TDS u/s195 read with 40(a)(1)

This query is : Resolved

G Muralidharan (Querist)
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19 November 2008 It is a case of multinational company with global presence.

Please enlighten on the following issues with regard to disallowance u/s40(a)(1) read with sec 195.

1) Actual reimbursement of insurance charges (settled on cost to cost basis).Debit note raised by parent company on Indian company. Exact amount what was charged by Insurance company was passed on to Indian company, however the amount was settled to Insurance company by its parent company. In this reimbursement no profit element is embedded therein.Now the Indian co has to reimburse the amount to Parent co, will it attract 40(a)(1)because of nondeduction of TDS U/s195.
2) Is there any supportive case laws.

Ravikumar.G

Ravikumar.G (Expert)
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19 November 2008 First of all it is FEMA / RBI violation. Foreign company cannot directly pay to Insurance company. It should be paid thro' banking channel to Indian co., and then it should be paid to insurance co.

G Muralidharan

G Muralidharan (Querist)
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19 November 2008 Indian company does not make payment directly to Insurance company at a foreign country. Instead its parent company (which is outside India) makes payment to Insurance company. After making payment to Insurance company, the parent company raises debit note to its Indian company towards reimbursement of Insurance charges. Now in this context, under Incometax Act, whether reimbursement of expenses would get disallowed for non deduction of tax at source.

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