Introduction: Reaping benefits of privatisation, liberalisation and globalisation, many Indian companies, especially the IT and ITES companies, have been able to establish thumping international presence. To ensure timely delivery, installation, customisation and maintenance of products and rendering of services outside India, these companies have established branches or subsidiaries outside India or entered into various arrangements with foreign entities. Due to dictates of commercial expediency, these companies have significant number of employees working for them outside India. Such employees work either at the foreign branches or subsidiaries or at the client location outside India, for durations ranging from a few days to a few years.

In addition, there is a high demand outside India for qualified Indians, especially software professionals, engineers, chartered accountants and doctors. A significant number of qualified Indians get employed outside India with foreign entities for both short and long durations.

Salary in two or more countries and double taxation relief:

Substantial number of such Indians renders services both in and outside India during the same assessment year. They receive salary and other income in India as well as outside India. They may receive remuneration either from the same employer or from different employers. In certain cases, the salary of such employees accrues partially in India and partially outside India during any assessment year.

In case the employees are residents of India, by virtue of S. 5 of the Income-tax Act, 1961, their global income becomes liable to tax in India. Income accruing to or received by resident Indians outside India may be taxable under the laws of the countries where such income is received or accrues. Additionally, such income is also taxable in India.

Double Taxation Avoidance agreement, if any, entered into between India and a country outside India comes to the aid of such employees, by providing a relief u/s.90 against double taxation. Employees are entitled to relief u/s.90 in respect of their salary and other income that has been doubly taxed. Relevant portion of S. 90 is extracted below for convenience.

“90. (1) The Central Government may enter into an agreement with the Government of any country outside India:

(a) for the granting of relief in respect of :

(i) income on which have been paid both income-tax under this Act and income-tax in that country; or

(ii) income-tax chargeable under this Act and under the corresponding law in force in that country to promote mutual economic relations, trade and investment, or

(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country,

or

(c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or

(d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

(2) Where the Central Government has entered into an agreement with the Government of any country outside India U/ss.(1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”

Liability to deduct tax at source u/s.192 :

U/s.192 of the Act, the person responsible for paying salary (including Indian companies) which is taxable in India is liable to deduct tax at source in respect of the salary paid either in or outside India to its employees. Ss.(1) of this Section imposes the basic liability to deduct tax. It provides:

“192. (1) Any person responsible for paying any income chargeable under the head ‘Salaries’ shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.”

The person responsible to pay salary to any employee is liable to consider the following while deducting tax at source on such salary:

(a) Salary paid by other employers during the year and tax deducted at source from such salary, if the employee furnishes the prescribed details in the required form u/s. 192(2).

(b) S. 89(1) relief in case the employer falls under categories specified u/s. 192(2A).

(c) Other income received by the employee and tax deducted at source on such income or loss other than the loss from house property, if details are furnished by the employee in the form prescribed u/s.192(2B).

(d) Deductions under Chapter VI-A and rebates and reliefs under Chapter VIII required to be considered by virtue of various clarifications and instructions.

The important question that arises is whether S. 90 relief available to employees in respect of their global salaries can also be considered while computing tax to be deducted at source u/s.192. The following arguments support a view that S. 90 relief should not be considered in the process of computing tax to be deducted at source u/s.192.

1. Statute has to be interpreted literally:

1.1 The cardinal principle of interpretation is that the language of the statute has to be interpreted literally, i.e., by finding the intention of the Legislature in the words employed in the statute. Things have to be taken as they are. One cannot supply words to the provisions or read legislative intendments from it. The decisions in Harbajan Singh v. Press Council of India, AIR 2002 SC 1357 and Olga Tellis v. Bombay Municipality, AIR 1986 SC 180 can be referred on the point. Language of S. 192 does not specifically provide for considering S. 90 relief, and no intendment to provide for such relief can be read from it.

2. S. 192 only provides for S. 89 relief:

2.1 S. 192(2A) provides for S. 89 relief in case of specified employers. Ss.192(2A) specifically provides for considering relief u/s.89 in the case of certain category of employers. It states:

“(2A) Where the assessee, being a Government servant or an employee in a company, cooperative society, local authority, university, institution, association or body is entitled to the relief U/ss.(1) of S. 89, he may furnish to the person responsible for making the payment referred to in Ss.(1), such particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible as aforesaid shall compute the relief on the basis of such particulars and take it into account in making the deduction U/ss.(1).

Explanation. — For the purposes of this subsection, ‘University’ means a University established or incorporated by or under a Central, State or Provincial Act, and includes an institution declared u/s.3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.”

2.2 By application of the legal maxim ‘Expressio unius est exclusion alterious’ it can be argued that specific mention of S. 89 relief in S. 192 excludes S. 90 relief. In the book Principles of Statutory Interpretation, by Justice G. P. Singh, 9th Edition, 2004, page 77, fn 11, the maxim is explained in the following words:

“The maxim means that express mention of one or more persons or things or a particular class may be regarded as by implication excluded all others of that class. ‘It is doubtful whether the maxim does any more than draw attention to a fairly obvious linguistic point, viz., that in many contexts the mention of some matters warrant an inference that other cognate matters are intentionally excluded’ (Cross Statutory Interpretation, 3rd Edition, p. 140)”

3. Finance Act does not provide for considering S. 90 relief:

3.1 Further, one will have to read the Income-tax Act and the Finance Acts together. The Finance Act, 2007 in Part III deals, inter alia, with rates of charging income-tax in cases covered by S. 192. For the purposes of computing surcharge on income tax, Paragraph A states.

“The amount of income-tax computed in accordance with the preceding provisions of this paragraph or in S. 111A or S. 112 shall, :

(i) in the case of every individual or Hindu undivided family or association of persons or body of individuals having a total income exceeding ten lakh rupees, be reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, and the income-tax as so reduced, be increased by a surcharge for purposes of the Union calculated at the rate of ten percent of such income-tax.” (emphasis supplied)

3.2 This indicates that the amount of tax payable, (after computing at the rates mentioned in Paragraph A of Part IV) should be reduced only to the extent of relief under Chapter VIII-A deductions. Surcharge is to be thereafter computed and added. An employer cannot consider relief u/s.90 (found in Chapter IX) in computation of surcharge on income-tax. Read along with S. 192 in a literal sense, one can reason that considering S. 90 relief is specifically excluded for TDS purposes.

4. CBDT circulars do not provide for considering S. 90 relief :

4.1 The Circulars issued by the CBDT from time to time clarify and explain the obligations of an employer u/s.192. CBDT Circular No. 11 of 2006, dated 16-11-2006, titled ‘Income-Tax Deduction from Salaries during the Financial Year 2006-07 u/s.192 of the Income-tax Act, 1961’ clarifies the manner of computation of TDS for the A.Y. 2007- 2008. It provides for only Chapter VI-A deductions and S. 89 relief in the process of computation of income and tax thereon.

5. Forms issued by CBDT do not provide for considering S. 90 relief

5.1 The Apex Court in CIT v. Smt. P. K. Kochammu Amma Peroke, (1980) 125 ITR 624 (SC), has taken a view that the Form of return cannot be ignored for interpreting the provisions of the income-tax law. One will have to extend this logic to Form 16 also. Form 16 specifically provides for allowing Chapter VI-A deductions and S. 89 relief, but does not provide for S. 90 relief.

Alternative view :

On the other hand, the following arguments support the view that S. 90 relief has to be considered for computing the tax to be deducted at source u/s.192.

1. S. 90 applicable even for deduction of tax u/s.192 :

1.1 S. 90 does not expressly or impliedly bar the employer from considering relief for the purpose of deduction of tax u/s.192.

1.2 S. 90 does not state that the assessee should claim such relief in his return and none else. In fact, the words used are ‘in relation to the assessee to whom such agreement applies’ and not ‘an assessee to whom such agreement applies’. The language employed in S. 90 is wide enough to allow any person (including an employer) who is required to compute the income-tax liability of any eligible assessee to consider S. 90 relief in such computation.

1.3 Further, S. 90 uses the words ‘the provisions of this Act shall apply to the extent they are more beneficial to that assessee’. This indicates that any person while computing tax in relation to any assessee to whom any DTAA applies, is mandatorily required to consider provisions of the Act or the DTAA, whichever is beneficial to such assessee. Employer is thus mandatorily bound to consider S. 90 relief while computing tax deductible at source u/s.192.

1.4 S. 90 is a beneficial provision and it should be interpreted in such a manner that an assessee gets the relief, without making it necessary for him to claim the same only in his return of income.

1.5 If S. 90 relief is not considered at the time of deduction of tax, excess tax will be deducted at source. The real benefit of S. 90 will be denied to the assessee. Thus, purpose of S. 90 will be defeated, at least temporarily.

2. Non-consideration of S. 90 relief causes inconvenience :

2.1 Considering S. 90 relief for TDS on salary will not reduce the tax that can be levied on employees. On the other hand, non-consideration of the relief causes inconvenience and disadvantage to the employee and leads to various avoidable consequences.

2.2 If S. 90 relief is not allowed at the time of deduction of tax, the following inconvenience and hardship would ensue to the employee :

2.2.1 Employees will be forced to apply for refund.

2.2.2 Refunds due to the employees would be locked up with the Government, without any valid reason. This affects their liquidity position and causes financial crunch unnecessarily.

2.2.3 Getting refund is a tedious and time-consuming process.

2.3 Income-tax law does not contemplate a higher deduction and a consequent refund of excess taxes. TDS provisions are not designed to be short-term funding scheme for the Government.

2.3.1 Refund process involves waste of time, energy and money of the Government and its officers.

2.3.2 Delayed refund leads to interest liability on the Government. Such interest again is paid at the expense of the taxpayer.

3. Illustrations — Application of S. 90 relief for TDS u/s.192 :

3.1 The following illustrations highlight the consequences of not considering S. 90 relief in determining the amount of tax to be deducted at source u/s.192.

Illustration 1 :

Facts assumed are as under :

  • Employer with a branch outside India has a male employee (below 65 years). The employee has worked in the branch for 9 months followed by working in India for 3 months. He has received salary at the rate of rupees one lakh per month at both the places. The employee is resident of India for the A.Y. 2007-2008. Income-tax on the salary paid abroad is deducted and remitted to the foreign country at the rate of 25% of salary. All other deductions from the salary are ignored for the purposes of the illustration. It is assumed that the employee does not have any other income. It is further assumed that under the DTAA between India and the foreign country involved, relief to the extent of taxes paid in that country is available.
  • Computation of tax deductible as per S. 192 for A.Y. 2007-2008 :
Particulars Case 1 Case 2
Without S. 90 relief With S. 90  relief
Salary in India 3,00,000 3,00,000
Salary outside India 9,00,000 9,00,000
Total salary for tax purposes 12,00,000 12,00,000
Tax computed thereon 3,47,820 3,47,820
S. 90 relief Nil 2,25,000
Tax to be deducted thereon 3,47,820 1,22,820
Net salary paid to employee 6,27,180 8,52,180
Refund due 2,25,000 Nil
  • It is clear from the above illustration that more than 26% of the net cash salary is withheld unnecessarily, causing hardship to the employee. Withholding a huge amount as illustrated above causes immense financial crunch to the employee.

Illustration 2 :

Facts assumed are as under :

  • A person (male aged below 65 years) has worked as an employee of a foreign company abroad for 9 months during the previous year. Later, he has worked for 3 months in India for an Indian company. He has received salary at the rate of rupees one lakh per month from both the employers. He is a resident of India for the A.Y. 2007-2008. The foreign company has withheld tax under the foreign tax law and remitted the same, at the rate of 25% of salary. All other deductions from salary are ignored for the purposes of the illustration. It is assumed that the employee does not have any other income. It is further assumed that under the DTAA between India and the foreign country, whole of the taxes paid in that country is available as relief u/s.90.
  • Computation of tax deductible as per S. 192 for A.Y. 2007-2008 is as per the Table 1 below.
  • In the first case, where the employee declares his foreign salary to the Indian employer and the employer considers S. 90 relief, no refund arises.
  • In the second case where the employee declares his foreign salary to the Indian employer who does not consider S. 90 relief, the employer has to deduct tax in excess of the payment to be made by him. This creates an impossible situation.
  • In the third case, the employee does not declare his foreign salary to the Indian employer, and therefore is not subject to excessive deduction of tax at source.

TABLE 1

Particulars Case 1 Foreign salary declared  u/s.192(2) and S. 90 relief considered Case 2 Foreign salary declared u/s.192(2) and S. 90 relief not considered Case 3 Foreign salary not declared u/s.192(2)
Salary in India 3,00,000 3,00,000 3,00,000
Salary outside India 9,00,000 9,00,000 9,00,000
Total salary for S. 192 purposes 12,00,000 12,00,000 3,00,000
Tax computed thereon 3,47,820 3,47,820 40,800
S. 90 relief. 2,25,000 Nil Nil
Tax to be deducted thereon 1,22,820 3,47,820 40,800
Net salary paid to employee by second employer 1,77,100 (-)47,820 2,59,200
Tax payable as advance tax/self assessment tax Nil Nil 82,020
Refund due Nil 2,25,000 Nil

3.2 A prudent employee will thus be forced not to disclose his global income to his Indian employer if S. 90 relief is not considered. This is due to the fear of having to suffer excess withholding of tax on his Indian salary, and the consequent struggle for refund. Any interpretation which promotes such non-disclosure by the employees should be avoided.

3.3 On the other hand, an employee will prefer to declare his foreign salary to the Indian employer to ensure that he need not end up paying advance tax or self-assessment tax, if S. 90 relief can be considered.

4. Interpretation causing hardship, inconvenience and absurdity to be avoided :

4.1 An interpretation of S. 192 prohibiting S. 90 relief will lead to hardship to the assessee and to absurd, inconvenient and inequitable consequences not intended by the lawmakers. One has to avoid such an interpretation.

4.1.1 The rule that the construction of a statute which results in hardship, serious inconvenience, injustice, absurdity or anomaly has to be rejected in favour of a construction which avoids such results has received judicial sanction in Brij Gopal v. State of Madhya Pradesh, (1978) MPLJ 70, and by the Supreme Court in D. Saiba v. Bar Council of India, AIR 2003 SC 2502.

4.1.2 This rule applies even when the language of the law is plain and clear without ambiguities. The Supreme Court in Girdharlal and Sons v. Balbir Nath Mathur, (1986) 2 SCC 237 and Union of India v. Hansoli Devi, AIR 2002 SC 3240, states that even if the construction according to the plain language should ordinarily be accepted, such a construction should not be adopted where it leads to anomalies, injustice and absurdities.

4.1.3 Similarly, a construction which requires a person to do an impossible act as above, should be avoided.

5. S. 192 does not bar S. 90 relief from being considered :

5.1 S. 192 on a literal interpretation does not disclose any prohibition against claiming S. 90 relief. Literal interpretation does not aid in concluding against a claim relating to double taxation relief.

5.2 In either case, application of literal interpretation cannot be in isolation. A statute has to be read as a whole and in accordance with the context. Chapter XVII provisions have to be read along with other Chapters including Chapter IX which specifically provides for such a relief.

5.3 S. 192 is actually a beneficial provision and has to be interpreted in favour of the assessee. Assesseeemployee can make use of provisions like Ss.(2) and Ss.(2B) by giving requisite declarations to get the employer to deduct tax on a convenient monthly basis on their total income, instead of having to pay advance tax in three inconvenient lump sums or self-assessment tax in one instalment.

6. S. 192(2A) is merely a clarificatory provision :

6.1 S. 192(2A) provides that certain specified employers should also consider S. 89 relief in case the employee gives the necessary declaration. Specific allowance of S. 89 relief while computing deduction u/s.192 on the one hand and non mention of other relief cannot be read to exclude them from the computation of TDS.

6.2 Even though the application of Ss.(2A) is restricted to specified employers, it is still available to other employers also. Form 16 issued under the rules framed by the CBDT reflects this position. Therefore S. 192(2A) was never intended to be exhaustive of the deductions for purposes of computation of TDS.

6.3 Specific mention of S. 89 relief does not exclude other reliefs including one u/s.90 relief. Legal maxim ‘Expressio unius est exclusion alterious’ cannot be resorted to, to support a contrary interpretation.

6.4 The maxim is not applicable in cases where the express provision is added only by way of abundant caution or provisions of the law do not indicate an intention to exclude other items. This was the view of the Supreme Court in Mary Angel v. State of Tamil Nadu, AIR 1999 SC 2252 and Karnataka State v. Union of India, AIR 1978 SC 68. Since it is clear that S. 192(2A) is only a clarificatory provision, and there is no intention to exclude other deductions and reliefs, the above maxim will not be applicable.

7. No specific provision is required for allowing S. 90 relief :

7.1 The various Circulars and forms issued indicate that an employer can consider various deductions, rebates and reliefs in computing the TDS liability, though they are not specifically provided in S. 192.

7.2 The Circulars issued by the CBDT from time to time clarify the provisions of the Income-tax Act. CBDT Circular No. 11 of 2006, dated 16-11-2006, titled ‘Income-Tax Deduction from Salaries During the Financial Year 2006-07 u/s.192 of the Income-tax Act, 1961’ clarifies the manner of computation of TDS for the A.Y. 2007-2008. It provides for Chapter VI-A deductions and S. 89 relief for the computation of income on which tax is to be deducted at source. This logic has to be extended to S. 90 relief.

7.3 Further as admitted therein, the Circulars are not exhaustive in nature. For example, Circular No. 11 of 2006 :

“7.1 These instructions are not exhaustive and are issued only with a view to helping the employers to understand the various provisions relating to deduction of tax from salaries. Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act, 1961, the Income-tax Rules, 1962 and the Finance Act 2006.”

7.4 This indicates that specific provision u/s.192 is not required for considering rebates, reliefs and deductions, which are available to an assesseeemployee.

8. Recourse to Assessing Officer not required for getting S. 90 relief :

8.1 S. 89 provides that relief provided in respect of advance or arrears of salary can be granted only by an Assessing Officer, on proper application being made to him.

8.1.1 In spite of this specific provision, S. 89 relief can be considered by the employer not only in cases specified u/s.192(2A), but also in cases not covered thereunder. This indicates that the employer can consider reliefs without recourse to the Assessing Officer.

8.1.2 In case of S. 90, no stipulation has been made as to who can grant the relief. As mentioned earlier, any person can consider the relief u/s.90 for the benefit of the assessee. Therefore, recourse to the Assessing Officer by filing a return or an application either u/s.197 or otherwise is not required to get the relief.

8.2 Denial of S. 90 relief leads to temporary denial or withholding of a relief granted to the assessee by the Act. The Act does not confer on the Assessing Officers powers to withhold or postpone the relief available under law. They should not be allowed to deny the relief considered by the employers while deducting tax at source.

9. Tax collection cannot exceed the tax levy :

9.1 The tax laws cannot be interpreted in a manner to force the assessee to be subjected to tax deduction in excess of his tax liability.

9.1.1 Any provision to collect tax from the assessee should be interpreted strictly and in favour of the assessee. Collection of tax cannot be in excess of the levy. Neither levy nor collection nor appropriation of tax can be without or in excess of authority of law.

9.2 Subject to the restrictions u/s.192, computation of TDS should be in the like manner and to the same extent as an assessee would compute his tax liability. The purpose of Chapter XVII-B is to deduct tax at source, either to the extent of the tax liability or to an extent lower than actual tax liability of the payee. The Chapter does not contemplate deduction of tax at source of an amount greater than the actual tax liability and a subsequent refund of the excess deduction to the assessee.

10. Deduction of tax at average rate of tax :

10.1 U/s.192(1), the employer has to deduct tax at source at the average rate of tax. S. 2(10) defines ‘average rate of tax’ to mean the rate arrived at by dividing the amount of income tax calculated on the total income, by such total income.

10.2 Total income is the income as computed under the provisions of the Act. The tax payable on such total income refers to that which remains due after giving effect to all possible deductions, rebates and reliefs including S. 90 relief.

Conclusion :

In our view, the arguments in favour of considering S. 90 for TDS computation outweigh the arguments against it. However, in absence of a clarification to the effect by the CBDT, companies fear disallowance of expenditure on salaries u/s.40(a)(iii) or action u/s.201 with attendant consequences in case the Assessing Officers take the view that S. 90 relief cannot be considered for deduction of tax u/s.192. Under such circumstances, a clarification from the CBDT will come in handy both to companies, which have to deduct tax at source u/s.192, and employees who are entitled to S. 90 relief.

Author/s :

H. Padamchand Khincha

Badrinath Simha

Chartered Accountants

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