Deduction of tax at source — Matter remitted to AO to decide whether the payments made to the parent company on account of reimbursement of expenses pertaining to personnel deputed with the JV attract the liability of TDS — as held by MumTrib in Addl

vDecided on: 16 March 2011 — In favour of: Others.

The assessee-company is a joint venture between National Stock Exchange of India Ltd. (NSE) and CRISIL, set up in May 1998 to provide a variety of indices and index related services and products for the Indian Capital Markets. The AO noted that under the head “Operating Administration and Other Expenses” the assessee claimed an expenditure towards the deputed personnel cost. The said payment was claimed to be made to NSE and CRISIL, who were the two holding companies of the assessee-company. The AO asked as to why the TDS was not deducted on said payments. The assessee explained that the deputed personnel cost was actual reimbursement to its parent company on account of salary payments to employees on their payrolls who were deputed to assessee-company. Being reimbursement of expenses, no TDS was required. The AO observed that though the assessee claimed the expenses as reimbursement but had not been able to prove with any documentary evidence of the working that it was merely a reimbursement and the assessee had paid only the cost incurred by the holding company. In the absence of all these details, it was not possible to accept the assessee’s contention that the payments made were made for reimbursement. The AO held that as per the provisions of s 194C/194J, the tax should have been deducted on the sums paid by the assessee-company to its holding company towards the services of deputed personnel and since the TDS was not paid, the AO disallowed the expenses under s 40(a)(ia). In an appeal, the CIT(A) deleted the disallowance. Being aggrieved, the revenue has filed the present appeal.

The issue is whether the payments made to the parent company on account of reimbursement of salaries in relation to services rendered by the personnel on deputation to the JV attract the liability of TDS.

The Counsel for the assessee and the DR made a contradictory statement with respect to the fact that the details have been furnished before the AO. In these circumstances, it is appropriate to set aside the issue to the file of the AO to verify the details of expenditure and examine whether the payments were actual reimbursement of expenses pertaining to personnel deputed with the assessee company. However the AO shall restrict himself to the evidences which have been submitted before the CIT(A) while deciding the issue in accordance with the law.