Bhagyanagar Gas Ltd. v. Asstt. CIT

SUBSCRIBE FOR FULL CONTENT


The Tax PublishersIT Appeal Nos. 588 & 589 (Hyd.) of 2012 2013 TaxPub(DT) 0513 (Hyd-Trib) : (2013) 052 (II) ITCL 0269 : (2013) 140 ITD 0591 INCOME TAX ACT, 1961 --TDS--Under section 194C Deputation of employees vis-a-vis works contract--Assessee-company was promoted as Joint Venture Company (JVC) by HPCL and GAIL. Assessee was engaged in business of distribution and marketing of ONG, LPG, Natural gas and any other gaseous fuel in State of A.P. During course of assessment proceedings, it was noticed by assessing officer that assessee paid HPCL and GAIL certain sums towards reimbursement of cost of salaries of employees with HPCL and GAIL who were on deputation to assessee-company and assessee had not deducted tax from such payment made to two concerns. Assessing officer observed and held that payments were not made individually to persons of HPCL and GAIL but was made to HPCL and GAIL as reimbursement and, therefore, it was a clear case of payment made for supply of labour for carrying out work and as such works contract fall within ambit of section 194C. Assessing officer, thus, disallowed the same under section 40(a)(ia). *Held:* Disallowance made by assessing officer under section 40(a)(ia) had to be deleted as amount was paid as a reimbursement of amount spent by HPCL and GAIL in making payment of persons in employment of assessee and payment for services rendered by GAIL and HPCL, it was thus a works contract. GAIL and HPCL deputed their personnel who worked under the control and management of JVC. The employees were carrying out the work of the assessee as its employees not carrying out the work on behalf of GAIL or HPCL. Salary, cost of these employees are a charge on the profits of the assessee. Payment by way of salary would not constitute fees for technical services. Nor can the transaction be viewed as a works contract performed by GAIL and HPCL. Merely because the companies had in an agreement agreed to depute their employees would not mean that it is a works contract. Further the assessee paid only the salaries of the persons who worked under the control and supervision of the assessee. Instead of paying the amount to the employees directly, the assessee reimbursed the amount to GAIL and HPCL who had paid the amount to the employees. This can be viewed as a financial arrangement under which GAIL and HPCL pay to the deputed employees on behalf of the assessee and the assessee reimburses the same. It is a reimbursement of amount spent by GAIL and HPCL in payment of persons in the employ of the assessee and payment for any services rendered by GAIL and HPCL. [Para 11] Such payment cannot be considered as payment towards work executed by GAIL and HPCL in the course of work contract. In the case of United Hotels Ltd. v. ITO (2005) 2 SOT 267 (Del-Trib): 2005 TaxPub(DT) 922 (Del-Trib) under similar circumstances, the ITAT, Delhi has held that reimbursement of salary to the deputed personnel would not attract deduction of tax at source. Reimbursement of expenses are not subject to tax deduction at source. [Para 12] Addition made by the assessing officer under section 40(a)(ia) is, therefore, deleted. [Para 13] Income Tax Act, 1961, Section 194C Income Tax Act, 1961, Section 40(a)(ia) In The ITAT, Hyderabad b Bench Chandra Poojari, A.M. & Asha Vijayaraghavan, J.M. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersIT Appeal Nos. 588 & 589 (Hyd.) of 2012
2013 TaxPub(DT) 0513 (Hyd-Trib) : (2013) 052 (II) ITCL 0269 : (2013) 140 ITD 0591

INCOME TAX ACT, 1961

--TDS--Under section 194C Deputation of employees vis-a-vis works contract--Assessee-company was promoted as Joint Venture Company (JVC) by HPCL and GAIL. Assessee was engaged in business of distribution and marketing of ONG, LPG, Natural gas and any other gaseous fuel in State of A.P. During course of assessment proceedings, it was noticed by assessing officer that assessee paid HPCL and GAIL certain sums towards reimbursement of cost of salaries of employees with HPCL and GAIL who were on deputation to assessee-company and assessee had not deducted tax from such payment made to two concerns. Assessing officer observed and held that payments were not made individually to persons of HPCL and GAIL but was made to HPCL and GAIL as reimbursement and, therefore, it was a clear case of payment made for supply of labour for carrying out work and as such works contract fall within ambit of section 194C. Assessing officer, thus, disallowed the same under section 40(a)(ia). Held: Disallowance made by assessing officer under section 40(a)(ia) had to be deleted as amount was paid as a reimbursement of amount spent by HPCL and GAIL in making payment of persons in employment of assessee and payment for services rendered by GAIL and HPCL, it was thus a works contract.

GAIL and HPCL deputed their personnel who worked under the control and management of JVC. The employees were carrying out the work of the assessee as its employees not carrying out the work on behalf of GAIL or HPCL. Salary, cost of these employees are a charge on the profits of the assessee. Payment by way of salary would not constitute fees for technical services. Nor can the transaction be viewed as a works contract performed by GAIL and HPCL. Merely because the companies had in an agreement agreed to depute their employees would not mean that it is a works contract. Further the assessee paid only the salaries of the persons who worked under the control and supervision of the assessee. Instead of paying the amount to the employees directly, the assessee reimbursed the amount to GAIL and HPCL who had paid the amount to the employees. This can be viewed as a financial arrangement under which GAIL and HPCL pay to the deputed employees on behalf of the assessee and the assessee reimburses the same. It is a reimbursement of amount spent by GAIL and HPCL in payment of persons in the employ of the assessee and payment for any services rendered by GAIL and HPCL. [Para 11] Such payment cannot be considered as payment towards work executed by GAIL and HPCL in the course of work contract. In the case of United Hotels Ltd. v. ITO (2005) 2 SOT 267 (Del-Trib): 2005 TaxPub(DT) 922 (Del-Trib) under similar circumstances, the ITAT, Delhi has held that reimbursement of salary to the deputed personnel would not attract deduction of tax at source. Reimbursement of expenses are not subject to tax deduction at source. [Para 12] Addition made by the assessing officer under section 40(a)(ia) is, therefore, deleted. [Para 13]

Income Tax Act, 1961, Section 194C

Income Tax Act, 1961, Section 40(a)(ia)

In The ITAT, Hyderabad b Bench

Chandra Poojari, A.M. & Asha Vijayaraghavan, J.M.