Reimbursement and TDS compliance: routed advertisement payments required verification before deleting the disallowance.

Pure reimbursement without profit element does not ordinarily attract TDS, but where advertisement bills were raised in the assessee's name and payments were routed through distributors, the arrangement required scrutiny for possible avoidance of Chapter XVII-B compliance. Verification of whether the intermediaries had deducted tax on onward payments was necessary before deciding the TDS consequence. The reimbursement plea was therefore not accepted to delete the disallowance outright, and the disallowance under section 40(a)(ia) was maintained subject to the directed verification.

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Issues: Whether reimbursement of advertisement expenses paid to distributors attracted tax deduction at source under section 194C and whether the disallowance under section 40(a)(ia) was sustainable where the arrangement appeared to route payments through third parties.

Analysis: Pure reimbursement without any profit element does not ordinarily attract TDS. However, where the surrounding facts show that the advertisement bills were raised in the assessee's name and the payments were routed through distributors, the arrangement required scrutiny to determine whether it was designed to avoid compliance with Chapter XVII-B. On those facts, verification of whether the intermediaries had actually deducted tax while making the onward payments was necessary before fastening or lifting the TDS liability.

Conclusion: The reimbursement plea was not accepted as sufficient to delete the disallowance outright, and the direction to verify compliance with TDS requirements was upheld.

Final Conclusion: The assessee's challenge failed and the Revenue succeeded, with the disallowance under section 40(a)(ia) maintained subject to the directed verification.

Ratio Decidendi: A payment described as reimbursement will not escape TDS consequences where the facts indicate a routed arrangement intended to bypass tax deduction obligations, and the true liability must be tested by verification of compliance under Chapter XVII-B.

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