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2017 (11) TMI 501 - AT - Income TaxDisallowance u/s 40(a)(i) - non deduction of tds on payments made to Medunet Europe B.V for technical services towards copyright and printable file - Held that - CIT(A) in his order has noted that though assessee has deducted TDS on payments under the title Fees for Technical Services with description copyright and printable PDF file in the case of other like payments but tax has not been deducted on the sum of 50, 553/- paid to Medunet Europe B.V for similarly described nature of payment. Even before us there is no rebuttal of the aforesaid position and in the absence of any credible explanation we affirm the orders of the authorities below and thus so far as invoking of Sec. 40(a)(i) of the Act with respect to payment made to Medunet Europe B.V of 50, 553/- is concerned the action of the income-tax authorities is sustained and assessee fails. TDS on payment paid to M/s. Pfizer Corporation Hongkong Ltd. - claim of the assessee has been that the payments in question are merely reimbursement of expenses - Held that - In terms of the invoices the amount relatable to the Indian entity is quantified at USD 948 which has been invoiced by M/s. Pfizer Corporation Hongkong Ltd. to the assessee-company. Similar is the situation with other invoices and in our view the assertions being made by the assessee are borne out of record. Thus where the payments are merely towards reimbursement of expenses incurred by M/s. Pfizer Corporation Hongkong Ltd. on behalf of the assessee there is justifiably no reason to deduct tax at source. Thus having regard to the objection of the CIT(A) that there was non-substantiation of the payments to M/s. Pfizer Corporation Hongkong Ltd. being reimbursements a plea which we have not found tenable on the basis of the material on record we direct that the disallowance made u/s 40(a)(i) of the Act be set-aside. TDS on scholarship fee paid to Doctor - absence of requisite deduction of tax at source - plea of the assessee that the said amount is not taxable in India so as to require tax deduction at source because of Article 7 of DTAA in the absence of any Permanent Establishment of the recipient in India - Held that - We have perused the order of the CIT(A) and find that though the CIT(A) has tabulated in the list of payments the amount of scholarship fee paid for Dr. Avinash Pophali of 1, 90, 315/- but there is no adjudication on the same. Therefore we restore the matter back to the file of the CIT(A) who shall examine the disallowance made by the Assessing Officer of the said scholarship fee u/s 40(a)(i) of the Act. TDS u/s 194C - Disallowance of cross charges by invoking Sec. 40(a)(ia) - Contractual relationship between the assessee-company and M/s. Pfizer Ltd. - Held that - There was no default on the part of the assessee in not deducting tax at source on the impugned payments to M/s. Pfizer Ltd. In this view of the matter we therefore find no reasons to interfere with the ultimate conclusion of the CIT(A) in setting-aside the disallowance made by the Assessing Officer by invoking Sec. 40(a)(ia) of the Act. See COMMISSIONER OF INCOME-TAX Versus SIEMENS AKTIONGESELLSCHAFT 2008 (11) TMI 74 - BOMBAY HIGH COURT
Issues Involved:
1. Disallowance under section 40(a)(i) of the Income Tax Act for fees paid to Medunet Europe B.V. 2. Disallowance under section 40(a)(i) of the Income Tax Act for reimbursement of expenses paid to Pfizer Corporation Hong Kong Limited. 3. Disallowance under section 40(a)(i) of the Income Tax Act for scholarship fees paid to a doctor. 4. Deletion of disallowance of cross charges paid to M/s. Pfizer Ltd. for non-deduction of TDS. Detailed Analysis: 1. Disallowance under section 40(a)(i) for fees paid to Medunet Europe B.V.: The first issue pertains to the disallowance of ?50,553 paid to Medunet Europe B.V. for technical services towards copyright and printable files. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] disallowed the expenditure under section 40(a)(i) due to the assessee's failure to deduct the requisite tax at source. The Tribunal affirmed the orders of the lower authorities, noting that the assessee did not provide any credible explanation for not deducting tax on the payment. Therefore, the disallowance was upheld. 2. Disallowance under section 40(a)(i) for reimbursement of expenses paid to Pfizer Corporation Hong Kong Limited: The second issue concerns the disallowance of ?13,67,801 paid to Pfizer Corporation Hong Kong Limited, which the assessee claimed were reimbursements of expenses. The AO disallowed the expenditure under section 40(a)(i) for non-deduction of tax at source. The CIT(A) upheld the disallowance, stating that the assessee did not furnish details to substantiate that the payments were merely reimbursements. However, the Tribunal found that there was sufficient material on record, including detailed invoices, to support the assessee's claim that the payments were reimbursements. Consequently, the Tribunal set aside the disallowance, holding that there was no requirement to deduct tax at source on mere reimbursements. 3. Disallowance under section 40(a)(i) for scholarship fees paid to a doctor: The third issue involves the disallowance of ?1,90,315 paid as scholarship fees to a doctor. The AO disallowed the expenditure under section 40(a)(i) for non-deduction of tax at source. The assessee argued that the amount was not taxable in India due to Article 7 of the Double Taxation Avoidance Agreement, as the recipient did not have a Permanent Establishment in India. The CIT(A) did not adjudicate this ground. The Tribunal restored the matter to the file of the CIT(A) for examination and adjudication, allowing the assessee's appeal for statistical purposes. 4. Deletion of disallowance of cross charges paid to M/s. Pfizer Ltd. for non-deduction of TDS: The Revenue's appeal focused on the deletion of the disallowance of ?14,51,77,000 paid to M/s. Pfizer Ltd. The AO disallowed the expenditure under section 40(a)(ia) for non-deduction of tax at source, arguing that the payments included a profit component and were not mere reimbursements. The CIT(A) disagreed, concluding that the payments were reimbursements without any mark-up, supported by a cost-sharing agreement and confirmations from M/s. Pfizer Ltd. The Tribunal upheld the CIT(A)'s decision, noting that reimbursements without profit elements do not attract TDS. Additionally, the Tribunal observed that the CIT(A) correctly applied the second proviso to section 40(a)(ia) and section 201(1) of the Act, which exempts the assessee from being treated as in default if the payee has complied with tax obligations. The Tribunal found no reason to interfere with the CIT(A)'s decision and dismissed the Revenue's appeal. Conclusion: - The appeal of the assessee was partly allowed, with the Tribunal upholding the disallowance related to Medunet Europe B.V., setting aside the disallowance related to Pfizer Corporation Hong Kong Limited, and restoring the issue of scholarship fees to the CIT(A). - The Revenue's appeal was dismissed, with the Tribunal upholding the CIT(A)'s deletion of the disallowance related to cross charges paid to M/s. Pfizer Ltd.
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