|CORAM:||Mahavir Singh (JM), Shamim Yahya (AM)|
|SECTION(S):||195, 40(a)(ia), 9(1)(vii)|
|CATCH WORDS:||Reimbursement of expenses, TDS disallowance|
|DATE:||January 29, 2015 (Date of pronouncement)|
|DATE:||February 2, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 9(1)(vii): Reimbursement of expenditure under cost-sharing agreement does not constitute "income" and there is no obligation to deduct TDS u/s 195|
A perusal of the decision of the Supreme Court in Tejaji Farasram Kharawalla Limited (1967) 67 ITR 95 (SC) clearly shows that Supreme Court has categorically held that the reimbursement of the actual expenses would not be taxable in the hands of the person receiving the reimbursements. The Karnataka High Court in a recent judgment in the case of DIT v. Sun Microsystems India P. Ltd. (2014) 369 ITR 63 (Karn) exactly on the similar issue interpreting article 7 of the DTAA between India and Singapore, which is identically worded to article 7 of DTAA between India and Austria held that the parent company has not made available to the assessee the technology or the technological services which was required to provide the distribution, management and logistic services. We further noticed that in the said order the Tribunal has taken into consideration the decision of the Hon’ble Jurisdictional High Court in the case of CIT v Dunlop Rubber Co. Limited (1983) 142 ITR 493 (Cal) and in the similar circumstances that of the assessee to hold that the reimbursement of the expenditure does not generate any income in the hands of the recipient and consequently there was no requirement of deduction of TDS and consequently the provisions of section 40(a)(ia) could not be invoked.