PR. COMMISSIONER OF INCOME-TAX-14, MUMBAI v. PFIZER PRODUCTS INDIA PVT. LTD.
Retrospective Application of Section 40(a)(ia) Proviso and Non-Liability of TDS on Pure Reimbursements without Profit Markup Regardless of Service Tax Levy.
Court: Bombay High Court
Citation: 2026:BHC-OS:6985-DB
Decision Date: 12-03-2026
List of Laws
Income Tax Act, 1961; Section 40(a)(ia) of the Income Tax Act, 1961; Section 201(1) of the Income Tax Act, 1961; Finance Act, 2012; Service Tax Law (Section 67 of the Finance Act, 1994); Principles of Statutory Interpretation (Retrospective Applicability)
- Facts: The Respondent-Assessee, Pfizer Products India Pvt. Ltd., paid cross-charges amounting to Rs. 14,51,77,000 to its sister concern, M/s. Pfizer Ltd., for utilizing "Field Force Facilities" for product marketing. These payments were made under a cost-sharing agreement to reimburse expenses such as staff costs, travel, and advertising. The Assessee contended these were pure reimbursements without any profit markup and thus not subject to Tax Deducted at Source (TDS). However, the Assessing Officer (AO) disallowed the expenditure under Section 40(a)(ia) of the Income Tax Act, 1961, arguing the payments included a profit component, especially since service tax had been charged on the invoices.
- Procedural Posture: The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO's decision, deleting the disallowance. The Income Tax Appellate Tribunal (ITAT) subsequently dismissed the Revenue's appeal, upholding the CIT(A)'s order. The Revenue then preferred this appeal before the Bombay High Court under Section 260A of the Income Tax Act.
- Issue: Whether the payment of cross-charges to a sister concern under a cost-sharing agreement constitutes "reimbursement" not liable for TDS, and whether the levy of service tax or the timing of the second proviso to Section 40(a)(ia) affects this liability.
- Holding: The High Court held that the payments were pure reimbursements without a profit markup and were not liable for TDS. It further held that the second proviso to Section 40(a)(ia) is retrospective in nature.
- Reasoning: The Court reasoned that the transaction was on a cost-to-cost basis under a documented agreement, meaning no income element was embedded in the payment to the payee. Relying on Supreme Court precedents, the Court clarified that the mere levy of service tax does not transform a reimbursement into taxable income. Furthermore, the Court affirmed that the second proviso to Section 40(a)(ia), introduced by the Finance Act 2012, is declaratory and curative. Since the payee had already filed its returns, accounted for the income, and paid the due taxes, the Assessee could not be deemed in default. The Court emphasized that these provisions aim to avoid double taxation and undue hardship.
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