Section 40(a)(ia) of the Income-tax Act, 1961 provides for disallowance of 30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B, where such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in section 139(1). Till assessment year 2014-15, the whole of such sum payable was disallowable.
Many a times, the Assessee makes reimbursement of expenses to Group companies or sister concerns and TDS is not deducted on the same. The reimbursement is also paid to third parties as part of business obligation.
The question which arises for consideration, is whether the tax authorities can make disallowance for non-deduction of TDS on reimbursements.
Case Laws in favour of Assessee
Utility Powertech Ltd v ACIT ITAT Mum 2010-TIOL-545-ITAT-MUM – Assessee made payment towards office upkeep etc and was at cost. Held that reimbursement at cost and therefore disallowance u/s 40(a)(ia) not to be made.
CIT v OCB Engineers (2013) 32 taxmann.com 271 (Bombay) -The HC held that there was no liability to deduce TDS on Salary reimbursement paid to sister concerns. Accordingly, no disallowance u/s 40(a)(ia) to be made.
Mahyco Monsanto Biotech (India) Ltd [TS-858-ITAT-2012(Mum)] – – No disallowance u/s 40(a)(ia) in respect of expenses reimbursed by assessee to group concerns
ACIT vs. St. Mary’s Rubbers Private Ltd (ITAT Cochin) – S. 40(a)(ia): Amounts paid by way of reimbursement of expenses do not constitute income in the hands of the recipient. Consequently, the payer is under no obligation to deduct TDS u/s 194C and no disallowance of the expenditure can be made u/s 40(a)(ia). CBDT Circular No.715 dated 08.08.1995 distinguished
DCIT vs. Dhanya Seeds (P) Ltd. (42 taxmann.com 277 – Bang) – Assessee was not liable to deduct tax at source under section 194C while making reimbursement of expenses to C&F agents who had incurred expenses on behalf of assessee and claims were made on actual basis.
Gujarat High Court in the case of PCIT vs. Consumer Marketing (India) (P.) Ltd. (64 taxmann.com 16) – No TDS liability on reimbursement of exp. incurred by C&F agent if separate bill was raised by him
CIT vs. ITD Cem India JV.; 405 ITR 533 (Bom): Date of order: 4th September, 2017 A. Y.: 2008-09 – The Assessee made reimbursement of administrative expenses to joint venture partner. The Genuineness of transaction established on verification. The HC held that Disallowance rightly deleted by Tribunal.
Singonahalli Chikkarevanna Gangadharaiah v. ACIT [2020] 116 taxmann.com 230 (Bangalore – Trib.) – Assessee contended that amount towards petrol and diesel charges was directly paid by assessee to petrol pump and not to cab owners and it was reimbursed by its customers, thus, assessee was not liable to deduct TDS on same – It was noted that it was a clear case of reimbursement of actual expenses, towards petrol and diesel charges and therefore, same was not in nature of payment covered by section 194C requiring assessee to deduct tax at source therefrom, where bills were raised separately by cab owners for reimbursement of actual expenses incurred by them – Whether provisions of section 194C were not applicable to reimbursement of actual expenses and assessee was not liable to deduct tax at source from such reimbursement – Held, yes
DCIT v. Mahanagar Gas Ltd [2016] 69 taxmann.com 321 (Mumbai – Trib.): Reimbursement of salary of seconded employees to AE couldn’t be treated as ‘FTS’ to attract TDS under section 194J
PCIT v. Sanghi Infrastructure Ltd. [2018] 96 taxmann.com 370 (Gujarat) – Assessee reimbursed lease rent charges paid by ‘S’ to lessor on behalf of assessee and ‘S’ had deducted TDS on same, therefore no disallowance could be made for non-deduction of TDS in hands of assessee
ACIT v P. P. Overseas ITAT Mum43A BCAJ 705; 2011-TIOL-440-ITAT-MUM – Payment to C&F agent towards reimbursement of statutory liability is not liable for TDS.
ACIT v. Swastik Pipes Ltd (Delhi ITAT) – TDS under section 194C is not applicable on reimbursement of inland haulage charges to C&F agents