Re-imbursement of Salary can’t be disallowed for Non-Deduction of Tax at Source: Bombay HC [Read Judgment]

GST - Salary - Taxscan

A two-judge bench of the Bombay High Court has reiterated that the expenses in connection with the reimbursement of salary cannot be disallowed by invoking Section 40(a)(ia) of the Income Tax Act, 1961 on the ground of non-deduction of tax at source.

The Assessing Officer disallowed expenses of Rs.4.33 Crore under Section 40(a)(ia) of the Income Tax Act by holding that the assessee filed the appeal against the order of the assessment and resisted such disallowance.

According to the assessee, the expenditure related to salary and related expenses were paid to one ITD Cementation India Ltd., towards salary and related expenses in respect of employees deputed to work in the joint venture (assessee).

Both the first appellate authority and the Income Tax Appellate Tribunal granted relief to the assessee b finding that ITD Cementation India Ltd had provided employees and personnel for doing the work the assessee company. In turn, ITD Cementation India Ltd. would raise debit notes relating to the salary of the employees to the assessee. On the basis of said debit notes, the assessee would make the payment to ITD Cementation India Ltd. The employees working for the joint venture were actually the employees of ITD Cementation India Ltd and therefore, on such payments, deduction of tax at source was not necessary.

Justice B P Colabawalla and Justice Akil Kureshi recalled the High Court’s earlier decision in the case of the assessee held that the amount in question was paid by way of reimbursement of expenditure. The employees and personnel deputed by the company giving such workers on loan to the assessee company continued to be the employer, the assessee merely reimbursed the expenditure in terms of salary structure of the employees to the employer company. There was, therefore, no question of deducting tax at source while reimbursing such costs. We notice that the Tribunal by the impugned judgment relied on its decision in case of this very assessee for the earlier assessment year.

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