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Interpretation of section 18(3B) of the Indian Income-tax Act, 1922 regarding deduction of tax by a company on payments made to a non-resident corporation for services rendered. Analysis: The case involved a dispute regarding the liability of a company, engaged in paper production, to deduct income tax on payments made to a non-resident corporation for technical services. The Income-tax Officer contended that the company should have deducted tax under section 18(3B) of the Act. The Commissioner upheld this view, stating that the payment was of a revenue nature and taxable under Indian law. The Tribunal, after considering the provisions of section 18(3B) and section 43, dismissed the company's appeal, holding that the tax was payable on a specific amount. The company then raised the issue of liability under the second proviso to section 18(3B) and the first proviso to section 43. The company's argument before the High Court centered on the interpretation of the second proviso to section 43 and its impact on the liability to deduct tax under section 18(3B). The company contended that the Income-tax Officer should have determined their status as agents of the non-resident corporation before imposing the deduction obligation. However, the Court rejected this argument, emphasizing that the relevant consideration was whether the company was liable to pay tax as an agent under section 43, not whether an official declaration had been made. The Court clarified that the exception in section 18(3B) did not require a formal determination under section 43 before imposing the deduction liability. The Court highlighted that the status of an agent under section 43 was pertinent only if the Department intended to impose substantive liability on the agent for the non-resident's income. The Court reasoned that the absence of a formal declaration did not preclude the company's liability under section 18(3B. The Court concluded that the company failed to demonstrate that they were declared agents under section 43, and as such, the liability for deduction under section 18(3B remained. Since the company did not argue against the substantive part of section 18(3B displacing their liability, the Court affirmed the Tribunal's decision, ruling in favor of the tax deduction obligation on the company. In summary, the High Court affirmed the Tribunal's decision, emphasizing that the company's liability to deduct tax under section 18(3B was not contingent on a formal determination of their status as agents under section 43. The Court held that the company's failure to establish their agent status precluded them from avoiding the tax deduction obligation, as mandated by the Indian Income-tax Act, 1922.
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