Expatriate salary reimbursement as salary, not technical fees, avoids section 40(a)(i) disallowance where tax was deducted under section 192.

Reimbursement of expatriate salary costs on a cost-to-cost basis, without mark-up, was treated as salary rather than fees for technical services where tax had already been deducted under section 192 and deposited in time. The Revenue failed to show that the head office rendered any technical service, so the payment could not be recharacterised to trigger section 195. On that factual basis and the applicable precedent, section 40(a)(i) was held inapplicable merely because another withholding provision was preferred by the Revenue, and the disallowance was deleted.

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Issues: Whether reimbursement of expatriate salary cost from the branch office to the head office, on which tax had been deducted under section 192, could be disallowed under section 40(a)(i) on the footing that the payment was fees for technical services requiring deduction under section 195.

Analysis: The reimbursement was on a cost-to-cost basis without any mark-up. The record showed that the expatriate salaries, including amounts paid in and outside India, had suffered tax deduction under section 192 and the tax had been deposited within the prescribed time. The Revenue did not establish that the head office had rendered any technical service so as to characterise the payment as fees for technical services. Relying on the factual matrix and the applicable precedent, the Tribunal held that where tax has in fact been deducted under the correct character of the payment as salary, section 40(a)(i) is not attracted merely because the Revenue prefers another withholding provision.

Conclusion: The disallowance under section 40(a)(i) was unsustainable and the additions were deleted.

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