Income Tax department gives relief on payments to expats

The income tax department has provided relief in certain cases where tax
has not been withheld when payments are made to non-residents, a matter that
has been cause of much litigation.

In such cases of default, any interest, royalty, fees for technical
services or other sum chargeable is not allowed as an expense if the entity
making the payment does not deduct tax in respect of such payments. Disallowing
such expense will increase income and thereby tax. The dispute related largely
to ‘other sum chargeable’ and centred on the issue whether the entire sum
remitted out was to be disallowed as deduction or a portion that was chargeable
as income. The department has clarified that not the entire payment but only
the net income will be disallowed. “Board has clarified that in cases
where tax is not deducted at source under section 195 of the Act, the Assessing
Officer shall determine the appropriate portion of the sum chargeable to tax,”
a circular issued by the department said.
Tax experts welcomed the move. “This will ensure that the exposure
of the tax withholder in his own income-tax assessment does not exceed the
liability of the recipient of the income. This is in conformity with the principle
that the primary liability for tax is of the recipient of the income and that
deduction at source is only a mode of recovery of the tax,” said Sunil
Shah, Partner, Deloitte Haskins & Sells LLP

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