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2021 (3) TMI 1011 - AT - Income TaxTDS u/s 195 - certain expenses paid to the Singapore HO without deducting tax at source - disallowance u/s. 40(a)(i) on account of non-deduction of tax - case of the assessee before the AO that expenses were in the nature of `reimbursement of expenses’ in the hands of the Singapore HO and hence, no deduction of tax at source was called for in its hands - HELD THAT:- Seminar expenses, Training expenses, Printing expenses and Staff welfare expenses are amounts paid by the Indian BO to the Singapore HO, which satisfy the twin conditions of `reimbursement’ viz., one-to-one direct correlation between the outgo and inflow of the Singapore HO; and the inflow of the identical amount without any profit element. Since the Singapore HO recovered the same amount from the Indian BO as was incurred by it to third parties without any profit element, the receipt cannot be construed as “other sum chargeable under the provisions of this Act” so as to warrant deduction of tax at source u/s.195 of the Act by the Indian BO. Once it is held that TDS was not necessary, there can be no question of disallowance u/s.40(a)(i). IT expenses paid are for availing IT services to be utilized in its activity of rendering technical services to the customers in Asia Pacific region, then the matter would come to stage two requiring further analysis for examining if the payment falls in the category of `fees for technical services’. On the other hand, if the IT services are utilised by the Indian BO towards business process outsourcing, payment for the same cannot be treated as fees for technical services. Again, it is relevant to note that deduction of tax at source u/s 195 is warranted not only if the payment is towards fees for technical services. In case the amount is chargeable to tax in the hands of non-resident in any other manner, deduction of tax at source is warranted and non-deduction would lead to the consequential effect of disallowance. In the given circumstances, when we do not have the benefit of the relevant Agreement and other attending details, we consider it expedient to set aside the impugned order pro tanto and send this issue back to the file of AO for examining the true nature of transaction under which the assessee paid IT expenses on monthly basis and thereafter determine whether or not tax is deductible at source u/s. 195 of the Act and consequential disallowance u/s.40(a)(i) - Decided partly in favour of assessee.
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