Deductibility of expatriate salary payments upheld when TDS was later deposited and accounting omission did not bar the claim.

Expatriate salaries paid outside India remained deductible where tax deductible at source was ultimately deposited under Chapter XVII-B, because Section 40(a)(iii), as then framed, did not impose a separate time-limit for deposit unless the statute expressly said so. The court also held that the omission to record the expense in the profit and loss account did not defeat the deduction, since allowability depends on the legal entitlement under the Act, not on accounting entries. The deduction was therefore allowed and the assessee's claim succeeded.

---

---

Issues: Whether salaries paid outside India to expatriate employees were deductible in computing business income when tax deductible at source was deposited later, and whether the absence of entries in the profit and loss account barred the claim.

Analysis: Section 40(a)(iii) of the Income-tax Act, 1961, as it stood for the relevant years, disallowed deduction only where salaries payable outside India had not been paid or deducted under Chapter XVII-B. The tax in question had in fact been deposited under Section 192 pursuant to the CBDT circular, and the Revenue had received the full amount with interest. The later deposit satisfied the statutory condition, and the absence of any express requirement that TDS must be deposited within the prescribed time could not be read into the provision. The omission of a proviso similar to Section 40(a)(i) did not justify a stricter rule for salaries. The failure to reflect the expenditure in the profit and loss account also did not defeat an otherwise allowable deduction, since entitlement depends on law and not on accounting entries.

Conclusion: The deduction was allowable and the objection under Section 40(a)(iii) failed; the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded, and the assessee was held entitled to the deduction claimed for the relevant salary payments.

Ratio Decidendi: Where tax deductible at source on salaries payable outside India is ultimately deposited under Chapter XVII-B, Section 40(a)(iii) does not impose an additional requirement of deposit within time unless the statute expressly says so, and accounting omission does not control the allowability of the deduction.

---