Payments to Pfizer Ltd. not subject to TDS, ITAT rules

The ITAT dismissed the Revenue's appeal, ruling that payments made by the assessee to Pfizer Ltd. were reimbursement for shared employees' expenses during business tours, not subject to TDS. The ITAT found the second proviso to section 40(a)(ia) of the Income Tax Act applied retrospectively, exempting the assessee from default status. Compliance with specified conditions and the declaratory nature of the provisions led to the deletion of the disallowance made by the Assessing Officer, with no income embedded in the reimbursed expenses.

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Issues:
1. Interpretation of payment of Cross Charge as reimbursement of expenses.
2. Retrospective applicability of second proviso to section 40(a)(ia) of the Income Tax Act.

Issue 1: Interpretation of payment of Cross Charge as reimbursement of expenses:
The appeal involved a dispute regarding the nature of payments made by the assessee to Pfizer Ltd. The Revenue contended that the payments were not mere reimbursements but were on an estimate basis, thus requiring tax deduction at source. The Commissioner of Income Tax (Appeals) and the ITAT analyzed the cost sharing agreements and supplementary agreements between the parties. It was found that the expenses represented reimbursement of amounts incurred by shared employees during business tours and were not liable for TDS. The ITAT referred to a certificate from Pfizer Ltd. confirming the nature of expenses as reimbursement without any mark-up. Citing relevant case laws, the ITAT concluded that the second proviso to section 40(a)(ia) of the Act, along with the first proviso to section 201(1), exempted the assessee from being considered an assessee-in-default due to compliance with specified conditions.

Issue 2: Retrospective applicability of second proviso to section 40(a)(ia) of the Income Tax Act:
The second issue revolved around the retrospective applicability of the second proviso to section 40(a)(ia) of the Income Tax Act. The ITAT relied on previous judgments and the provisions of the Act to determine that the assessee, Pfizer Ltd., had fulfilled all necessary conditions to avoid being treated as an assessee-in-default. The ITAT emphasized that the provisions were declaratory and curative in nature, with retrospective effect. Referring to the CIT(A)'s order in a similar case for AY 2009-10, the ITAT affirmed the decision to delete the disallowance made by the Assessing Officer. The ITAT dismissed the Revenue's appeal, upholding the order of the CIT(A) and confirming that no disallowance under section 40(a)(ia) was warranted due to the retrospective applicability of the relevant provisions.

In conclusion, the ITAT dismissed the Revenue's appeal based on the interpretation of the nature of payments and the retrospective applicability of the provisions under the Income Tax Act, highlighting compliance by the payee and the absence of income embedded in the reimbursed expenses.

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