Section 40(a)(ia) r/w section 195 – Payments to overseas group companies considered as reimbursement of expense incurred, not liable to deduction of tax at source

3. ACIT vs. APCO Worldwide (India) Pvt. Ltd. (Delhi) Members: Sushma Chowla (V.P.) and Anil Chaturvedi (A.M.) ITA No. 5614/Del./2017 A.Y.: 2013-14 Date of order: 9^th September, 2020 Counsel for Revenue / Assessee: Rakhi Vimal / Ajay Vohra and Gaurav
Jain

Section
40(a)(ia) r/w section 195 – Payments to overseas group companies considered as
reimbursement of expense incurred, not liable to deduction of tax at source

FACTS

The issue was
with respect to disallowance of expenses u/s 40(a)(ia). The assessee had made
payments to its overseas group companies towards recoupment of actual cost
incurred by them on behalf of the assessee for corporate administration,
finance support, information technology support, etc., without deduction of tax
u/s 195. According to the assessee, the payments made cannot be considered as
income of the recipients, as no profit element was involved. However, according
to the A.O., the provisions of section 40(a)(ia) were attracted. He accordingly
disallowed the payment of Rs. 1.49 crores so made. On appeal, the CIT(A)
deleted the addition by holding that the assessee was not required to deduct
tax at source on the reimbursement of the expenses made to overseas entities.

HELD

The Tribunal
noted that the CIT(A) had found that the payments made were on cost-to-cost
basis. Further, the coordinate bench of the Tribunal while deciding an
identical issue in the assessee’s own case in A.Ys. 2010-11, 2011-12 and
2012-13, had held that the provisions of section 195 were not attracted on the
amounts paid by the assessee to its overseas group companies as it was mere
reimbursement. Accordingly, it was held that no disallowance u/s 40(a)(ia) was
required to be made.