Payment made to USA entities cannot be disallowed on account of non deduction of tax at source

Brief: In view of non-discrimination clause under the India-USA tax treaty, the non-resident should be given same treatment as given to resident’s taxpayers. Accordingly, the payment made to USA entities cannot be disallowed on account of non deduction of tax at source.

Citation: Central Bank of India Vs. DCIT (ITA No. 4155/M/2003, 4156/M/2003 and 4157/M/2003)

Court : Income-tax Appellate Tribunal, Mumbai

Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Central Bank of India v. DCIT (ITA No. 4155/M/2003, 4156/M/2003 and 4157/M/2003) (the taxpayer) held that the taxpayer was not liable to withhold taxes while making payments to the USA based credit card agencies in view of non-discrimination clause under Article 26(3) of the India-USA tax treaty (the tax treaty). Accordingly, such payments cannot be disallowed under Section 40(a)(i) of the Income-tax Act, 1961 (the Act) on account of non deduction of tax at source while making payments to non-residents.

The Tribunal observed that Article 26(3) of the tax treaty protects the interest of the non-residents vis-à-vis residents and provides that payment made to the non-resident will be deductible under the same conditions as if the payment were made to a resident. Therefore, even if payments made to the non-residents were taxable in India, withholding of tax was not required.

Please become a Premium member. If you are already a Premium member, login here to access the full content.