2015 (9) TMI 1429 - AT - Income Tax

TDS u/s 194C - disallowance u/s u/s 40(a)(ia) - TDS liability on reimbursement of expenses - Held that - In pursuance of Cost Allocation & Recharged Agreement between the assessee and the said company whereby GSIPL was required to incur cost and make payments after deducting the TDS. Such cost was then recharged to the assessee. Such recharged of cost was purely on account of reimbursement of expenses which were incurred by GSIPL and hence there is no income element on such a payment. Once that is so then there is no requirement to deduct TDS in view of the decision of Hon ble High Court in the case of CIT vs. Siemens (2016 (4) TMI 791 - GUJARAT HIGH COURT ). Thus the finding of the CIT(A) that there was no requirement to deduct TDS on such reimbursement of cost is factually and legally correct and is therefore upheld. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deduction for reimbursement of expenses to fellow subsidiary u/s 40(a)(ia) of the I.T. Act.

Analysis:
The Appellate Tribunal ITAT Mumbai addressed the issue of disallowance of deduction for reimbursement of expenses to a fellow subsidiary under section 40(a)(ia) of the Income Tax Act. The case involved an appeal filed by the revenue against an order passed by CIT(A)-2, Mumbai for the assessment year 2009-10. The primary contention was whether the Assessing Officer erred in directing the deletion of disallowance of deduction for reimbursement of expenses amounting to Rs. 1,73,07,000 to a group company. The Assessing Officer disallowed the deduction under section 40(a)(ia) as tax was not withheld under section 194C on the reimbursement made by the assessee to the group company. The Appellate Tribunal considered the nature of the expenditure reimbursed by the assessee to its group company, which included various costs such as employee-related costs, rent, corporate recharges, depreciation, and support functions. The Tribunal examined the Cost Allocation & Recharge Agreement between the parties, emphasizing that the reimbursement was purely on account of expenses incurred by the group company and did not involve any income element. The Tribunal referred to the absence of an income component in the reimbursement and relied on legal interpretations of the term "reimbursement" to support its decision.

The Appellate Tribunal reviewed the submissions made by the parties, including the arguments presented by the Assessing Officer and the Senior Counsel. The Senior Counsel referenced relevant decisions, including the case of CIT vs. Siemens, to support the contention that no TDS was required to be deducted on reimbursement of costs. The Tribunal acknowledged that the group company had already deducted tax at source while making payments to third parties, further strengthening the argument against disallowance of the deduction. After thorough consideration of the facts and legal interpretations, the Tribunal upheld the CIT(A)'s decision that no TDS was required on the reimbursement of expenses to the group company. The Tribunal concluded that the reimbursement was solely for costs incurred by the group company and did not involve any income element, aligning with the legal precedents cited during the proceedings.

In the final judgment, the Appellate Tribunal dismissed the revenue's appeal, affirming the decision that there was no requirement to deduct TDS on the reimbursement of expenses to the group company. The Tribunal emphasized the factual and legal correctness of the CIT(A)'s finding in this regard, citing the decision of the Hon'ble High Court in the case of CIT vs. Siemens. The order was pronounced in the open court on 4th September 2015, marking the conclusion of the legal proceedings in this matter.