The Tax Publishers2021 TaxPub(DT) 0882 (Mum-Trib)


Section 40(a)(ia) Section 194C

Where assessee made payment of cross charges to its parent company by treating the same as mere reimbursement as per cost sharing agreement and thereby without deducting tax at source under section 194C, disallowance under section 40(a)(ia) was not warranted because such agreement envisaged exact reimbursal of the costs without any mark-up or margin and since there was no dafault on part of assessee in not deducting tax at source, the CIT(A) was justified in deleting the disallowance made by AO.

Business disallowance under section 40(a)(ia) - Domestic cost sharing agreement - Payment of cross charges to parent company, whether mere reimbursement -

Assessee had paid certain group employee and certain common costs to its parent Pfizer Ltd. under a cost sharing agreement. It was the case of the AO that no TDS was done on the same and thus the same deserves disallowance under section 40(a)(ia). On appeal, Commissioner (Appeals) reversed the order of the AO applying assessee's own decision of earlier years. Held: Commissioner (Appeals) proceeded to conclude that in the absence of any element of income embedded in the reimbursement of expenses to M/s. Pfizer Ltd., there was no requirement of deducting tax at source. The cost sharing reimbursements do not warrant TDS under section 40(a)(ia) as these are manifested to be reimbursements on actual cost-to-cost basis. Besides this, second proviso to section 40(a)(ia) is to be read retrospective in nature which has been manifested in this case.

Applied:Order of the Tribunal in assessee's own case for assessment year 2008-09 (ITA No. 6486/Mum/2012) and assessment year 2009-10 (ITA No. 1535/Mum/2015).


FAVOUR : In assessee's favour.

A.Y. : 2006-07



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