Tax Update – Vol.5, Issue 3, August 2015

INCOME TAX

Caselaws

A subsidiary company is not liable to deduct tax at source in respect of the reimbursement of expenses paid to its holding company

The Taxpayer is a subsidiary of M/s PSO Beheer, B.V., Netherlands, and is engaged in the activity of certification in respect of quantity, quality, pre-shipment inspections, surveys etc. During the relevant assessment year, the Taxpayer paid certain amount to its holding company towards reimbursement of expenses and no tax was deducted as the same was a reimbursement.

The AO disallowed the entire expenditure towards reimbursement of expenses u/s 40(a)(ia) of the IT Act on the ground that the Taxpayer had failed to withhold tax while making payment to its holding company.