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Tax Publishers
Management fee paid to holding company -
disallowance under section 40A(2)
Facts:
Assessee paid management fees to it's group holding company
for a host of services of which 50% was disallowed by the AO citing that the
services were uncalled for and assessee had inhouse department rendering
similar services thus incurred unnecessarily, without bringing factually how
these were excessive vis a vis market pricing. CIT(A) sustained the additions.
On further appeal -
Held in favour of the assessee based on group company's
decision which had allowed similar charges, the disallowance under section
40A(2) was uncalled for.
Ed. Note: In domestic
taxation the tax arbitrage issue does not arise in management fees while in
cross border taxation it brings in that added dimension. Nonetheless there are
a number of decisions in cross border as well as in domestic taxation space
that have held that the AO cannot sit in the armchair of the business to judge
and tell what expense was required or otherwise. That is uncalled for. Even
while sustaining additions under section 40A(2) law mandates AO to manifest it
being excessive. The principle of ALP is thus universal on this without an iota
of doubt.
Case: Manipal
Hospitals (Dwarka) (P) Ltd. v. Asstt. CIT 2024 TaxPub(DT) 708 (Bang-Trib)
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