Belated deposit of TDS on non-resident salary does not by itself trigger disallowance under section 40(a)(iii) if tax was deducted and paid.

Section 40(a)(iii) disallows salary expenditure for non-resident employees only where tax has not been paid or deducted under Chapter XVII-B; it does not add a further condition that tax deducted must be deposited within the section 200(1) time limit. On a plain reading, delayed remittance after deduction does not, by itself, attract disallowance if the tax was in fact deducted and later paid to the Government account. The deduction was therefore allowable and the Revenue's disallowance failed.

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Issues: Whether salary paid to non-resident employees, from which tax was deducted at source but deposited after the time prescribed under section 200(1), could be disallowed under section 40(a)(iii) of the Income-tax Act, 1961.

Analysis: The amended section 40(a)(iii) disallows deduction only where salary payable outside India or to a non-resident has not been paid thereon or deducted therefrom under Chapter XVII-B. Unlike section 40(a)(i), the provision does not incorporate any requirement that the tax deducted must also be deposited within the period prescribed under section 200(1). On a plain reading, the legislative omission of a time-limit for deposit under section 40(a)(iii) means that delayed payment after deduction does not by itself trigger disallowance, so long as tax has in fact been deducted and paid to the Government account.

Conclusion: The disallowance was not sustainable; the deduction was allowable, and the Revenue's ground failed.

Ratio Decidendi: Where section 40(a)(iii) applies, deduction cannot be denied merely because tax deducted at source from salary to a non-resident was deposited belatedly, if the tax was in fact deducted and subsequently paid to the Government account.

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