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Deputy Commissioner of Income-Tax Versus Martin and Harris Laboratories Ltd.

2016 (7) TMI 259 - ITAT MUMBAI

Disallowance u/s 40(a)(ia) - reimbursement of expenses - Held that:- As per the agreement, the marketing companies are required sufficient number of employees for effectively marketing the products. As per the agreement, the salary expenses, travelling and conveyance expenses, etc., incurred by the marketing companies are required to be reimbursed by the assessee-company. Thus, the reason as to why the expenses were reimbursed by the assessee-company to the marketing companies are sufficiently e .....

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om the said payments. Accordingly, we are of the view that there is no requirement of invoking the provisions of section 40(a)(ia) of the Act in the hands of the assessee. Various case law relied upon by the assessee has taken the view that the reimbursement of expenses does not require tax deduction at source. - Decided against revenue - Bombay High Court in the case of CIT v. OCB Engineers relied upon wherein it was held that Reimbursement of salary expenses of employees to the sister conc .....

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bai, and they relate to the assessment years 2008-09 and 2009-10. Both the appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. The quantum in dispute in the appeal filed by the Revenue for the assessment year 2009-10 is ₹ 22.95 lakhs and, hence, the tax effect involved therein is less than ₹ 10 lakhs. In view of Circular No. 21 of 2015, dated December 10, 2015 (see [2015] 379 ITR (St.) 107 ) issued by the Central Board of Direct .....

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ome-tax (Appeals). 4. The facts relating to the same are discussed in brief. The assessee is engaged in the business of manufacture of medicines. The assessee has sold its products to its associate concerns. On the scrutiny of the profit and loss account, the Assessing Officer noticed that the assessee has incurred a sum of ₹ 8.73 crores towards sales and promotion. All these expenses have been given as reimbursement to its group companies. Since the assessee did not deduct tax at source f .....

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he assessee is that it shall manufacture the products and the marketing activity of the products shall be carried on by its associate companies (hereinafter referred to as "marketing companies"). The learned Commissioner of Income-tax (Appeals) has extracted a model agreement entered into by the assessee with another company, M/s. Walter Bushnell Biohealth P. Ltd., in page 42 of his order and a perusal of the same shows that the parties have entered into a pure commercial arrangement f .....

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as taken the view that the assessee should have deducted tax at source from the reimbursements so given by the assessee to the marketing companies. Major part of reimbursements consisted of salary expenses only. The learned Commissioner of Income-tax (Appeals) noticed that the marketing companies have deducted tax at source from the salary paid to the representatives and remitted the same to the credit of the Government. The learned Commissioner of Income-tax (Appeals) has confirmed this submiss .....

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learned Commissioner of Income-tax (Appeals) has given a finding that the assessee has only reimbursed the actual expenses over and over the commission paid to the marketing companies. Further, the reimbursements did not have any income element. Accordingly the learned Commissioner of Income-tax (Appeals) held that such kind of reimbursements does not require deduction of tax at source and, accordingly, deleted the addition made under section 40(a)(ia) of the Act. The learned Commissioner of Inc .....

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expenses of employees to the sister concern, who were deputed by the sister concern to the assessee does not require deduction of tax at source and, hence, there is no occasion to invoke the provisions of section40(a)(ia) of the Act. He also placed reliance on the decision rendered by the co-ordinate Bench of the Tribunal in the case of Asst. CIT v. Karma Energy Ltd. [2012] 19 ITR (Trib) 552 (Mum) ; 33 CCH 391, wherein also it has been held that the reimbursement of expenses shall not attract li .....

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rtmental representative placed heavy reliance on the order passed by the Assessing Officer. 10. Having heard the rival contentions, we are of the view that the order passed by learned Commissioner of Income-tax (Appeals) does not call for interference. We notice that major part of reimbursements consisted of salaries paid to the sales representatives and reimbursement of travelling expenses. The learned Commissioner of Income-tax (Appeals) has given a finding that the marketing companies have de .....

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he employees and claimed the same as reimbursement from the assessee-company. The other company also deducted tax at source from the salaries so paid. The Revenue took the view that the assessee should deduct tax at source from the reimbursement of salaries so made and, accordingly, disallowed the claim under section 40(a)(ia) of the Act. However, the hon'ble Allahabad High Court held that the salaries, having suffered tax and the circumstances for reimbursements having been explained, there .....

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