ANZ GRINDLAYS BANK vs.DEPUTY COMMISSIONER OF INCOME TAX
AND ORS.
HIGH COURT OF DELHI
S. MURALIDHAR & VIBHU BAKHRU, JJ.
ITA 32/2004
Mar 1, 2016
(2016) 95 CCH 0056 DelHC
Legislation Referred to
Section 40(a)(iii), 260, 221, 276B, 192
Case pertains to
Asst. Year 1991-92
Decision in favour of:
Assessee
Business expenditure—Interest, commission, brokerage etc.
to a resident—Deduction of salaries paid to ex-patriate employees
overseas—Denial of deduction—Failure to deduct tax at source—During relevant
period ,Assessee was non-resident banking company and its principal place of
business was situated outside India—Assessee also carried on banking business
in India through its branches situated within country— During relevant period,
Assessee seconded some of its employees from overseas to its branches in India—Those
expatriate employees were employed for business carried on in India—Employees
received part of their remuneration by way of salaries and perquisites in India
which were duly reflected in Profit and Loss Account drawn up by Assessee in
respect of its Indian operations—Assessee also deducted tax at source on so
much of remuneration that was payable to expatriate employees in
India—Undisputedly, such TDS was deposited with Government—Assessee claimed
deduction u/s 40(a)(ia) for salaries paid to ex-patriate employees overseas—AO
denied deduction claimed by Assessee holding that Assessee failed to deduct tax
at source within prescribed time—CIT(A) rejected Assessee's claim for grant of
deduction u/s 40(a)(ia) by holding that such claim could not be made in
appellate proceedings—CIT(A) also observed that no deduction could be claimed
in view of Section 40(a)(iii)—Tribunal held that since no tax had been deducted
at source under Chapter XVII B within prescribed time, no deduction u/s
40(a)(iii) was permissible—Held, in absence of provision similar to proviso to
sub- clause (i) of clause (a) of Section 40 it could not be disentitled
Assessee to claim deduction even though it had complied with condition under
sub-clause (iii) of clause (a) of Section 40—Plain reading of proviso to
sub-clause (i) of clause (a) of Section 40 indicates that where Assessee had
not deducted or paid tax at source in terms of Chapter XVII B in respect of any
sum as specified under sub-clause (i) of clause (a) of Section 40, Assessee can,
nonetheless, claim deduction in year in which assessee deposited tax—This
benefit was not available to assessee in respect of payments chargeable under
head “Salaries” which fall within sub-clause (iii) of clause (a) of Section 40
and not sub-clause (i) of clause (a) of Section 40—Thus, assessee would not be
entitled to claim deduction on account of salaries if it failed to deduct or
pay amount under Chapter XVII B—Assessee lost its right to claim deduction for
period of six years , even though Assessee had paid TDS on expenses pertaining
to said period—If provision similar to proviso to Section 40(a)(i) was
applicable to Section 40(a)(iii) then Assessee would have been entitled to
claim entire expenses on account of salaries paid overseas pertaining to relevant
financial years 1984-85, as payment for tax for aforesaid years was paid on
20th July, 1994— However, absence of provision similar to that under sub-clause
(i) of clause (a) of Section 40 does not mean that Assessee would also be
disentitled to claim deduction on account of salaries in year to which such
expenses pertained even though Assessee subsequently discharged its obligation
to deposit tax and overcome rigor of sub- clause (iii) of clause (a) of Section
40—Tribunal proceeded on basis that if tax due on salaries paid overseas was
not deposited strictly within time prescribed under Chapter XVIIB, Section
40(a)(iii) would be applicable—Plain language of Section 40(a) (iii) does not
permit such interpretation—It was apparent that condition to deposit TDS within
prescribed time could be read into sub-clause (iii) of clause (a) of Section 40
as unlike language of item (B) of sub-clause (i) of clause (a) of Section 40
same had not been specifically enacted—Question of law was answered in favour
of Assessee and against Revenue—Assessee’s Appeal allowed
Held
Absence of a provision similar to the proviso to sub-
clause (i) of clause (a) of Section 40 of the Act cannot be read as to
disentitle an Assessee to claim a deduction even though it has complied with
the condition under sub-clause (iii) of clause (a) of Section 40 of the Act. A
plain reading of proviso to sub-clause (i) of clause (a) of Section 40 of the
Act indicates that where an Assessee has not deducted or paid the tax at source
in terms of Chapter XVII B in respect of any sum as specified under sub-clause
(i) of clause (a) of Section 40 of the Act, the Assessee can, nonetheless,
claim a deduction in the year in which the assessee deposits the tax. This
benefit is not available to an assessee in respect of payments chargeable under
the head “Salaries” which fall within sub-clause (iii) of clause (a) of Section
40 and not sub-clause (i) of clause (a) of Section 40 of the Act. Thus, an
assessee would not be entitled to claim deduction on account of salaries if it
fails to deduct or pay the amount under Chapter XVII B of the Act. In cases
where such assessee deposits the amount in a subsequent year, the Assessee
would still not be able to claim the deduction in the year in which such tax is
deposited; his claim for deduction can be considered only in respect of the
year to which such expense relates. Therefore, in cases where the assessments
stand concluded, the Assessee would lose the benefit of deduction for the
expenses incurred on account of its failure to have deposited the tax at
source. Thus, concededly, in the present case the Assessee has lost its right
to claim a deduction for a period of six years - AY 1985-86 to AY 1990-91- even
though the Assessee has paid the TDS on the expenses pertaining to said period.
(Para14)
If a provision similar to the proviso to Section 40(a)
(i) was applicable to Section 40(a) (iii) then the Assessee would have been
entitled to claim the entire expenses on account of salaries paid overseas
pertaining to financial years 1984-85 to 1993-94 in the financial year 1994-95
relevant to AY 1995-96 as the payment for the tax for the aforesaid years was
paid on 20th July, 1994. However, absence of a provision similar to that under
sub-clause (i) of clause (a) of Section 40 does not mean that the Assessee
would also be disentitled to claim deduction on account of salaries in the year
to which such expenses pertained even though the Assessee has subsequently
discharged its obligation to deposit the tax and has thus overcome the rigor of
sub- clause (iii) of clause (a) of Section 40 of the Act.
(Para 15)
