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TDS to be deducted on mark-up and not on reimbursement of salaries for manpower supply


7th December 2018

ITAT, Delhi has dismissed the appeal of Revenue dept. and upheld the impugned order of the Commissioner (Appeals) deleting disallowance of project management expenses, certain interest expenses and software expenses.

In respect of project management expenses, assessee had paid certain amount for manpower supply to a foreign company and the department was of the view that assessee was liable to deduct TDS on the entire amount of manpower supply charges, including the salaries.

The Tribunal however reiterated that before thrusting the liability to deduct taxes, three points must be seen  (a) there must be income element in the hands of the recipient, (b) the income must be earned or derived in India and (c) in case the payment is made to a non-resident, the relevant DTAA must be examined.

It was thus held that only the mark-up is liable to withholding tax under Section 195 of the Income Tax Act. It held that no TDS deduction on actual cost component which is reimbursement of salaries, was required, further because the non-resident company had deducted TDS under Section 192 while making payments to seconded employees. 
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