Tax deduction on reimbursement of shared service costs depends on whether the underlying expenditure already suffered source deduction.

Reimbursement of shared service cost to a holding company was considered in light of tax deduction at source on the underlying expenditure. The Tribunal noted that if the holding company had already suffered deduction under Chapter XVII when the original payments were made, a further deduction on the reimbursement would amount to double deduction on the same outgo. However, the record did not show verification of whether the underlying payments were in fact subjected to tax deduction at source. The disallowance was therefore not sustained at that stage, and the matter was restored to the Assessing Officer for verification; if tax had already been deducted on the relevant expenditure, no disallowance could be made on reimbursement.

---

---

Issues: Whether disallowance of shared service cost reimbursed to the holding company was justified for alleged failure to deduct tax at source and for want of proof of business necessity.

Analysis: The assessee's claim was that the amount represented reimbursement of actual expenditure incurred by the holding company without any markup, and that the same expenditure had already suffered tax deduction at source in the hands of the holding company when the payment was originally made. The Tribunal noted that if tax had already been deducted at source on the underlying expenditure in the hands of the holding company, a second deduction on the mere reimbursement would result in double deduction of tax on the same outgo. At the same time, the record did not show that the Assessing Officer had verified whether the underlying payments, which could attract tax deduction at source, had indeed been subjected to deduction under the relevant provisions of Chapter XVII.

Conclusion: The disallowance was not sustained at this stage, and the matter was restored to the Assessing Officer to verify the tax deduction at source position in relation to the holding company's payments. If tax had already been deducted at source on the relevant expenditure, no disallowance could be made in the assessee's hands on reimbursement of the same amount.

---