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TMI Blog2017 (11) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 Establishm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer in disallowing under section 40(a)(i) of the Act the reimbursement of expenses paid to Pfizer Corporation Hong Kong Limited towards various inter-company invoices amounting to ₹ 13,67,801. 1.3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not giving any finding on disallowance of scholarship fees paid to doctor under section 40(a)(i) of the Act amounting to ₹ 1,90,315 inasmuch as the same is not taxable by virtue of Article 7 of the Double Taxation Avoidance Agreement in the absence of any Permanent Establishment in India." 3. Briefly put, the relevant facts are that the assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of trading of pharmaceutical products. The return of income filed by the assessee for Assessment Year 2009-10 declaring total income of ₹ 19,62,50,782/- was subject to a scrutiny assessment whereby the total income has been assessed at ₹ 34,42,08,170/-. The difference between the returned income and assessed income is primarily on account of disallowance made by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred on its behalf, but no such details have been furnished to substantiate that it was merely in the nature of reimbursement of actual expenditure incurred by M/s. Pfizer Corporation Hongkong Ltd. 6. Before us, the learned representative for the assessee pointed out that the disallowance has been upheld by the CIT(A) on a wrong footing inasmuch as the relevant details, copies of which are placed in the Paper Book, were very much on record, which clearly brings out that the payments are in the nature of reimbursement of expenses. In this context, the learned representative has referred to page 23 of the Paper Book wherein is placed the details of the various inter-company invoices raised by M/s. Pfizer Corporation Hongkong Ltd. towards the reimbursement of expenses amounting to ₹ 13,67,800/-, i.e., the amount in question. The learned representative pointed out that each invoice raised by M/s. Pfizer Corporation Hongkong Ltd. is backed up and can be co-related with the third party invoices, which clearly depicts the amount invoiced to assessee and demonstrates that M/s. Pfizer Corporation Hongkong Ltd. has been merely reimbursed the expenses incurred by it on behalf of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection 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 of ₹ 13,67,800/- made u/s 40(a)(i) of the Act be set-aside. We hold so. 11. The issue in Ground of appeal no. 1.3 relates to a disallowance of ₹ 1,90,315/-, which represents scholarship fee paid to Doctor. The said expenditure has been disallowance u/s 40(a)(i) of the Act on the ground of absence of requisite deduction of tax at source. The plea of the assessee has been that the said amount is not taxable in India so as to require tax deduction at source because of Article 7 of the Double Taxation Avoidance Agreement in the absence of any Permanent Establishment of the recipient in India. 12. On this aspect, the learned representative for the assessee pointed out that though there was a Ground before the CIT(A), but the same has inadvertently remained un-adjudicated and, therefore, submitted that the assessee would be satisfied if the matter is restored back to the file of the CIT(A) on this aspect. We have perused the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges of ₹ 14,51,77,000/- to M/s. Pfizer Ltd. Assessee was also required to explain as to why the expenditure was not liable to be disallowed u/s 40(a)(ia) of the Act in the absence of requisite deduction of tax at source. In response, it was explained that the assessee-company was using the field force facilities of M/s. Pfizer Ltd., a sister concern, in order to promote its products in the market, and that the impugned sum represented the expenses reimbursed to M/s. Pfizer Ltd. It was also pointed out that the assessee had entered into a cost sharing agreement with M/s. Pfizer Ltd. and the sum of ₹ 14,51,77,000/- reflected the expenses incurred on account of personnel cost, travelling, advertising & promotion and miscellaneous expenses and that the impugned payment was in the nature of reimbursement of expenses without any mark-up. It was, therefore, explained that no tax was deductible at source in the absence of any mark-up and, in any case, the other concern, namely M/s. Pfizer Ltd. had deducted the requisite tax at source wherever required. The Assessing Officer was not satisfied with the explanation furnished by the assessee. As per the Assessing Officer, a sampl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision to delete the addition. Against such a decision of the CIT(A), Revenue is in appeal before us. 17. Before us, the ld. DR contended that the arrangement with M/s. Pfizer Ltd. clearly showed that assessee was availing of administrative and other services and, therefore, the payments made were liable to be subjected to tax deduction at source. For the said reasons, he has assailed the decision of the CIT(A). 18. On the other hand, the learned representative for the respondent-assessee has taken support of the findings arrived at by the CIT(A) and pointed out that in the assessee's own case for Assessment Year 2007-08, vide ITA No. 3158/Mum/2012 dated 09.10.2013 read with order in MA No. 291/Mum/2014, it has been held that there is no element of profit in cases where there is reimbursement of travelling expenses. On the same analogy, the impugned expenses being in the nature of reimbursement and does not involve any profit element; thus, no tax was required to be deducted at source in the absence of any income in the hands of the recipient. 19. We have carefully considered the rival submissions. Factually speaking, in para 1.3.6 of his order, the CIT(A) has tabulated detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n brought out by the CIT(A), which is not assailed, the ratio of the decision of the Mumbai Bench of the Tribunal in the case of Bayer Material Science Pvt. Ltd. (supra) as well as the reasoning approved by the Hon'ble Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft (supra) clearly supports the conclusion drawn by the CIT(A) 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. Thus, on this aspect, Revenue fails in its appeal. 20. Before parting, we may also refer to another aspect noted by the CIT(A). The CIT(A) noted the second proviso to Sec. 40(a)(ia) of the Act inserted by the Finance Act, 2012 which prescribes that if an assessee fails to deduct tax at source, but is not deemed to be an assessee in default as per the first proviso to Sec. 201(1) of the Act, then, no disallowance u/s 40(a)(ia) of the Act is required to be made in respect of such expenditure. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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