The Tax Publishers2020 TaxPub(DT) 4818 (Del-Trib) : (2021) 087 ITR (Trib) 0317

INCOME TAX ACT, 1961

Section 9(1)(ii)

Since it was genuine reimbursement and charge back to Head Office as employees never rendered their services in India as they were rendering services from Netherlands only and since they were employed with Head Office, section 40(a)(i) was consciously applied by AO without even cursory look at underlying section 9(1)(ii) which only applies to decide salary taxability under the Act in hands of non-resident. Accordingly, assessee was not liable to deduct tax from salary paid to non resident.

Income deemed to accrue or arise in India - Under section 9(1)(ii) - Salary being chargeable reimbursed to head office of non-resident assessee at Netherlands by Indian Project Office -

Assessee based at Netherlands established project office (PO) in India after it was awarded contract with Punjab Road and Bridges Development Board. It claimed Rs. 73 lakhs on account of salary expenses. AO disallowed deduction for want of TDS. As per AO since employees of assessee had provided their services from India itself, therefore, salary paid to employees was taxable in India as it accrued or arose in India. Assessee contended that salary of employees which was attributable and was charged to profit and loss account of the project office was not chargeable to tax in India and, therefore, no TDS was called for. Held: Employees did not come/stay in India for providing services exceeding more than 183 days as defined in DTAA between India and Netherlands. In fact, no separate salary was paid to them in relation to services either in India or in Netherlands. Such salary was a charge back reimbursed to Head Office by Indian Project office, where said non-resident employees were paid by head office in Netherlands being their employee only, without those employees being employed in India under section 9(1)(ii) nor they were dedicated to Indian PO. Since it was a genuine reimbursement and charge back to Head Office as employees never rendered their services in India as they were rendering services from Netherlands only and since they were employed with Head Office section 40(a)(i) was consciously applied by AO without even cursory look at underlying section 9(1)(ii) which only applies to decide salary taxability under the Act in hands of non-resident. Accordingly, assessee was not liable to deduct tax from salary paid to non-resident.

Followed:Mother Dairy Fruit, Vegetables (P) Ltd. v. CIT ITA No. 980/2009 Order, dated 19-10-2010 : 2011 TaxPub(DT) 553 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12


INCOME TAX ACT, 1961

Section 195

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