TDS u/s. 195 not attracted on salary paid outside India towards staff hired outside India

DCIT Vs M V Agro Engineers Pvt. Ltd. (ITAT Delhi)

ITAT Delhi held that provisions of section 195 as well as section 40(a)(iii) are not attracted in case of salary paid to staff hired outside India and services were utilised outside India. Accordingly, appeal of the revenue dismissed.

Facts- The assessee is a Private Limited Domestic Company engaged in the business of manufacturing of flour mills, rice mills etc. On enquiry, the AO observed that the assessee has made aggregate foreign remittances of INR 21,27,73,715/-. The AO also observed that the assessee could substantiate incurring of commission expenses only to the extent of INR 11,31,23,010/- and failed to substantiate the corroborative documentary evidence for remaining expenses to the tune of INR 9,96,49,705/- . The AO made addition of INR 9,96,49,705/- to the total income returned holding such amount as excess amount of commission expenditure.

AO also disallowed salary expenditure of INR 3,38,94,000/- stated to be incurred outside India towards the staff hired outside India by the assessee for installation of Machinery & Equipment supplied for Rice project. The disallowance was carried out on the ground that the assessee has failed to deduct TDS on the amount of salary paid outside India and hence, applied provision of s. 40(a)(iii) of the Act to carry out the disallowance.