No TDS from salary paid to NR working on a foreign ship for less than 90 days as it is exempt under sec. 10(6)(viii)

Payments made to foreigner-crew member of ship who had worked for a period of less than 90 days in India, were not income of employees in India liable to TDS.

Facts:

a)  The assessee entered into a contract with ‘Alfa Crew’, under which Alfa Crew was entitled to receive a fixed fee; salary of crew to be provided by Alfa Crew and handling charge of 5 per cent thereon.

b)  The assessee engaged the crew members as its employees. It withheld taxes on the fixed fees and handling charges yet, it did not withheld taxes on the amount of salary.

c)  The Assessing Officer did not allow deduction of salary by holding that the same was part of the fees for technical services, on which tax was deductible at source but same was not deducted; hence, said amount was specifically not deductible in terms of section 40(a)(i).

d)  Further, the CIT(A) held against the assessee. On appeal to the Tribunal, the assessee succeeded. Thus, aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)  The employees, being foreigners, had earned their salaries while working in India during a period less than 90 days, and those salaries, in view of section 10(6)(viii), were not income of the employees in India. Therefore, the assessee was not liable to deduct taxes on under section 192;

2)  Section 40(a)(i) would not be applicable in the instant case as the payments made were neither royalty nor fees for technical services;

3)  In view of section 10(6)(viii), the payment was not an income for the person, who received the same and, accordingly, was not chargeable under the head salaries. 

4)  Section 192 was applicable only when there was an income chargeable under the head 'salaries' and, as aforesaid, the payment made by the assessee, in the instant case, and the income derived by recipient, was though regarded as salary but never regarded as salary chargeable under this Act. Thus, the salaries were outside the purview of section 192 by reason of section 10(6)(viii). – DIT v. Dolphin Drilling Ltd. [2014] 42 taxmann.com 264 (Uttarakhand)