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I-T - Whether disallowance can be made u/s 40(a)(ia) for non deduction of TDS on reimbursement of expenses, merely on the basis that the payments were routed through associate company - NO: HC

By TIOL News Service

MUMBAI, NOV 03, 2016: THE ISSUE IS - Whether disallowance can be made u/s 40(a)(ia) for non deduction of TDS on reimbursement of expenses, merely on the basis that the payments were routed through associate company. NO IS THE VERDICT.

Facts of the case:

The assessee is a company. During the year, assessee paid a sum of Rs.4.59 crores to its holding company M/s. IDFC Ltd. on account of reimbursement of expenses. During the assessment proceedings, the Assessing Officer disallowed the entire amount of Rs.4.59 crores paid to its holding company as reimbursement of various expenses on account of its failure to deduct tax at source. This disallowance was made by the AO in terms of Section 40(a) (ia). On appeal, CIT(A) partly allowed assessee's appeal, restricting the disallowance to Rs.3.40 crores u/s 40(a)(ia). This after holding that the amount of Rs.1.19 cores has already been disallowed by AO as prior period expenses. Therefore, it could not again be subject of disallowance. On further appeal, Tribunal noted that the fact that it was neither disputed by the AO or by CIT(A) that the amount paid by assessee to its holding company was towards reimbursement of expenses incurred by holding company. Thus, Tribunal allowed the appeal of assessee holding that there was no requirement of deducting TDS in case of reimbursement of expenses.

High Court's holding:

1. It is found that the impugned order of the Tribunal records the fact that the AO as well as CIT(A) have not disputed the position that the amount paid to the holding company by the assessee was towards reimbursement of expenses. At the hearing, the Revenue also has not shown any submission to the contrary being made before the Tribunal or any observation in the orders of the Assessing Officer and/or the CIT(A) to the contrary.

2. In the above view, on facts, it is an undisputed position that the amount paid to the holding company was towards the reimbursement of expenses. It is also not disputed by Revenue's counsel that it is settled position in law in view of the decision of this Court in Siemens AG that a party is not obliged to deduct tax at source on reimbursement of expenses. Therefore, question as raised does not give rise to any substantial question of law.

(See 2016-TIOL-2699-HC-MUM-IT)


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