9911796707
TMI Blog2013 (3) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... stated the facts of the case are that the assessee is a subsidiary of M/s P.S.O. Beheer B.V., a resident of Netherlands. It is engaged in the business of certification of activities in respect of quantity, quality, pre-shipment inspections, surveys etc. Apart from others, a sum of Rs. 34,94,816 was paid by the assessee to its holding company towards reimbursement of expenses without deducting tax at source. The Assessing Officer observed that the provisions of section 195 were attracted in respect of such payment. As the assessee was required to deduct tax at source before remitting the said payment, which it did not, the AO made the disallowance invoking the provisions of section 40(a)(ia) of the Act. The contention of the assessee that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 34.94 lakh through their certificate, a copy of which has been placed at page 11 of the paper book. This certificate unequivocally mentions that the apportionment "does not include any profit elements". From the Agreement and the Certificate of the Auditor, the contents of which have not been controverted by the authorities below, it is amply clear that the assessee's share at 4% of total overhead charges, as worked out at Rs. 34.94 lakh, is without any profit element. When we consider the nature of expenses borne by the head office such as accounting, legal and professional, staff and management etc., it becomes vivid that these expenses are otherwise in the nature of revenue expenses. It is not the case of the AO that some part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be any scope for deduction of tax at source from such payment. Once no deduction of tax at source is contemplated, the natural corollary which manifestly follows is that the provisions of section 40(a)(ia) can not be triggered. We, therefore, do not see any reason for sustaining the disallowance confirmed by the learned CIT(A). 5. Before parting with this issue, we would like to record that the learned Departmental Representative referred to certain observations made by the learned CIT(A) to bring home the point that the assessee did not furnish any details of the actual expenditure incurred and in that view of the matter he urged for sustaining the disallowance. We are unable to countenance such a contention because the authorities be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... training expenses to its employees claiming the amount paid as reimbursement of expenses to its holding company. No tax was deducted at source from such payment. The training was, in fact, imparted to the employees of the assessee by Mr. Henk Jan Sijtsma and Mr. Mike van de Laak, which was arranged by the assessee's holding company. Two invoices were raised by the holding company on the assessee at EUR 13,500 and EUR 15,000 towards such training given by these two persons. The Assessing Officer, invoking the provisions of section 40(a)(ia), made the disallowance for the failure of the assessee to deduct tax at source from such payments. The learned CIT(A) upheld the disallowance. The assessee has assailed the sustenance of such disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broad, the provision for deduction of tax at source apply as if the assessee has made the payment to such independent party de hors the routing of payment through the holding company. The remission of amount to the holding or related company for finally making payment to the third person will be considered as payment to third party. It cannot be termed as reimbursement of expenses to the holding company. If the contention of the assessee is accepted and the payment to third party, routed through its related concern, is considered as reimbursement of expenses to the related party, then probably all the relevant provisions in this regard will become redundant. Such a route is impermissible to thwart the flow of law. It, therefore, follows tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her situations under which albeit the payment includes income element but it still may not be not chargeable to tax under the provisions of the Act and/or the relevant Double Taxation Avoidance Agreement (DTAA). The crucial factor to consider is the chargeability to tax of the amount in the hands of the recipient. If the amount is not chargeable to tax due to one reason or the other, the payment cannot suffer disallowance in the assessment of the payer. 9. Adverting to the facts of the instant case, we find that the assessee paid a sum of Rs. 15.44 lakh to two trainers through the medium of its holding company. Patently the payment cannot be considered as having been made to the holding company at cost. But, in order to invoke the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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