1994 (8) TMI 27 - HC - Income Tax

Assessing Officer, Foreign Exchange Regulation Act, Income Tax Act, Tax At Source, Transfer Of Case

Summary

Issues Involved:
1. Jurisdiction of the second respondent.
2. Effect of section 9 of the Foreign Exchange Regulation Act (FERA) on payments.
3. Applicability of section 195 of the Income-tax Act to the guarantee commission payable to Vijay Mallya.

Summary:

Point No. 1: Jurisdiction of the Second Respondent

Under section 127 of the Income-tax Act, the Central Board of Direct Taxes transferred the petitioner's cases to the Central Circle on August 27, 1981. The Supreme Court in CIT v. Bidhu Bhusan Sarkar interpreted "case" to include all pending and future proceedings under the Act. Similarly, in Pannalal Binjraj v. Union of India, it was held that the transfer includes all proceedings pending and future. Therefore, the transfer of the petitioner's file to the Central Circle means all related proceedings, including those under section 195, fall under the jurisdiction of the Central Circle's Assessing Officer. Consequently, the second respondent had jurisdiction to deal with the matters involving section 195.

Point No. 2: Effect of Section 9 of the Foreign Exchange Regulation Act on Payments

Section 9 of FERA prohibits payments to non-residents without Reserve Bank of India (RBI) permission. The Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. held that permission under FERA can be obtained subsequently and still be effective. The entries made in the petitioner's books of account created a liability, and the subsequent RBI permission validated this liability retrospectively. Therefore, the income accrued when the entries were made, not when the RBI permission was granted. The liability arose on the accrual basis, and thus, section 195 of the Act was attracted despite the initial lack of RBI permission.

Point No. 3: Applicability of Section 195 of the Act to the Guarantee Commission Payable to Vijay Mallya

Chapter XVII of the Act mandates tax collection through deduction at source. Section 195 requires tax deduction for payments to non-residents. The liability arises upon making an entry in the books of account. In this case, the petitioner credited the guarantee commission to Vijay Mallya's account and claimed deductions in their returns. Despite the RBI permission being granted later, the liability to deduct tax under section 195 arose when the entries were made. Therefore, section 195 is applicable to the guarantee commission payable to Vijay Mallya.

Conclusion:

The petitions were dismissed, and the rule was discharged, affirming the jurisdiction of the second respondent and the applicability of section 195 of the Act to the guarantee commission payable to Vijay Mallya.