ITAT deletes disallowance as the Payments were not chargeable to Tax as Employees of AEs working for Taxpayer [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench deleted the disallowance under Section 40(a)(i) as the payments were not chargeable to tax as employees of Associated Enterprises (AEs) working for taxpayers.

The taxpayer, M/s. Boeing India Pvt. Ltd. was incorporated in India under the Companies Act, 1956 and was accorded approval from the Government of India, Ministry of Finance, Department of Economic Affairs, and FIPB unit on October 16, 2003. The taxpayer is engaged in the business of providing business development, advisory, and other support services to its Associated Enterprises (AEs) for which the taxpayer required employees having requisite skills, knowledge, and experience. For carrying out its services, the taxpayer employed some local employees and also identified certain expatriate employees from its AEs. The expatriate employees employed by the AEs have been released and taken into employment by the taxpayer.

During the year under assessment, the taxpayer taken into employment the expatriate employees from US and Australia on the salary to be paid by the taxpayer in India which was accounted for as an expense under “Salaries & Wages” in the books of account of the taxpayer and appropriate taxes on such salaries & wages were deducted and deposited by the taxpayer under section 192 of the Income-tax Act, 1961.

The taxpayer has challenged the disallowance made by the AO and CIT(A) under section 40(a)(i) of the Act contended inter alia that both the AO as well as CIT (A) have erred in making disallowance as the said payments were not chargeable to tax in India is pertaining to said employees of AEs working for the taxpayer under its control and supervision.

The taxpayer urged that the taxes were duly deducted by the taxpayer under section 192 of the Act on salaries paid to the said employees of the AEs.

The coram consisting of Anil Chaturvedi and Kuldip Singh held that when the payment to the non-resident entity is in the nature of payment consisting of income chargeable under the head ‘salary’ the taxpayer does not have any tax withholding applications under section 195 of the Act. So, when the salary is subjected to TDS under section 192 of the Act, section 195 has no application.

Therefore, the ITAT ordered that the addition made by the AO and confirmed by the CIT(A) on account of disallowance under section 40(a)(i) of the Act is not sustainable in the eyes of law and hence ordered to be deleted.