Asscoiate Transaction

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 July 2011 Dear Freinds, I have one querry. Suppose, two different entities (Pvt. Ltd. Co.)being controlled by common directors,are having their Administrative office in one place. The office relating expenses such as office rent, telephone, maintenance expenses etc. are being accounted in one Pvt. ltd. co's books but subsequently shared proportionately among the above said entities. Whether the sharing of expenses i.e.transfer of proportionate expenses to second co. shall be liable for service tax. The axenanotification no. 19/2008 dated 10.05.2008 may also be considered for deciding the facts.
Mudit S

Dayal

Dayal (Expert)
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26 July 2011 It is not uncommon to have a parent company to have a system of centralizing
a number of functions such as advertising, human resources, security services, internal audit, banking, financial and insurance services, and so on with an understanding that the costs incurred for the other group companies shall be allocated on a reasonable basis to those companies. In cases where the costs relates to employees of one company being deputed to another group company, the cost of such services is shared on actuals without any profit element at times and in a case where the actuals cannot be worked out the cost sharing is done on the basis of an reasonable formula being agreed upon.

Your issue as to whether service tax will have to be charged on the amounts received/receivable from the group companies towards cost sharing.

The answere is YES, You may have a agreement in place for business support services for a lumpum amount to avoid categorisation of services.

If there is no realisation of amount and only debited / credited being associated enterprise then considering the notification no 19/2008 service tax still becomes payable.

The above clarification is NOT provided as a legal opinion. For Individual's seeking clarification I would encourage to seek professional consultancy from their respective organisation lawyers.