Reimbursement and TDS: cost-sharing payments without markup escape disallowance, and the retrospective proviso protects compliant payees.

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....Cross-charge payments made under a cost-sharing arrangement on a cost-to-cost basis, without markup, were held to be pure reimbursement and not income; mere charging of service tax did not alter that character, so no TDS liability arose and disallowance under section 40(a)(ia) was unwarranted. The court also held that the second proviso to section 40(a)(ia), as introduced by the Finance Act, 2012, is curative and operates retrospectively; where the resident payee had reported the income, paid tax, and the requisite certificate was furnished, the payer could not be treated as an assessee in default. The Revenue's appeal was dismissed.....