Dy. CIT v. A T & S India (P.) Ltd.

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The Tax Publishers2015 TaxPub(DT) 0948 (Kol-Trib) : (2015) 170 TTJ 0129 : (2015) 118 DTR 0171 Dy CIT v. A T & S India Pvt. Ltd. INCOME TAX ACT, 1961 --Disallowance under section 40(a)(i)--Payment to non-resident Warranty cost vis-a-vis reimbursement of cost--The assessee, an Indian company being subsidiary to its parent company AT&S, was engaged in the manufacture and sale of professional grade printed circuit boards. The AO noticed from audited accounts that the assessee had paid a sum of Rs. 2,55,17,674 being payment for preliminary warranty and reworking costs, which are in the nature of payments for technical services as defined in section 9(1)(viii). According to him, as the assessee failed to deduct tax at source, this sum is to be disallowed by invoking the provisions of section 40(a)(i). He disallowed the same. Aggrieved, assessee preferred appeal before Commissioner(Appeals), who bifurcated this sum into warranty cost and reworking cost separately. He held that warranty costs to the extent of Rs. 28,33,215 is in the nature of reimbursement payments and balance sum of Rs.2,26,84,459 is in the nature of technical services, being reworking costs. Accordingly, he held that the warranty costs are not liable to TDS but reworking costs, being in the nature of technical services, are liable to TDS. *Held:* Warranty cost being reimbursement of actual cost incurred by parent company there was no requirement of deduction under section 195 as such, it was not FTS no disallowance under section 40(a)(i) was to be made. Perusal of the order of the AO giving effect to the order of Coordinate Bench of this Tribunal for assessee's own case for the assessment year 2004-05 in ITA No. 1450/Kol/2008 dated 31-3-2010 clearly shows that the AO after verifying the agreement with AT & S Austria has also taken into consideration the decision of CIT(A) for the assessment year 2005-06 and has held that the said warranty expenses are nothing but reimbursement of the actual cost and consequently there is no requirement of deduction of TDS under section 195. As the facts are similar for the assessment year 2005-06, considering the fact that for the assessment year 2004-05 the AO has accepted the claim of the assessee that the reimbursement of the warranty expenses is not liable for TDS under section 195 and as the Revenue has not been able to dislodge this finding, the finding of CIT(A) deleting the disallowance made on account of non-deduction of TDS in respect of warranty expenses stands confirmed. [Para 7] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 0948 (Kol-Trib) : (2015) 170 TTJ 0129 : (2015) 118 DTR 0171

Dy CIT v. A T & S India Pvt. Ltd.

INCOME TAX ACT, 1961

--Disallowance under section 40(a)(i)--Payment to non-resident Warranty cost vis-a-vis reimbursement of cost--The assessee, an Indian company being subsidiary to its parent company AT&S, was engaged in the manufacture and sale of professional grade printed circuit boards. The AO noticed from audited accounts that the assessee had paid a sum of Rs. 2,55,17,674 being payment for preliminary warranty and reworking costs, which are in the nature of payments for technical services as defined in section 9(1)(viii). According to him, as the assessee failed to deduct tax at source, this sum is to be disallowed by invoking the provisions of section 40(a)(i). He disallowed the same. Aggrieved, assessee preferred appeal before Commissioner(Appeals), who bifurcated this sum into warranty cost and reworking cost separately. He held that warranty costs to the extent of Rs. 28,33,215 is in the nature of reimbursement payments and balance sum of Rs.2,26,84,459 is in the nature of technical services, being reworking costs. Accordingly, he held that the warranty costs are not liable to TDS but reworking costs, being in the nature of technical services, are liable to TDS. Held: Warranty cost being reimbursement of actual cost incurred by parent company there was no requirement of deduction under section 195 as such, it was not FTS no disallowance under section 40(a)(i) was to be made.

Perusal of the order of the AO giving effect to the order of Coordinate Bench of this Tribunal for assessee's own case for the assessment year 2004-05 in ITA No. 1450/Kol/2008 dated 31-3-2010 clearly shows that the AO after verifying the agreement with AT & S Austria has also taken into consideration the decision of CIT(A) for the assessment year 2005-06 and has held that the said warranty expenses are nothing but reimbursement of the actual cost and consequently there is no requirement of deduction of TDS under section 195. As the facts are similar for the assessment year 2005-06, considering the fact that for the assessment year 2004-05 the AO has accepted the claim of the assessee that the reimbursement of the warranty expenses is not liable for TDS under section 195 and as the Revenue has not been able to dislodge this finding, the finding of CIT(A) deleting the disallowance made on account of non-deduction of TDS in respect of warranty expenses stands confirmed. [Para 7]