No disallowance of salary paid outside India if tax withheld therefrom is deposited before return filing due date

IT/ILT: If tax deducted at source on salary payable outside India is paid before due date for filing return, amount cannot be disallowed under section 40(a)(iii)

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[2013] 35 taxmann.com 343 (Delhi - Trib.)

IN THE ITAT DELHI BENCH 'I'

Tianjin Tianshi India (P.) Ltd.

v.

Income-tax Officer, Ward -16 (3)*

R.P. TOLANI, JUDICIAL MEMBER
AND SHAMIM YAHYA, ACCOUNTANT MEMBER

IT APPEAL NO. 2299 (DELHI) OF 2011
[ASSESSMENT YEAR 2007-08]

MAY  21, 2013 

Section 40(a)(iii), read with section 139 of the Income-tax Act, 1961 - Business disallowance - Salary payable outside India [Payment before due date of filing return] - Assessment year 2007-08 - Whether, where tax deducted at source on salary payable outside India is paid on or before due date for filing return specified under section 139(1), it cannot be disallowed under section 40(a)(iii) - Held, yes - Whether, where tax deducted at source is paid after due date specified under section 139(1), such sum shall be allowed as deduction in previous year in which such tax has been paid - Held, yes [Para 7] [In favour of assessee]

CASES REFERRED TO

Dy. CIT v. Dolphin Drilling Ltd. [2009] 28 SOT 141 (Delhi) (para 6.2) and Bapushaeb Nana Saheb Dhumal v. Asstt. CIT [2010] 40 SOT 361 (Mum.) (para 6.3).

Gaurav Singhal for the Appellant. Peeyush Jain for the Respondent.

ORDER

Shamim Yahya, Accountant Member - This appeal by the Assessee is directed against the Order of the Assessing Officer passed on 11.3.2011 for the asstt. year 2007-08 u/s. 143(3)/144C(1) of the I.T.

2. The grounds of appeal raised read as under:-

"1.		The Ld. Income Tax Officer, Ward 16(3), New Delhi (hereinafter referred to as the Ld. Assessing Officer or Ld. AO) has erred in law and in fact, in making an addition of Rs. 9,06,95,297/- on account of Arm's Length Price in relation to Purchases made from the Indian Branch Office of its Associated Enterprises, without appreciating that the provisions of Chapter X of the Income Tax Act, 1961 (The Act) are not intended to be applied to such transactions, wherein there is no possibility whatsoever, of shifting of taxable income outside India.
2.		The Assessing Officer has erred in law in following the principle of literal interpretation of statute, completely disregarding, the rule of purposive interpretation and making the aforesaid addition of Rs. 9,06,95,297/-, even where such an approach on his part has resulted in an apparent absurdity.
3.		The Assessing Officer has erred in law and in fact in disallowing Rs. 30,58,627/- under section 40(a)(iii) of the Act on account of delay in deposition of taxes withheld from salaries paid to expatriate employees."

3. Assessee has further filed the following additional grounds :-

1.		The TPO has erred in law in rejecting 'Resale Price Method' for determination of the Arms Length Price, whereas in view of the nature of transactions and functions performed by the appellant, the said method should clearly qualify as the 'Most Appropriate Method.'
2.		The TPO has erred in law in rejecting Resale Price Method as the Most Appropriate Method, without either explaining why the said method was not applicable in the instant case, or explaining how Transactional Net Margin Method adopted by him was the Most Appropriate Method.

The above grounds are without prejudice to each other, and to the grounds of appeal filed earlier.

4. As regards the additional grounds of appeal, we have heard both the counsel and perused the records. Upon careful consideration, we admit the additional grounds of appeal. We find that these grounds were not before the authorities below. In the interest of justice, we remit the additional ground of appeal to the files of the Assessing Officer. The Assessing Officer shall consider the same after giving the assessee proper opportunity of being heard in this regard and accordingly decide the grounds of appeal.

5. Apropos addition of Rs. 9,06,95,297/- on account of adjustment to Arm's Length Price.

5.1 Ld. Departmental Representative submitted that the issue is covered in favour of the Revenue by the decision of the Tribunal in assessee's own case in I.T.A. No. 3991/Del/2010 (A.Y. 2006-07) vide order dated 27.5.2011.

5.2 Ld. Counsel of the assessee submitted that he wanted to make submissions against the above said decision of the Tribunal.

6. We have heard both the counsel and perused the records.

6.1 Upon careful consideration, we are inclined to remit this issue pertaining to transfer pricing to the files of the Assessing Officer. The Assessing Officer shall verify the Tribunal's order in this regard and accordingly, decide the issue, after giving the assessee adequate opportunity of being heard.

6. Apropos disallowance of Rs. 30,58,627/- u/s. 40(a)(iii)

6.1 On this issue Assessing Officer noted that assessee had made a total payment of Rs. 33,87,765/- as salary to expatriate staff working in India. Out of the total salary payments, amount of Rs. 30,58,627/- was liable for TDS of Rs. 8,22,965/- which though deducted was deposited in the Government account much later i.e. on 30.10.2008. Hence, the Assessing Officer disallowed the claim of expenditure.

6.2 Before the DRP it was submitted by the taxpayer that Section 40(a)(iii) only stipulates that due taxes must be paid or deducted and does not stipulate the allowability of the expenditure with reference to any prescribed date for payment of the tax as is the requirement in section 40(a)(ia). According to the taxpayer, while the amended Section 40(a)(ia) stipulates a condition about payment of the TDS by the specified date in order to escape disallowance, Section 40(a)(iii) is silent on time for payment of the TDS. It was thus contended that even if the tax was deposited belatedly no disallowance u/s. 40(a)(iii) can be made. In support of his contention, the taxpayer referred to ITAT, Delhi's decision in the case of Dy. CIT v. Dolphin Drilling Ltd. [2009] 28 SOT 141 (Delhi). The taxpayer also claimed that allowability or otherwise of an expense with relation to TDS compliance has to be decided on the basis of the provisions contained in section 40 of the Act. The provisions contained in Chapter XVII are only for the purpose of ascertaining the deductibility of tax at source and cannot be invoked for the purposes of Section 40. For this, reference was been made to the ITAT, Mumbai's decision in the case ofBapushaeb Nanasaheb Dhumal v. Asstt. CIT [2010] 40 SOT 361 (Mum.).

6.3 Considering the above, the DRP observed that section 40(a)(iii) does not lay down time limit for the payment of tax to the Government account but at the same time it cannot be accepted that a taxpayer can deposit the tax at any time as per his will, howsoever, belated it is. It was further observed that a harmonious construction of section 40(a)(ia) and 40(a)(iii) would suggest that the tax so deducted should be deposited within the time limit prescribed in section 40(a)(ia). The DRP further affirmed the disallowance.

7. We have heard both the counsel and perused the records.

7.1 In this regard, we can gainfully refer the provisions of section 40(a)(ia):-

"40(a)(ia). Any interest, commission or brokerage, rent royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139:

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."

7.2 From the above, we note that the TDS amount deducted should be paid on or before the due date specified in sub-section (1) of section 139, and if the amount is paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been deducted. In our considered opinion, this will also apply to deduction u/s. 40(a)(iii). Accordingly, we remit this issue to the file of the Assessing Officer. The Assessing Officer shall allow the salary expenditure if the amount of tax deducted at source has been paid on or before the date specified in sub-section (1) of section 139. If the said sum is not so paid, then such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid. Needless to add that the assessee should be granted adequate opportunity of being heard.

8. In the result, the appeal filed by the assessee is allowed for statistical purposes.