S. 195, Income-tax Act
A.Y. : 2003-04. Dated : 15-10-2009
Issue :
Reimbursement received by non-resident in respect of
payment made on behalf of resident was not liable to tax in India.
Facts :
The assessee, a tax resident of Singapore is engaged in the
business of providing technical services and rendering of network facilities.
The parent company of the assessee was an American company
which held shares in both the assessee as well as HDFC Chubb (JVCO) in India.
The JVCO was incorporated in February 2002 and it commenced operations in
October 2002.
Pending commencement of business by JVCO, for
administrative convenience and on request of JVCO, the assessee made payments
(including certain expenses) for purchase of software licence to Apex Systems
Pte. Ltd. (Apex).
While payments were made by the assessee, JVCO complied
with tax, withholding provisions with respect to such payments. The amount was
reimbursed by HDFC Chubb to the assessee during A.Y. 2003-04.
The Assessing Officer (AO) held that the amount received by
the assessee from JVCO was income of the assessee liable to tax, in India.
The assessee contended that the amount received from JVCO
was only reimbursement of expenses that were paid on behalf of JVCO as a
matter of administrative convenience and no income had arisen on account of
such transaction. The assessee also submitted that TDS was duly deducted by
JVCO from payment to Apex and therefore Apex had already been taxed in respect
of the transaction.
The CIT(A) accepted the contention of the assessee and
deleted the addition made by AO.
Held :
Confirming the order of the CIT(A), the ITAT held :
(a) The assesee was not a party to the contract for the
supply of software licences between Apex and JVCO. It was clear that the
payments were made only on behalf of JVCO due to JVCO’s inability to pay the
same before commencement of business.
(b) The amount received by the assessee was in the nature
of reimbursement of actual payment made by the assessee on behalf of JVCO to
Apex. There was no element of profit or income involved in such payment.
(c) Adequate taxes were deducted while making payment to
the supplier Apex, evidencing the fact that the true recipient of income had
been already subjected to tax.
(d) Such receipt, which was pure reimbursement of earlier
disbursement made on behalf of JVCO, was not taxable in the hands of the
assessee under the provisions of the Act.
