CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
15 December 2009Normally US holding co incurs all pre-incorporation expense relating to incorporation of indian subsidiary..
my query is, when the subsidiary (after incorporation) wants to reimburse the expense to holding co.
TDS to b made on this pmt to Non-resident?
thanks
Adarsh
Dilip
(Working)
(408 Points)
Replied 15 December 2009
on reimbursement tds is not applicable, though it is an payment outside india.
CourseCart.in
(Mentor at SHAYVIDZ Academy)
(3756 Points)
Replied 15 December 2009
n wat about sec195 ? pymt made to NRI ?
CourseCart.in
(Mentor at SHAYVIDZ Academy)
(3756 Points)
Replied 15 December 2009
take the recent samsung high court (delhi) judgment, which says all non-resident pymt should attract TDS
Dilip
(Working)
(408 Points)
Replied 15 December 2009
Sec 195 says that any interest or any sum chargeable under the provisions shall at time of credit or payment of such income to the account of the payee. In ur case it is not an income. it is just an mere reimbursement.
vasudevan
(.)
(376 Points)
Replied 15 December 2009
Dilip, do you have any case law reference to say that reimbursemen of pre-incorporation expenses does not attact TDS?
As per the recent Samsung HC judgment, all the non-resident payment should attract TDS, except s.195(2) situation.
Plz clarify.
CourseCart.in
(Mentor at SHAYVIDZ Academy)
(3756 Points)
Replied 15 December 2009
vasudevan...
here is ur query n dilip's reply...
@ dilip
in my opinion :
no TDS.. coz tds hv to b made in 2 cases only u/s 195
Adarsh
vasudevan
(.)
(376 Points)
Replied 15 December 2009
Adarsh...thanks for your reply.
However, you cannot strictly go by income not chargeable to tax in India. The example is the recent High court judgment in the case of samsung electronics. The judgment says, the payer has the obligation to deduct tax at source on all non-resident payment otherwise, they will be disallowance u/s 40.
So, practically, the tax officers expect the payer to deduct TDS or approach them in advance and get an approval for NIL/ lower withholding.
JAY DESAI C.A.,C.S.
(Audit Senior)
(45 Points)
Replied 15 December 2009
I think sec.195 should be taken into consideration as it involves payment to Non Resident
CourseCart.in
(Mentor at SHAYVIDZ Academy)
(3756 Points)
Replied 15 December 2009
i think if the sum is not big den make tds.. n if sum is big den go 4 appeal.. its the practical solution
kabirsen
(student)
(251 Points)
Replied 15 December 2009
since its a pmt to nri sec 195 comes to play.
nw we have to check. whether the receipt of the nri is taxable in india.
clearly expenditure for pre incorporation expense is a capital expenditure. therefore the reimbursement of such expenses are capital receipt for the foreign holding co. The holding co. will book such receipt by crediting the "investment in subsidiary" a/c. a capital receipt is not taxable in indian act unless it is a receipt on t/f of capital asset.
clearly no tds to be deducted as the reimbursement of pre-incorporation exp as it is not a revenue receipt of the foreign co.
vasudevan
(.)
(376 Points)
Replied 16 December 2009
Thanks Kabir....do you have any case law reference or any of your clients have taken similar position?
shreyas
(Articled Assistant)
(45 Points)
Replied 16 December 2009
| Originally posted by :Adarsh | ||
| " | Normally US holding co incurs all pre-incorporation expense relating to incorporation of indian subsidiary.. my query is, when the subsidiary (after incorporation) wants to reimburse the expense to holding co. TDS to b made on this pmt to Non-resident? thanks Adarsh |
" |
Reimbursement is not liable to tds only if payment is made to contractor or professional provided seperate bill is presented for it. FAct of the case shows that there is no contract between both companies as holding company is acting as a promoter so tds provisions do not apply as this transaction do not fall under any tds provisions. It is only advance which is being paid back
PRASHANTPATIL
(ARTICLES)
(48 Points)
Replied 16 December 2009
TDS is deductible from income of recepient.
In present case, what we are reimbursing is payment made on subsidiary company behalf.
Holding company will be liable to deduct TDS when it pays to other indian recepient.
now we are just settling our liability to pay to HC and it is not a income of HC.
so question of TDS will not come only.
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