TDS U/S 195 Reimbursement

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).

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)..

Dear Rajesh Sir,

Though the ruling that I quoted above is very close to the present case but pls check the below judgement -

The obligation to deduct the tax at source u/s 195 (1) arises only when the payment is chargeable to tax. Samsung Electronics not followed

Van Oord ACZ India vs. CIT (Delhi High Court)

https://www.simpletaxindia.org/2010/03/tds-us-1951-if-non-resident-income.html