DresserRand India (P) Ltd. v. Addl. CIT

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The Tax Publishers2012 TaxPub(DT) 0317 (Mum-Trib) : (2011) 141 TTJ 0385 : (2011) 047 SOT 0423 : (2011) 061 DTR 0137 : (2012) 013 ITR (Trib) 0422 INCOME TAX ACT, 1961 --Business expenditure--AllowabilityRendering of services by AE while computing ALP--As far as disallowance under section 40A(2)(b), and inadmissibility of deduction under section 37(1) are concerned, the action of the assessing officer was confirmed by the DRP only on the ground that the rendering of services is not proved. Having regard to the fact that, as stated earlier in this order, having perused the evidences filed before Tribunal it is satisfied about the services having been rendered to the assessee, these grounds for disallowances do not survive any longer. In any event, the payment has been made to the AE under a cost contribution agreement without involving any marks ups, which is held to be at an arm's length price and, the costs having been actually incurred is not even in dispute. Under these circumstances, it cannot be said that the amount paid is excessive or unreasonable vis-a-vis services rendered by the AE. Income Tax Act, 1961, Section 37(1) Income Tax Act, 1961, Section 40A(2) INCOME TAX ACT, 1961 --Business expenditure--Disallowance under section 40(a)(i)Computation of ALP of AEs--Merely because a person has not deducted tax at source from a remittance abroad, it cannot be inferred that the person making the remittance has committed a failure in discharging his tax withholding obligations because such obligations come into existence only when recipient has a tax liability in India. Tax withholding liability of the payee is inherently a vicarious liability, on behalf of the recipient, and, therefore, when recipient does not have the primary liability to be taxable in respect of income embedded in the receipt, the vicarious liability of the payer cannot but be ineffectual. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0317 (Mum-Trib) : (2011) 141 TTJ 0385 : (2011) 047 SOT 0423 : (2011) 061 DTR 0137 : (2012) 013 ITR (Trib) 0422

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityRendering of services by AE while computing ALP--As far as disallowance under section 40A(2)(b), and inadmissibility of deduction under section 37(1) are concerned, the action of the assessing officer was confirmed by the DRP only on the ground that the rendering of services is not proved. Having regard to the fact that, as stated earlier in this order, having perused the evidences filed before Tribunal it is satisfied about the services having been rendered to the assessee, these grounds for disallowances do not survive any longer. In any event, the payment has been made to the AE under a cost contribution agreement without involving any marks ups, which is held to be at an arm's length price and, the costs having been actually incurred is not even in dispute. Under these circumstances, it cannot be said that the amount paid is excessive or unreasonable vis-a-vis services rendered by the AE.

Income Tax Act, 1961, Section 37(1)

Income Tax Act, 1961, Section 40A(2)

INCOME TAX ACT, 1961

--Business expenditure--Disallowance under section 40(a)(i)Computation of ALP of AEs--Merely because a person has not deducted tax at source from a remittance abroad, it cannot be inferred that the person making the remittance has committed a failure in discharging his tax withholding obligations because such obligations come into existence only when recipient has a tax liability in India. Tax withholding liability of the payee is inherently a vicarious liability, on behalf of the recipient, and, therefore, when recipient does not have the primary liability to be taxable in respect of income embedded in the receipt, the vicarious liability of the payer cannot but be ineffectual.