2015 (10) TMI 2039 - AT - Income Tax

Non deduction of tax from salary paid to foreign sales personnel - Held that - Where the employee discharges his duties outside India and his stay is beyond the prescribed limit to term him resident, the income earned earned upon such discharge of duties outside India would not be within the ambit of term has accrued in India and is deemed to have accrued in India. Therefore, would not be taxable in India. Admittedly, if any income which is not taxable in India, would not be liable for tax. In the case in hand, admittedly two of the employees of th appellant worked outside India and were NRI. Therefore, in the light of judgment of Hon ble Karntaka High Court in the case of DIT (Int.Taxn.) Vs. Prahlad Vijendra Rao (2010 (11) TMI 803 - Karnataka High Court), the amount of salary paid to such employees would not be taxable in India. The Revenue has not brought to our notice any contrary binding precedent. Therefore, the disallowance of expenditure towards payment of salaries to remaining two employees, is hereby deleted - Decided in favour of assessee. Disallowance of bad debts written off - Held that - There is no dispute with regard to the finding that the payment were made in the regular course of business. There is no finding of the authorities below that the payment were not related to the business of the assessee. Under these facts, except in the case of QCS, where the assessee itself has admitted that no invoice was issued, the authorities below were not justified in disallowing the claim of the assessee. Therefore, we hereby direct the AO to delete the disallowance except in the case of QCS. The disallowance to the extent of ₹ 1,52,837/- is confirmed and rest of the amount is deleted. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Rs. 32,19,508 due to non-deduction of tax from salary paid to foreign sales personnel.
2. Disallowance of Rs. 6,84,250 as mentioned in the assessment order.
3. Disallowance of Rs. 1,991 as prior period expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 32,19,508 due to non-deduction of tax from salary paid to foreign sales personnel:

The Assessee argued that the salary paid to employees posted outside India, who were non-resident Indians during the relevant period, was not taxable in India. The Assessee relied on judgments from the Karnataka High Court and Delhi High Court, which supported the contention that salary paid for services rendered outside India to non-resident employees is not taxable in India. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the deduction, citing that the salary was credited to employees' accounts in India, making it taxable under section 5 of the Income Tax Act. The Tribunal, after considering the facts and the precedent set by the Karnataka High Court in the case of Prahlad Vijendra Rao, concluded that the salary paid to employees working outside India and who were non-residents is not taxable in India. Therefore, the disallowance for two employees was deleted, while the disallowance for one employee, Atul Sharma, whose stay details in India were not available, was confirmed.

2. Disallowance of Rs. 6,84,250:

The Assessee contended that the disallowance pertained to transactions conducted in the normal course of business and should be allowed as a write-off. The AO and CIT(A) disallowed the claim, stating that the Assessee did not provide sufficient evidence to demonstrate that the debts were genuine business debts. The Tribunal noted that the payments were made in the regular course of business and there was no finding to suggest otherwise. Therefore, except for the amount related to QCS, where no invoice was issued, the Tribunal directed the AO to delete the disallowance. The disallowance of Rs. 1,52,837 related to QCS was confirmed, and the rest was deleted.

3. Disallowance of Rs. 1,991 as prior period expenses:

The Assessee did not provide substantial arguments or evidence to contest this disallowance. The Tribunal upheld the disallowance of Rs. 1,991, considering it as a prior period expense.

Conclusion:

The Tribunal partly allowed the Assessee's appeal. The disallowance of Rs. 32,19,508 was partly deleted for two employees, while confirmed for one employee. The disallowance of Rs. 6,84,250 was partly deleted except for Rs. 1,52,837 related to QCS. The disallowance of Rs. 1,991 as prior period expenses was confirmed. The order was pronounced on September 10, 2015, at Ahmedabad.