| Question And Answer | |
|---|---|
| Subject: | Whether the assessee is liable to deduct tax at source on reimbursement of expenses ? |
| Category: | Income-Tax |
| Querist: | CA Daleep Bhatia |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | business income, fees for technical services, reimbursement of expenses, Tax deduction at source |
| Date: | June 5, 2021 |
An Indian company has engaged a foreign company to keep some employees selected by Indian Company to keep on its ( foreign company ) pay rolls . The foreign company shall take payment from Indian company towards salary and other out of pocket expenses of employee and pay to employees, it shall also take care of local labour laws compliances and shall get % of the the total payments as its fees.
What shall be treatment of this payment in hands of Indian Company – whether it shall FTS or payment of business profits for determining if withholding tax to be deducted.Any case laws on this .
Thanks
It would be pertinent to gather a better understanding of the contract, the nature of services, location of services, expertise of the employees, nature of payment.
Note :
In PCIT v. Manugraph India (P) Ltd. (2019) 267 Taxman 437 (Bom.) (HC) , held that If the payment is in the nature of actual reimbursement, there would be no withholding. In GE Technology Centre P. Ltd. v. CIT and Anr. (2010) 327 ITR 456/193 Taxman 234/234 CTR 153/44 DTR 201/10 SCC 29/(2011) 221 Taxman 28 (SC) the Court held that As per the CBDT Circular No. 728 dated October 31, 1995, (1995) 216 ITR 141 (St) a tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source. The expression “chargeable under the provisions of the Act” in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or a part of which is liable to tax in India. If it is not so assessable, there is no question of tax deduction at source.
Dr.K. Shivaram Senior Advocate