1958 (3) TMI 76 - HC - Income Tax

Summary

Issues:
- Whether the assessee firm is liable to deduct income-tax and super-tax under sections 18(3A) and 18(3C) for a payment made to a non-resident firm?

Analysis:
The judgment by the High Court of Bombay involved a case where the assessee firm was engaged in selling and exporting cotton to various places, including Hongkong and Shanghai. The firm had dealings with K.S. Pavri & Sons in Hongkong, to whom a consignment was sent, and an arrangement was made for a payment of Rs. 1,16,000. The Department contended that the assessee firm was obligated to deduct income-tax and super-tax under sections 18(3A) and 18(3C) for this payment. The key issue was whether the assessee firm was indeed liable for these deductions.

The non-resident firm, K.S. Pavri & Sons in Hongkong, was found to have accrued income in the taxable territories, which was not disputed by the assessee's counsel. The argument put forth was that as per section 42 of the Income-tax Act, the liability for the payment should fall on the Bombay agent, Pavri Sons & Co., and not the assessee firm. However, the court clarified that the liability of the agent does not absolve the assessee firm of its own liability. Section 18(3A) mandates the deduction of income-tax by any person responsible for paying to a non-resident, unless the payer is liable to pay income tax as an agent.

The correspondence between the non-resident firm and the assessee firm, which directed the payment to be made to the Bombay agent, was examined. The court emphasized that the mode of payment suggested by the non-resident did not alter the responsibility of the assessee firm to pay the non-resident directly. The court concluded that the responsibility of the assessee firm was to the non-resident, and therefore, the firm was liable to deduct income-tax under section 18(3A. The liability for super-tax under section 18(3C) was also deemed identical to that of income-tax.

In conclusion, the High Court held that the assessee firm was indeed liable to deduct income-tax and super-tax for the payment made to the non-resident firm. The question was answered in the affirmative, and the assessee was directed to pay the costs.