TDS on reimbursement of expenses does not trigger section 40(a)(ia) where the underlying payments were already withheld.

Reimbursement of business expenses paid to a sister concern, where the underlying payments to third parties had already suffered tax deduction at source, was held not to attract disallowance under section 40(a)(ia). The reimbursement was treated as part of an internal arrangement for common facilities and related overheads, and not as a separate default requiring fresh TDS deduction by the assessee. Further deduction on the same expenditure would amount to duplicative withholding. The disallowance was therefore not sustainable.

---

---

Issues: Whether the reimbursement of expenses paid to a sister concern, on which tax had already been deducted at source by the payee, attracted disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The payment was found to be reimbursement of business expenses incurred through an internal arrangement for common facilities and related overheads. The payee had already complied with the withholding tax obligation while making the underlying payments to third parties. On these facts, the reimbursement could not be treated as a separate default warranting further TDS deduction by the assessee, as that would amount to duplicative deduction on the same expenditure.

Conclusion: The disallowance under section 40(a)(ia) was not sustainable and the issue was decided in favour of the assessee.

---