TMI Blog2013 (3) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... s of paramount importance to ascertain the chargeability of the amount to tax in the hands of such trainers who were eventual receivers. Otherwise, the provisions of section 195 cannot apply and ex consequenti, the application of s. 40(a)(ia) is ruled out. AO directed to decide the question of chargeability then decide the whether s. 40(a)(ia) applies or not. - Matter restored back. - IT APPEAL NO. 577 (MUM.) OF 2011 - - - Dated:- 6-3-2013 - R.S. Syal, Accountant Member And Vivek Varma, Judicial Member H.N. Motiwalla for the Appellant. Smt. Mahesh Kumar for the Respondent. ORDER R.S. Syal, This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 18.10.2010 in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which has been placed on record, the holding company agreed to incur various costs for and on behalf of the assessee and other group concerns. These expenses include Accounting services, Legal and professional services, Communication, R D etc. Clause 3 of the Agreement talks of consideration. This clause provides that the total overhead costs shall be collected from various group members at certain percentage of the total cost determined as per arm's length principle by considering the size of the group member, percentage of ownership, time spent by the management, number of visits etc. Second part of clause 3 provides that : Taking into account all the above mentioned parameters, the percentage for the Group Member, Control Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site for making disallowance under section 40(a)(ia) is that the payment for the expenditure should necessarily be liable to deduction of tax at source. In the instant context, an amount will be liable to tax withholding if it inter alia contains some income element. If the amount paid by the assessee is not taxable in the hands of the recipient, there can be no question of making any disallowance under this provision. A conjoint reading of sections 195 and 40(a)(ia) brings to the fore that the disallowance can be made only if the amount paid is chargeable to tax in the hands of the recipient. In other words, if the amount is not chargeable to tax in the hands of the recipient, there cannot be any scope for deduction of tax at source. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd doubt the very deductibility of the expenditure itself, which has not been done by the AO. No doubt, the ld. DR's has unbridled power to argue the case of the Revenue from any angle, but there is an inherent limit on such arguments. He can't travel beyond the assessment order to set up an altogether new case. If we accept the contention of the ld. DR that the assessee was not entitled to deduction in the very first instance, it would set aside the bedrock of the action of the AO, being the disallowance u/s 40(a)(ia). In our considered opinion, such a course of action is not open to the ld. DR. In view of the foregoing reasons, we decide this issue in assessee's favour by overturning the impugned order on this score. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether this amount paid by the assessee to its holding company can be termed as reimbursement of expenses so as to immune it from the rigor of section 40(a)(ia)? In our considered opinion, the answer to this question can be in negative alone. In the extant context, the reimbursement of expenses for avoiding deduction of tax at source contemplates the actual incurring of expenses by the later in the first instance, which is subsequently made good by the former. Where the expenses are incurred not by the later itself but someone else, its payment by the former to the later to pass it to such third person cannot be considered as reimbursement of expenses to the later so as to push such transaction outside the ambit of the provisions of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medium of its holding company. Such payment cannot be considered as reimbursement of expenses at cost to its holding company. We, therefore, uphold the view taken by the learned CIT(A) in this regard that the amount in question cannot be considered as reimbursement of expenses. 8. However, the mere fact that the payment in question is not reimbursement of expenses to the holding company would not per se expose the expenditure to disallowance u/s 40(a)(ia) of the Act. It has been noticed supra that the disallowance u/s 40(a)(ia) is activated when there is failure on the part of the assessee to deduct/pay tax at source from the payment on which tax is otherwise deductible as per law. Deduction of tax at source u/s 195 from payment is envis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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