TDS On NRI Payment: Delhi High Court Rejects Appeal By Revenue- Payment Found As Salary, Not Fees

The Delhi High Court, while upholding the order passed by the Income Tax Appellate Tribunal (ITAT), has held that the provision of TDS on NRI payments under Section 195 of the Income Tax Act has no application once the nature of payment is determined as salary and a deduction has been made under Section 192.

The division bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora has observed that the real employer of the seconded employees continues to be the Indian entity and not the overseas entity.

The appellant/department stated that ITAT has erred in allowing the appeal of the assessee on the ground that the draft order framed under Section 144C(1) of the Income Tax Act, 1961 was issued in the name of a non-existing company. It was void ab-initio, making all subsequent proceedings non-est, ignoring the fact that initial jurisdictional notice under Section 143(2) of the Act had been issued to the correct entity. The final assessment order dated October 29th, 2019 has been passed in the name of the new entity as per the directions of the Dispute Resolution Panel (DRP).

The department stated that the ITAT had erred in deleting the additions made by the AO under Section 40(a)(ia) read with Section 195 of the Income Tax Act without appreciating that the assessee was clearly liable to deduct tax on the expenditure.

The court stated that wages paid to employees are subject to taxation in India and cannot be regarded as fees for technical services. The payment cannot be regarded as fees for technical service under Section 9. Explanation 2 to Section 9(1)(vii) defines "fees for technical services," according to which any consideration that would be the recipient's income tax under the heading "salaries" would not be regarded as fees for technical services. As a result, the aforementioned payment cannot be considered to be a fee for technical services. Additionally, tax has been subtracted in accordance with Section 192 of the Act because it is paid as salary.

The court, while dismissing the appeal of the department, stated that the issue of receivables as well as "disallowance" under Section 40(a)(ia) are essentially questions of fact, which give rise to no substantial questions of law, especially when the findings of the ITAT are not perverse.

Case Title: PCIT Versus M/s Boeing India Pvt. Ltd.

Citation: 2022 LiveLaw (Del) 985

Date: 11.10.2022

Counsel For Appellant: Sr.Standing Counsel Sanjay Kumar

Counsel For Respondent: Advocates Sachit Jolly with Rohit Garg, Disha Jham and Sphum Dua

Click Here To Read Order