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TDS U/S 195 Reimbursement

CA RAJESH BALSARA (Proprietor) (262 Points)

08 July 2010

An Indian Company having branch/jointventure in Moscow(Russian Federation) , wants to make payment of Reimbursement of Expenses incurred by Overseas branch/joint venture in moscow.These expenses were incurred by overseas branch/joint venture in 2007.But now Indian company will reimburse for the same .These Reimbursment include a) Printing & stationery , b) Rent for immovable property in moscow c) conveyance d) travelling exp in moscow d)office admn charges.

What is Applicability of TDS U/s 195 ? Would there be any TDS ? On what basis ? on which item of expense ( in relation to list given above ) ?

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3 Replies

Amir (Learner) (4016 Points)
Replied 08 July 2010

Dear Sir,

In view this ruling, Reimbursement of actual expenses should not attract tax deduction.

Reimbursement of cost incurred by payee is not subject to tax deduction - To apply section 195, amount in question should be income of payee and not a mere reimbursement of cost incurred by payee - Danfoss Industries (P.) Ltd., In re [2004] 138 Taxman 280 (AAR - New Delhi).

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CA RAJESH BALSARA (Proprietor) (262 Points)
Replied 08 July 2010

As per Tribunal case, 2008-TIOL-60-ITAT-DEL : having observed that VOAMC had a PE in India and the appellant had made payment to VOAMC for mobilization and demobilization services, fell in error in observing that the appellant paid the aforesaid amount to the non-resident service providers and was required to deduct tax at source in respect of such payment not appreciating that there was no privity of contract between the appellant and such non-resident service providers. ..............................A combined reading of the two provisions bring out the proposition unambiguously that where any sum chargeable to tax is payable outside India or in India to a foreign Co., the payer is under a duty u/s 195(1) to deduct TDS failing which deduction of such sum is not allowable at the time of computation of income of the payer in terms of Sec.40(a)(i). ............Just because it is mere reimbursement it can not esacpe tds....further the amount was earlier paid by Foreign branch of an indian company which has business connection/permanant estbmt in india and did not deduct especially on legal fees (which is included now in reimb list)..