Wednesday, March 23, 2016

Where assessee had deducted tax at source from salary paid overseas to its nonresident employees and had deposited the same in Governments account, such payment could not be disallowed merely because tax was not paid within timelimit prescribed under section 200(1).


a) The assessee had claimed deduction in respect of payments made to expatriates pertaining to the assessment of financial year 1990-91 that was still pending.

b) The CIT(A) disallowed such claim under Section 40(a)(iii) on the ground that assessee had failed to deposit TDS within prescribed time-limit under Section 200(1). The ITAT upheld the order of CIT(A). The High Court held in favour of assessee as under :

1) A plain reading of section 40(a)(iii) indicates that no deduction would be allowable in respect of any payments chargeable under the head 'Salaries' if (a) the same are payable outside India, and (b) if tax has not been paid or deducted thereon under Chapter XVII B of the Act.

2) The principal object of the aforesaid sub-clause (iii) is to provide a further disincentive for non-compliance of provisions of section 192.

3) In the instant case, assessee had deposited the requisite amount of TDS in respect of amounts chargeable under the head 'Salaries'.

4) The Tribunal had proceeded on the basis that section 40(a)(iii) would be applicable if the tax due on salaries paid overseas was not deposited strictly within the prescribed-time. However, the plain language of the section 40(a)(iii) does not permit such interpretation.

5) There is no doubt that where the legislature wanted to make payment of tax within a specified time a necessary pre-condition, it had expressly indicated so. Since, no such condition for depositing the tax paid within a prescribed time was introduced in section 40(a) (iii), the same couldn’t be interpreted in any other way.

6) Therefore, payments made to expatriates could not be disallowed by invoking section 40(a) (iii)merely because tax was not paid within time-limit prescribed under section 200(1). - [2016] 67 191 (Delhi)

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