2013 (2) TMI 99 - HC - Income Tax

Non deduction of TDS - disallowance u/s 40(a)(iii) - Held that - In view of the finding of fact arrived at that the seconded personnel are not the employees of the respondent-assessee, the amount paid as foreign allowances to the seconded personal is not liable for deduction of tax as they continue to be the employees on the roll of the member oil companies even during the period of secondment & receive their salaries and emoluments from the member oil company of which they are employees & not being employees of the respondent-assessee. The occasion to apply Section 40(a)(iii) does not arise. Interpretation of Section 91(1) - whether assessee entitled to take double taxation benefit for the taxes paid in Kuwait only during the current year and not during previous years or on provisions for future period - Held that - The object of Section 91(1) is to give relief from taxation in India to the extent taxes have been paid abroad for the relevant previous year. This deduction/relief is not dependent upon the payment also being made in the previous year. The fact that the payment of taxes on the income earned in Kuwait during the previous year has been examined and found to be correct by the CIT(A) before whom original documents evidencing payment of taxes had been produced the is not required to be entertained.

Summary

Issues:
1. Disallowance of expenses under Section 40(a)(iii) for failure to deduct tax at source.
2. Entitlement to double taxation benefit under Section 91(1) for taxes paid in Kuwait.

Disallowance of Expenses under Section 40(a)(iii):
The appellant, a respondent-assessee consisting of public sector oil companies, deployed trained manpower abroad. The assessing officer disallowed Rs. 3.93 crores as expenditure due to failure to deduct tax at source under Section 192 of the Income Tax Act. However, both the Commissioner of Income Tax (A) and the Income Tax Appellate Tribunal found that the seconded personnel remained employees of member oil companies, not the respondent-assessee. As they received salaries from their respective companies, the overseas allowances were not subject to tax deduction at source. Therefore, the disallowance under Section 40(a)(iii) was not justified, leading to the dismissal of this issue.

Entitlement to Double Taxation Benefit under Section 91(1):
The respondent-assessee paid taxes of Rs. 82 lacs in Kuwait on income earned there during the relevant assessment year. The assessing officer denied the benefit under Section 91(1) on the basis that the taxes in Kuwait were not paid in the previous year relevant to the assessment year. However, the Commissioner of Income Tax (A) and the Tribunal allowed the appeal, stating that the respondent-assessee is entitled to deduction of taxes paid in Kuwait under Section 91(1). The Tribunal correctly held that Section 91(1) does not require taxes to be paid in the previous year, but aims to provide relief based on taxes paid abroad for the relevant previous year. The payment of taxes in Kuwait during the previous year was verified by the Commissioner of Income Tax (A) based on original documents. Consequently, the benefit under Section 91(1) was granted, and the issue was dismissed, leading to the overall dismissal of the appeal with no costs awarded.

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