Reimbursement Escapes Equalisation Levy

The Madras High Court held that Equalisation Levy cannot be imposed on reimbursements made by an Indian company to its overseas subsidiary towards online advertising expenses incurred by such subsidiary from a foreign service provider. 

The Court observed that the Finance Act, 2016 taxes consideration paid by a resident to a non-resident for specified services, but does not extend the levy to pure reimbursements. The Court further held that the Revenue could not disregard the separate legal identity of the overseas subsidiary in the absence of evidence of tax avoidance or impropriety. 

Accordingly, the rejection of Zoho Corporation’s refund claim was set aside and the Revenue was directed to reconsider and process the refund claim.