Reimbursement of Expenses in the usage of Third-party Software without any Mark-up is not liable for TDS: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore has held that the reimbursement of expenses in the usage of third-party software without any markup is not liable for TDS, and provision under section 40(a)(ia) of the Income Tax Act is not sustained.

The appellant company has reflected an amount of 1,20,013/- as reimbursement to M/s.Brand Union Worldwide Ltd. – London stated that the amount was paid for the usage of Lotus Note E-mail and Abode Photoshop. It was stated that the expenses are reimbursement in nature |

The revenue argued that services provided like sending emails, making notes, and editing the images respectively are professional in nature and all the provisions of the Income Tax Act applicable. The appellant has paid the total charges for all its subsidiaries, but the appellant has not distinguished that the amount paid was irrespective of utilization.

The Tribunal in assessee’s case for the assessment year 2011-2012 (supra) on identical facts had held that license fees have been paid for the use of the software. It was viewed by the Tribunal that the assessee’s holding company use a third party software for which they shared the cost on a proportionate basis without any markup and held that the reimbursement on such expense cannot be liable for TDS. The Tribunal held that the assessee is not liable for TDS and the expenditure cannot be disallowed by invoking the provisions of section 40(a)(ia) of the I.T.Act.

The appellant further contended that for the current assessment year the assessee did not make any claim as regards non-taxability of write-back of provision of Rs.10 lakh, during assessment proceedings before the A.O. The Tribunal directed to delete a sum of Rs.10 lakh from the taxable income for the relevant assessment year since the same had suffered tax in the previous assessment year to Avoid Double Taxation. The appellant further pleaded to claim of deduction of education cess including secondary and higher educational cess as deduction while computing the total income. 

In light of the case The Kolkata Bench of the Tribunal in the case of Kanoria Chemicals & Industries Ltd Vs. Addl. CIT, Shri George George K, and Shri Laxmi Prasad Sahu had held that the education cess is not allowable as a deduction. The appeal was partly allowed.

Sri. Chinthan Ghelani appeared on behalf of the Appellant and Sri. Sankarganesh appeared on behalf of the Respondent

To Read the full text of the Order CLICK HERE

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