TDS on expatriate salary reimbursement: section 195 not attracted where payment was only cost reimbursement and no income arose in India

Section 248 permits a payer who has deducted and remitted tax to seek a declaration that no tax was deductible, and the remedy is not confined to cases where prior relief was sought under section 195(2); the appellate forum was competent to entertain the claim. Reimbursement of salary cost for deputed expatriate personnel, where the employees remained on the foreign group company's payroll and no technical services or know-how were made available, was treated as a non-chargeable reimbursement rather than income liable to tax in India. On those facts, section 195 did not apply, the related disallowance mechanism under section 40(a)(i) could not operate, and no TDS was required.

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Issues: (i) whether an assessee who had deducted tax at source could maintain an appeal under section 248 of the Income-tax Act, 1961 for a declaration that no tax was deductible; (ii) whether reimbursement of salaries paid to deputed expatriate employees of the foreign group company was subject to deduction of tax at source.

Issue (i): whether an assessee who had deducted tax at source could maintain an appeal under section 248 of the Income-tax Act, 1961 for a declaration that no tax was deductible.

Analysis: Section 248 permits an assessee, after making deduction and payment to the Revenue, to seek a declaration that no tax was liable to be deducted at source. The provision is intended to enable adjudication on the tax liability itself and is not confined to cases where the assessee has first approached the Department under section 195(2). The appellate forum was therefore competent to entertain the assessee's claim.

Conclusion: The appeal under section 248 was maintainable and was rightly entertained.

Issue (ii): whether reimbursement of salaries paid to deputed expatriate employees of the foreign group company was subject to deduction of tax at source.

Analysis: The deputed persons were found to be on the payroll of the foreign group company and not employees of the assessee. The earlier order in the assessee's own case had already held that the payments were reimbursement of cost and that no technical know-how or technical service was made available so as to attract section 9(1)(vii). On those facts, the payments were not chargeable in a manner requiring deduction under section 195, and the consequent disallowance mechanism under section 40(a)(i) could not apply. The assessee was justified in proceeding on a bona fide view that no tax was deductible at source on such reimbursement.

Conclusion: The assessee was not liable to deduct tax at source on the reimbursement of salaries paid to M/s CMS Resource Management Company.

Final Conclusion: The Revenue's challenge failed, and the order declaring that no tax was deductible at source was left undisturbed.

Ratio Decidendi: Where the payer establishes that a payment to a non-resident is only reimbursement of salary cost for deputed personnel and the amount is not chargeable as income in India, section 195 is not attracted and an appeal under section 248 lies to obtain a declaration of no TDS liability.

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