2016 (6) TMI 296 - AT - Income Tax

TDS u/s 192 or 195 - payment made to manpower deployed overseas is in the nature of salary or otherwise - disallowance made u/s. 40(a)(ia) - Held that - It is the finding of the Ld. CIT(A) that the persons recruited in abroad are all employees of the assessee and the contract is in the nature of employment, therefore provisions of Sec. 195 are not applicable. The above findings have not been controverted or rebutted by the Revenue with evidences. In the circumstances, we do not find any infirmity in the order passed by the Ld. CIT(A) in holding that remuneration paid by the assessee for the contract of services are in the nature of salary only and no TDS is required to be made u/s. 195 of the Act. Hence, we direct the Assessing Officer to delete the disallowance made u/s. 40(a)(ia) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of whether payments made to manpower deployed overseas are in the nature of salary.
2. Applicability of Section 195 or Section 192 of the Income Tax Act to such payments.
3. Validity of disallowance under Section 40(a)(ia) for non-deduction of TDS on such payments.

Issue-wise Detailed Analysis:

1. Nature of Payments:
The primary issue in the appeal was whether the payments made by the assessee to manpower deployed overseas were in the nature of salary. The assessee contended that these payments were salaries to non-resident employees, hence not attracting the provisions of Section 195. The Assessing Officer, however, treated these payments as not being in the nature of salary, leading to disallowance under Section 40(a)(ia) for non-deduction of TDS.

2. Applicability of Section 195 or Section 192:
The Ld. CIT(A) held that the payments were indeed salaries to non-resident employees and thus, Section 195, which pertains to interest or any other sum chargeable under the Act except salaries, was not applicable. Additionally, Section 192, which deals with TDS on salaries, was also not applicable as the salaries paid to non-resident employees were not chargeable to tax in India. The Revenue's contention was that there was no employer-employee relationship between the assessee and the persons recruited abroad, thus invoking the provisions of Section 195/192.

3. Disallowance under Section 40(a)(ia):
The Ld. CIT(A) deleted the disallowance made under Section 40(a)(ia) by the Assessing Officer. It was concluded that the recruited persons were employees of the assessee, and the payments made were salaries, not attracting the provisions of Section 195. The Ld. CIT(A) cited various evidences, including licenses issued by the Ministry of Labour, employment contracts, and the nature of control exercised by the assessee over the employees, to substantiate the employer-employee relationship. The Revenue failed to provide evidence to rebut these findings.

Conclusion:
The Tribunal upheld the findings of the Ld. CIT(A), agreeing that the payments made by the assessee were indeed salaries to non-resident employees and thus, Section 195 was not applicable. Consequently, the disallowance under Section 40(a)(ia) was deleted. The appeal filed by the Revenue was dismissed, and the order pronounced on 31st May 2016.

Order:
The appeal filed by the Revenue is dismissed.