Deduction of tax at source – Section 190 – Liability to deduct tax at source only if there is income – Reimbursement of expenses – No income arises – Tax not deductible at source

27. Zephyr Biomedicals vs. JCIT [2020]
428 ITR 398 (Bom.) Date of order: 7^th October, 2020

Deduction
of tax at source – Section 190 – Liability to deduct tax at source only if
there is income – Reimbursement of expenses – No income arises – Tax not
deductible at source

In the
appeal by the assessee before the Bombay High Court against the order of the
Tribunal the following question of law was raised:

‘Whether
on the facts and in the circumstances of the case, the Hon’ble Tribunal was
right in law in holding that the appellant is liable to deduct tax at source
u/s 194C on the payments made to clearing and forwarding agents which is
outright reimbursement of freight charges having no element of profit?’

The Bombay
High Court held as under:

‘i)    Income-tax is a tax payable in respect of
the “total income” of the previous year of every person. Further, such
Income-tax shall have to be deducted at source or paid in advance, where it is
so deductible or payable under any of the provisions of the Income-tax Act,
1961.

ii)    From this it follows that unless the paid
amount has any “income element” in it, there will arise no liability to pay any
Income-tax upon such amount. Further, in such a situation there will also arise
no liability of any deduction of tax at source upon such amount.

iii)   Again, the liability to deduct or collect
Income-tax at source is upon “such income” as referred to in section 190(1).
The expression “such income” would ordinarily relate to any amount which has an
“income element” in it and not otherwise.’