Payment of statutory obligation would not constitute business expenditure

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Facts:

• The assessee claimed a deduction in respect of TDS paid on foreign remittance by F, which had merged in it.

• The amount represented the demands raised by the ITO under section 201, in respect of alleged non deduction of tax at source from remittances made by the assessee to Hansons Pacific (S) Pte Ltd, Singapore.

• The assessee claimed deduction of this amount, which was an additional payment by the assessee in respect of remittances to Hansons, as expenses in the AY 2004-05. The assessee claimed that “the aforesaid payment is not a payment of tax liability of the appellant but a payment to avail services from Hansons which, as per the understanding with Hanson, the appellant was liable to bear”

Decision:

• Law is well settled that a tax withholding liability raised under section 201, in respect of remittances made abroad, cannot be allowed as a deduction.

• Reliance placed on the decision of the Supreme Court in the case of India Aluminium Co Ltd Vs CIT (79 ITR 514) where it was held that whether a payment made under statutory obligation because assessee was in default could not constitute expenditure laid out for purposes of its business and hence, same was not allowable under that section

RMC Readymix India Pvt. Ltd. (2011-TIOL-81-ITAT-MUM)