Applicability of TDS provision u/s 195 to cost sharing agreement needs re-examination

BASF Catalysts India Pvt. Ltd Vs DCIT (ITAT Chennai)

ITAT Chennai held that before concluding with regard to applicability of provisions of section 195 of the Income Tax Act, all necessary and relevant documents like cost sharing agreement/ auditor’s report/ other evidences need to be examined thoroughly. Accordingly, matter set aside with direction to AO to re-examine the claim.

Facts- The assessee, M/s. BASF Catalysts India Private Limited, is a part of group concern companies of BASF group comprising of BASF SE, Germany and its number of subsidiaries and affiliates. The assessee is also one of the pool members of the BASF Group.

The assessee entered into a Cost Sharing Agreement (CSA) with BASF SE, Germany as one of the pool members. As per the agreement between the assessee and parent company BASF SE, Germany provides common services to various pool members and allocates cost for service on cost to cost basis without any mark-up.

The assessee has filed an application u/s. 195(2) of the Income Tax Act to AO for certificate u/s. 197 of the Act to make payment to the parent company without deduction of tax at source u/s.195 of the Act. AO has issued certificate and directed the assessee to make the payment after deducting TDS @ 10% as per section 195 of the Act. The assessee has remitted payment to its parent company and paid necessary TDS as directed by AO @ 10% on amount remitted to its parent company. However, the assessee has filed an appeal before CIT(A) u/s. 248 of the Act and to declare that the assessee is not liable to pay TDS on payment to non-resident. CIT(A) rejected the same. Being aggrieved, the present appeal is filed.

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