Cost-only reimbursements, partner remuneration, and retired-partner payments were allowed under the partnership and TDS rules.

Reimbursement of actual common services cost without markup was treated as a cost-only payment, so no tax deduction obligation arose and disallowance under section 40(a)(ia) was not sustained. Partner remuneration was upheld where the partnership deed authorised annual payment within statutory limits, even for a partner joining during the year, so section 40(b) did not apply to reduce the deduction. Payments to retired partners were also accepted as governed by the partnership arrangement and earlier binding factual findings on diversion by overriding title. On the facts, TDS-related outgo was allowable despite cash accounting because the tax had been deducted and deposited within time.

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Issues: (i) Whether membership subscription fee paid to Deloitte Global Network was allowable and no disallowance could be sustained; (ii) Whether reimbursement of common services cost paid to Deloitte Touche Tohmatsu India Pvt. Ltd. attracted disallowance under section 40(a)(ia); (iii) Whether remuneration paid to partners could be disallowed under section 40(b) on the ground that the partnership deed contemplated only proportionate payment for the period worked; (iv) Whether payment to retired partners was liable to disallowance on the footing that it was not diverted at source by overriding title; (v) Whether expenses representing TDS payable could be treated as not incurred and hence disallowed under the cash system of accounting.

Issue (i): Whether membership subscription fee paid to Deloitte Global Network was allowable and no disallowance could be sustained.

Analysis: The subscription fee issue had already been decided in the assessee's own earlier years in favour of the assessee. The payment was treated as a business outlay for membership of the global network, and the Revenue did not establish any distinguishing feature from the earlier decisions. Consistent treatment in earlier years and the absence of any reversal of those decisions supported the deletion of the disallowance.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether reimbursement of common services cost paid to Deloitte Touche Tohmatsu India Pvt. Ltd. attracted disallowance under section 40(a)(ia).

Analysis: The payment was found to be reimbursement of actual common allocated on a scientific basis without any markup or profit element. The recipient accounted for the amounts as reduction of expenses rather than income, and the factual finding that the payment was on cost basis was not displaced by the Revenue. In such a situation, the amount did not partake the character of income in the hands of the recipient, and therefore the obligation to deduct tax at source did not arise so as to trigger disallowance under section 40(a)(ia).

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether remuneration paid to partners could be disallowed under section 40(b) on the ground that the partnership deed contemplated only proportionate payment for the period worked.

Analysis: The partnership deed and confirmations showed that the remuneration was agreed as annual remuneration payable for the financial year, even where a partner joined during the year. The factual finding was that the deed authorised the payment and that the aggregate remuneration remained within the statutory limits. The Revenue could not rebut the finding that the amount was payable in accordance with the deed and not contrary to section 40(b).

Conclusion: The issue was decided in favour of the assessee.

Issue (iv): Whether payment to retired partners was liable to disallowance on the footing that it was not diverted at source by overriding title.

Analysis: The payment to retired partners was treated as flowing from the terms of the partnership arrangement and, on the facts found in earlier years, as diversion of income at source by overriding title. The same issue had already been decided in the assessee's favour in its own case on identical facts, and no contrary binding decision was shown. The authorities below therefore erred in sustaining the disallowance.

Conclusion: The issue was decided in favour of the assessee.

Issue (v): Whether expenses representing TDS payable could be treated as not incurred and hence disallowed under the cash system of accounting.

Analysis: The Tribunal applied the earlier ruling that tax deducted at source is deemed to be income received by the recipient under the Act, and the deduction of TDS is part of the payer's obligation when payment is made. Since the assessee had deducted and deposited the tax within the prescribed time, the TDS component could not be denied as a deductible outgo merely because the assessee followed the cash system of accounting.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The Revenue's appeal failed, while the assessee obtained relief on the substantive issues decided in its favour, with the foreign tax credit ground remaining unpressed.

Ratio Decidendi: Reimbursement of actual costs without any income element does not attract disallowance under section 40(a)(ia), and where partner remuneration or retired-partner payments are supported by the partnership arrangement and binding factual findings, the statutory disallowance provisions cannot be invoked contrary to those findings.

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