The Delhi High Court reiterates that tax is not required to be deducted if the payment made to non-resident is not chargeable to tax in India

Recently, the Delhi High Court in the case of Maharishi Housing Development Finance Corporation Ltd. Vs ACIT (ITA No. 222 of 2009) (Delhi) after following its own decision in the case of Van Oord ACZ India (P) Ltd v. CIT [2010-TIOL-1 87-HC-DEL-IT] held that the question of tax withholding in case of payment made to non-resident would arise only if the said payment is chargeable to tax in India.

Facts of the case:- The taxpayer made certain payments to non-resident without deducting tax on the same. The Assessing Officer (AO) disallowed such expenditure under section 40(a)(ia) of the Income-tax Act, 1961 (the Act) on account of failure to deduct tax on the payments made to non-resident. The Income-tax Appellate Tribunal (the Tribunal) upheld the order of the AO.

Taxpayer’s contentions

• The taxpayer contended that since the payment made to non-resident was not liable to tax in India, tax was not required to be deducted. Accordingly, the question of dis allowance of such expenditure does not arise.

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