2009 (1) TMI 541 - AT - Income Tax

Tribunal upholds disallowance of expatriate staff salaries for non-compliance with tax rules

Hongkong & Shanghai Banking Corpn. Ltd. Versus Joint Commissioner of Income-tax, Spl. Range 15, Mumbai

Hongkong & Shanghai Banking Corpn. Ltd. Versus Joint Commissioner of Income-tax, Spl. Range 15, Mumbai - [2009] 29 SOT 17 (MUM.) Issues Involved:1. Rectification of Tribunal's order u/s 254(2) regarding salaries paid to expatriate staff.2. Tribunal's jurisdiction and powers u/s 254(1).3. Application of section 40(a)(iii) of the Income-tax Act.4. Rectification of specific paragraphs in Tribunal's order.Summary:Issue 1: Rectification of Tribunal's order u/s 254(2) regarding salaries paid to expatriate staff:The assessee filed a miscellaneous application u/s 254(2) seeking rectification of the Tribunal's order dated 15-2-2007, claiming mistakes apparent from the record. The primary contention was that the Tribunal erroneously applied section 40(a)(iii) to disallow salaries paid to expatriate staff, which was not raised by the Assessing Officer or CIT(A). The Tribunal found no error apparent from the record and dismissed the application, stating that the applicability of section 40(a)(iii) was relevant to the case and within its jurisdiction.Issue 2: Tribunal's jurisdiction and powers u/s 254(1):The Tribunal's powers u/s 254(1) were discussed, emphasizing that its jurisdiction is limited to the subject-matter of the appeal. The Tribunal can only address issues raised before it and cannot expand its jurisdiction beyond the grounds of appeal. The Tribunal concluded that it had not exceeded its jurisdiction in applying section 40(a)(iii) as it was relevant to the contentions of the assessee.Issue 3: Application of section 40(a)(iii) of the Income-tax Act:The Tribunal held that section 40(a)(iii) was applicable to the case since the salaries paid to expatriate staff were not subjected to tax deduction at source as required under Chapter XVII-B. The Tribunal found that the non-mention of the relevant section by the revenue authorities did not exclude the amount from its ambit. Thus, the Tribunal upheld the disallowance of salaries paid to expatriate staff.Issue 4: Rectification of specific paragraphs in Tribunal's order:The assessee sought rectification of paras 54 and 56 of the Tribunal's order, arguing that the Tribunal had omitted to consider its reliance on a previous ITAT decision. The Tribunal acknowledged the omission and rectified the paragraphs to include the relevant decision, directing the Assessing Officer to verify the payment of taxes made by the payee and allow deduction accordingly. Other miscellaneous applications related to similar issues were dismissed or partly allowed based on the rectification of these paragraphs.Conclusion:In the result, M.A. Nos. 423, 424, 425 & 427/M/07 and 605 & 607/M/07 are dismissed, while M.A. Nos. 426/M/07, 606 & 608/M/07 are partly allowed.