, Acting Chief Justice. (Oral) ou All appeals stand admitted on following substantial questions of law: C i) Whether Hon ble ITAT has erred in law in holding that payments made by assessee i.e. H.P. Bus h Stand Management Development Authority, Bus ig Stand, Shimla to HRTC are not liable for deduction of tax at source as per provisions of Chapter XVII of H I.T. Act, 1961? ii) Whether Hon ble ITAT has erred in upholding order of ld. CIT(A) deleting addition made by AO u/s 40(a)(ia) of I.T. Act, 1961, especially in view of judgment of Hon ble Punjab & Haryana High Court in case of P.M.S. Diesel Vs. CIT-2, Jalandhar & others, dated 29.4.2015, (ITA No.716 of 2009)? 1 Whether reporters of Local Papers may be allowed to see judgment? ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 3 2. sole issue which arises for consideration is as to . .P whether arrangement arrived at inter se M/s. Himachal Pradesh Bus Stand Management Development Authority H (hereinafter referred to as Development Authority) and Himachal Pradesh Road Transport Corporation (hereinafter of referred to as HRTC), can be said to be in nature of latter providing professional or technical services to former? rt Incidentally, what is argued is also that reimbursement of ou expenditure incurred by latter would not attract provisions of Section 194J of Income Tax Act, 1961 C (hereinafter referred to as Act). 3. Section 194J of Act provides that any person, not h being individual or Hindu Undivided Family, who is ig responsible for paying to resident any sum by way of fees inter alia for professional/technical services shall, at time H of credit of such sum to account of payee or at time of payment thereof, by whatever mode, deduct amount equal to 10% of said sum as income tax on income comprised therein. section does provide for certain explanations with which we are not concerned. Noticeably, said section itself explains/defines as to what ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 4 is meaning of expression professional services and fees for technical services . . .P 4. Professional services have been explained to mean services rendered by person in course of carrying on H legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or such of other profession as is notified by Board for purposes of Section 44AA of Section 194J of Act. Explanation 2 to rt clause (vii) of sub section (1) of Section 9 has been stated to ou mean explanation for fees for technical services . Now when one examine said clause, one finds fees for C technical services to mean any consideration for rendering any managerial, technical or consultancy services, not to h include consideration for any construction, assembly, mining ig or like projects undertaken by recipient or consideration H which would be income of recipient chargeable under head Salaries . 5. It is in this backdrop, we proceed to examine factual matrix. 6. Development Authority, entity established for development and management of bus stands within State of Himachal Pradesh, was established w.e.f. 01.04.2000. Prior ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 5 thereto, such work was being carried out by HRTC itself. Since development authority had no independent establishment . .P and infrastructure of its own to carry out objects, decision was taken to have same executed through H employees of HRTC. This arrangement was to continue till such time development authority developed its own of infrastructure. Since ongoing projects were required to be executed, which was so done in public interest, as per rt arrangement arrived at, certain payments were released by ou development authority in favour of HRTC. expenditure was to be shared by way of reimbursement. C 7. It is matter of record that authority did not deduct any amount in terms of section 194J of Act. h 8. Since development authority had not deducted ig amount of TDS with respect to amount paid to HRTC, H assessment proceedings were initiated and Assistant Commissioner, Income Tax vide order dated 12.03.2013 (Annexure P-1) computed income of assessee by adding amount paid to HRTC, as taxable income of assessee. 9. Aggrieved of same, development authority preferred appeal which was allowed by Commissioner ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 6 of Income Tax (Appeals) vide order dated 30.06.2014 (Annexure P-2) in following terms: . .P 5. I have considered submissions of appellant and carefully gone through case history H and jurisdictional ITAT order relied upon by assessee. Hon ble ITAT, Chandigarh Bench while deciding issue of applicability of provisions of section 194j of of Act, in ITA No. 761, 762, 763 & 764/Chd.2012 for assessment years 2009-10- to 2012-13 vide order dated rt 31/12/2013, on page 4 to 6 vide para 13 have allowed appeal of assessee. relevant and effective ou part of Tribunal s order is reproduced hereunder:- After considering rival submissions, we find that assessee authority .. C From above, it becomes clear that authority had some full time staff for which it was paying itself. h Help of HRTC was taken in forum of staff and certain other facilities at pre-defined percentage of ig salary was reimbursed e.g. salaries of various Divisional Mangers/Regional Managers was to be H reimbursed @10%. Similarly in case of Junior Engineer 50% of salary was to be reimbursed. Therefore, assessee authority was basically not having infrastructure and taking help of HRTC and was reimbursing expenditure to HRTC. provisions of TDS i.e. Section 194j are not applicable if it s only case of reimbursement of expenditure. reason for same is very clear. For example if HRTC ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 7 is giving salary to its Divisional Manger, it will deduct full tax and pay same accordingly. If assessee . authority deduct tax on account of salary to .P Divisional Manger then that would amount to double deduction of taxes of salary of Divisional Manger H which is not possible. assessee is not paying lump sum charges to HRTC which can be construed as of service charge. It is only reimbursement of pre- determined rates Therefore, we are of opinion that no tax was rt required to be deducted u/s 194j. Accordingly, we set aside order of ld. CIT (A) and hold that no tax is ou deducible by assessee authority. 5.1 Respectfully following decision of Hon ble ITAT in assessee s own case (supra) and in order to C keep up judicial consistency addition made by A.O. is not sustainable and same is ordered to be h deleted. appellant succeeds on this ground of appeal ig for assessment years 2009-10, 2010-11 & 2011-12. 10. aforesaid view stands affirmed by Income H Tax Appellate Tribunal vide order dated 20.11.2014 (Annexure PA) in appeal preferred by revenue. 11. It is matter of record that in appeal assailing order passed in proceedings pertaining to TDS, this Court disposed of same purely on issue of low tax effect (ITA No.25 of 2014 titled as Commissioner of Income Tax Vs. H. P. ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 8 Bus Stand Management & Development Authority alongwith connected matters, decided on 21.09.2016). . .P 12. Hence, in effect this Court is called upon to adjudicate correctness of findings of Commissioner, reproduced H supra, as affirmed by Tribunal, in deciding appeal preferred by assessee. of 13. arrangement inter se development authority and HRTC was clear and simple. It was by way of stop gap rt arrangement. Till such time authority developed its ou infrastructure and recruited staff, work of development and management was required to be carried out C by HRTC. Hence, employees of HRTC were called upon to continue to discharge such duties. It is in this backdrop, two h entities decided to share their resources by arriving at ig arrangement, whereby salaries of certain staff and other H expenditure incurred by HRTC was to be shared proportionately. 14. Such arrangement arrived at between two entities cannot be said to be that of rendering professional services. No legal, medical, engineering, architectural consultancy, technical consultancy, accountancy, nature of interior decoration or development was to be rendered by HRTC. ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 9 Similarly, no service, which can be termed to be technical service, was provided by HRTC to development authority, . .P so also no managerial, technical or consultancy services were provided. arrangement was purely simple. staff of H HRTC was to carry out work of development and management of development authority till such time, of said authority developed its infrastructure and expenditure so incurred by HRTC was to be apportioned on rt agreed terms. It is only pursuant to such arrangement, ou development authority disbursed payment to HRTC and, as such, in our considered view, no amount of TDS was C required to be deducted on same. It is only reimbursement of expense so incurred by HRTC. h 15. In this regard, our attention is also invited to ig decision rendered by Two Judge Bench of High Court of Delhi H at New Delhi in ITA No.627/2012 & ITA No.507/2013 on 15.07.2015 titled as Commissioner of Income Tax Vs. M/s. DLF Commercial Project Corporation, relevant portion of which reads as under:- 18. assessee has correctly relied upon this Courts ruling in Industrial Engineering Projects Pvt. Ltd., (supra). Division Bench of this Court in that case ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 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. .P Court relied upon Supreme Courts decision in CIT v. Tejaji Farasram Kharawalla Ltd., { 1968 } 67 ITR H 95 (SC), where Court had held that it is only amount that exceeds expenditure incurred by of agent that would be liable to tax. More recently, this Court in Fortis Health Care Ltd.(supra) has also held that amount rt received towards reimbursement of expenses is not taxable under Act. 19. In instant case, it is undisputed that M/s DLF ou Land Ltd. had deducted TDS on payments made by it under various heads on behalf of assessee. Further, it is also not disputed that assessee C deducted TDS on service charge paid by it to M/s DLF Land Ltd. on reimbursement expenses. In h such circumstances, this Court holds that entire ig amount paid by assessee to M/s DLF Land Ltd. is entitled to deduction as expenditure. H 20. In arriving at aforesaid conclusion, this Court derives support from Gujarat High Courts decision in Commissioner of Income Tax-III v. Gujarat Narmada Valley Fertilizers Co. Ltd. (in Tax Appeal No. 315 of 2013, decided on 25.6.2013), where facts were similar to those in present case. Court therein rejected revenues contention that non- deduction of TDS on reimbursement expenses would ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 11 lead to disallowance of such reimbursement expenditure. Court noted that payee therein . had already deducted tax on various payments .P made by it to third parties (such as towards transport charges and other charges). Since payments made H by assessee therein were only for reimbursement of expenses incurred by payee on of behalf of assessee, Court held that no TDS was required to be deducted by assessee. special leave petition preferred by revenue against rt High Courts decision was dismissed by Supreme Court on 17.1.2014 (in SLC CC No. 175 of 2014). This ou Court is also supported in its reasoning by text of Section 194C (TDS for work ) and Section 194J (TDS of income from professional services - latter C expression defined expansively by Section 194J(3) Explanation (a). Neither provision obliges person h making payment to deduct anything from ig contractual payments such as those made for reimbursement of ITA Nos. 627/2012 & 507/2013 Page H 11 expenses, other than what is defined as income . law thus obliges only amounts which fulfill character of income to be subject to TDS in such cases; for other payments towards expenses, deduction to those entitled (to be made by payee) obligation to carry out TDS is upon recipient or payee of amounts. ::: Downloaded on - 20/09/2017 04:42:28 :::HCHP 12 16. Hence, substantial questions of law are answered accordingly. All appeals stand disposed of. . .P (Sanjay Karol), H Acting Chief Justice of 11th September, 2017 (Ajay Mohan Goel), (rana) Judge. Pr. Commissioner of Income-tax v. H. P. Bus Stand Management & Development Authority