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TMI Blog2013 (12) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... lement but it still may not be not chargeable to tax under the provisions of the Act and/or the relevant Double Taxation Avoidance Agreement - Unless the chargeability of such amounts is established in the hands of such trainers, the provisions of section 195 cannot apply and ex consequenti, the application of section 40(a)(ia) is ruled out – The issue was restored for fresh decision. X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the assessee and other group concerns. These expenses include Accounting services, Legal and professional services, Communication, R&D etc. Clause 3 of the Agreement talks of consideration. This clause provides that the total overhead costs shall be collected from various group members at certain percentage of the total cost determined as per arm's length principle by considering the size of the group member, percentage of ownership, time spent by the management, number of visits etc. Second part of clause 3 provides that : "Taking into account all the abovementioned parameters, the percentage for the Group Member, Control Union India Private Limited, has, after careful consideration, been fixed at 4% of the Total Overhead Cost". The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of tax at source. In the instant context, an amount will be liable to tax withholding if it inter alia contains some income element. If the amount paid by the assessee is not taxable in the hands of the recipient, there can be no question of making any disallowance under this provision. A conjoint reading of sections 195 and 40(a)(ia) brings to the fore that the disallowance can be made only if the amount paid is chargeable to tax in the hands of the recipient. In other words, if the amount is not chargeable to tax in the hands of the recipient, there cannot be any scope for deduction of tax at source. There is no dearth of judgments and Tribunal orders to the effect that the reimbursement of expenses without any profit element ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to argue the case of the Revenue from any angle, but there is an inherent limit on such arguments. He can't travel beyond the assessment order to set up an altogether new case. If we accept the contention of the ld. DR that the assessee was not entitled to deduction in the very first instance, it would set aside the bedrock of the action of the AO, being the disallowance u/s 40(a)(ia). In our considered opinion, such a course of action is not open to the ld. DR. In view of the foregoing reasons, we decide this issue in assessee's favour by overturning the impugned order on this score. 6. The only other issue which survives in this appeal is against the confirmation of disallowance of Rs. 15,44,700 u/s 40(a)(ia) of the Act. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered opinion, the answer to this question can be in negative alone. In the extant context, the reimbursement of expenses for avoiding deduction of tax at source contemplates the actual incurring of expenses by the later in the first instance, which is subsequently made good by the former. Where the expenses are incurred not by the later itself but someone else, its payment by the former to the later to pass it to such third person cannot be considered as reimbursement of expenses to the later so as to push such transaction outside the ambit of the provisions of deduction of tax at source. To put it in simple terms, if the Indian subsidiary company incurs expenses or makes purchases or avails any service from some third party abroad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) in this regard that the amount in question cannot be considered as reimbursement of expenses. 8. However, the mere fact that the payment in question is not reimbursement of expenses to the holding company would not per se expose the expenditure to disallowance u/s 40(a)(ia) of the Act. It has been noticed supra that the disallowance u/s 40(a)(ia) is activated when there is failure on the part of the assessee to deduct/pay tax at source from the payment on which tax is otherwise deductible as per law. Deduction of tax at source u/s 195 from payment is envisaged when the amount is chargeable to tax in the hands of recipient. Reimbursement of expenses to the related party without any mark-up is one of the situations under which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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