Margadarshi Chit Fund Pvt., Ltd. V. Assistant Commissioner of Income Tax, Central Circle \\u2013 16(2), Hyderabad

ITTA/288/2013

AI Insights

The case revolves around an appeal by M/s. Margadarshi Chit Fund Pvt., Ltd. against the order of the learned Tribunal, which had confirmed the view of the CIT(A) and the assessing authority regarding the non-deduction of TDS on certain payments made under a Memorandum of Understanding (MOU) with M/s. Ushakiran Movies Limited. The MOU detailed the marketing and utilization of facilities in a film city complex, where M/s. Ushakiran Movies Limited was to receive a commission and reimbursements for various infrastructural facilities. The core legal issues pertained to whether the payments made were for services rendered or reimbursements, and the consequent tax deduction obligations under the Income Tax Act.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 817081 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 24-07-2013
• Assessment Year: misc
• Other Referred Cases: Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram and others, GE India Technology Centre Private Limited vs. Commissioner of Income Tax and another
• Laws Referred To: Section 194C, Section 40(a)(ia)
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Composite contract; Memorandum of Understanding; Reimbursement of expenditure; TDS Provisions; Tax deduction obligation
• Section: 40(a)(ia); 194C

Judgement Text

"IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A. No. 288 of 2013 DATE: 24.07.2013 Between: M/s. Margadarshi Chit Fund Pvt., Ltd., Hyderabad. … Appellant And Assistant Commissioner of Income Tax, Central Circle – 16(2), Hyderabad. … Respondent This Court made the following: THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A. No. 288 of 2013 JUDGMENT: (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is preferred against the impugned judgment and order of the learned Tribunal dated 08.02.2012 and sought to be admitted on the following suggested questions of law: 1. Whether on the facts and circumstances of the case, the findings of the Tribunal are perverse in holding that the payments have been artificially broken up to avoid the TDS provisions? 2. Whether reimbursement of expenditure can be treated as consideration and taxed? 3. Whether on the facts and circumstances of the case, the finding of the Tribunal are perverse in rewriting and interpreting the terms of the contract contrary to the understanding and intention of the parties? 4. Whether on the facts and circumstances of the case, the Tribunal was not correct in law in holding that since it is a composite contract all payments are made thereunder are liable for deduction of TDS under Section 194C ignoring the nature and terms and conditions of the MOU? 5. Whether on the facts and circumstances of the case, the findings of the Tribunal are perverse in confirming the view of the CIT(A) who confirmed the view of assessing authority in relying on the case of Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram and others reported in AIR 1954 SC 236? 6. Whether on the facts and circumstances of the case, the findings of the Tribunal are erroneous and perverse in confirming the view of the CIT(A) that since expenditure cannot be clearly discerned from profit and loss account it would be in the fitness of things to disallow Rs.1,00,000/- as expenditure on collection of subscription for other group company? We have heard the learned counsel for the appellant and gone through the impugned judgment and order of the learned Tribunal. It appears from fact that the assessee has entered into a Memorandum of Understanding with one M/s. Ushakiran Movies Limited on 01.04.2005 for proper commercial exploitation and marketing of various facilities created in the film city complex including equipment. As per the terms of the Memorandum of Understanding, M/s. Ushakiran Movies Limited will market the shooting locations, sets and various other facilities including equipment of the assessee. For such services to be rendered, M/s. Ushakiran Movies Limited was entitled to receive from the assessee commission of 15% on the bills raised. In addition to this, clause 16 of the Memorandum of Understanding provides that the assessee shall reimburse M/s. Ushakiran Movies Limited all the charges/costs for utilizing the infrastructural facilities such as internal and external road network, parking facilities, water, power and communication facilities. It is thus clear from the Memorandum of Understanding that payment has to be made for the services rendered and another payment has to be made on account of reimbursement for utilizing such facilities. If the payment is made on account of the services rendered by M/s. Ushakiran Movies Limited, tax has to be deducted and it is the legal obligation of the assessee to do so. But in respect of the reimbursement of the infrastructural facilities tax deduction obligation may not be there. The whole thing depends on what is the nature of the transaction that took place - whether payment on services rendered or on reimbursement. The learned Tribunal has found as follows: “However, from the breakup of the payments of Rs.61,01,575/- under various heads it appears that they are not exclusively towards reimbursement of charges/cost for utilizing the infrastructural facilities. Therefore, it has to be seen whether the payments were coming within the category of payments to be made as per the memorandum of understanding. The reading of the memorandum of understanding as a whole would make it clear that it is a composite contract entrusting various works to be carried out on behalf of the assessee by M/s. Ushakiran Movies Limited and the payments made were towards performance of this contract. The assessee itself has also admitted that all the payments made were in terms with the memorandum of understanding. However, certain payment as per the break up furnished does not appear to be for utilization of infrastructure facilities.” From the aforesaid finding of the learned Tribunal, it is not clear that which portion of the payment was made for infrastructural facilities. But, whatever may be the position, the payment has been made and the tax could have been deducted at source. In view of the fact finding of the learned Tribunal, we are unable to admit the appeal, as the learned Tribunal has correctly held that the assessee has not deducted the tax at source from the payment made to M/s. Ushakiran Movies Limited and therefore, the disallowance made under Section 40(a)(ia) was justified. Learned counsel for the appellant relied on a decision of the Supreme Court in the case of GE India Technology Centre Private Limited vs. Commissioner of Income Tax and another[1] and drawn our attention to paragraph 24 of the said judgment. A reading of the said paragraph shows that the same does not apply to the facts and circumstances of this case, as the Tribunal on fact held that the payment was made in terms of the Memorandum of Understanding and the tax should have been deducted. Therefore, this judgment has no application to the present case. The appeal is accordingly dismissed. _____________________ K.J. SENGUPTA, CJ ________________ K. C. BHANU, J Date: 24.07.2013 ES [1] (2010) 10 SCC 29 "