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2019 (3) TMI 1255 - HC - Income TaxTDS u/s 195 - liability to pay the interest u/s 201(1A) - TDS liability - HELD THAT - Writ Petition has already been admitted. We notice that the petitioner has kept a sum of ₹ 10 Million US Dollors in escrow account which would be by and large sufficient to meet with its TDS requirement if ultimately so arises. Pending the petition, allowing the department to proceed further with the hearing of show cause notices under Sections 201(1) and 201(1A) of the Act, would lead to multiplicity of the proceedings. In order to avoid this and also in order to protect the interest of the Revenue, the Civil Application is disposed of with following directions - i. Pending the Writ Petition, further proceedings in connection with the notices issued to the petitioner under Sections 201 and 201(1A) of the Act shall stand stayed; ii. The petitioner shall maintain the said sum of ₹ 10 Million US Dollars in escrow account and shall not withdraw the same. iii. The Writ Petition be posted for hearing on 14th June, 2019.
Issues:
Interpretation of Section 195 of the Income Tax Act, 1961 regarding tax deduction at source for payments to non-residents. Analysis: The main issue in this case was the interpretation of Section 195 of the Income Tax Act, 1961, concerning the obligation to deduct tax at source for payments made to non-residents. The petitioner, a US-based company, challenged an order by the Authority for Advance Rulings (AAR) which held that the petitioner was liable to pay interest under Section 201(1A) of the Act for not deducting tax at source under Section 195. The petitioner argued that the liability to deduct tax at source did not arise due to the absence of substantial assets in India, relying on specific explanations in the Act inserted by the Finance Act, 2015. However, these contentions were rejected by the AAR, leading to the filing of the writ petition. The department contended that retrospective amendments to the Act made the decision in the Vodafone case inapplicable. The counsel highlighted that the AAR's decision was based on a detailed analysis of statutory provisions and relevant decisions, warranting no interference. Additionally, the department emphasized that the transaction occurred before the Supreme Court's decision in the Vodafone case, implying that the petitioner could not claim an impossible liability due to subsequent legal developments. The High Court acknowledged the complexity of the issues involved, especially considering the admitted writ petition. To prevent multiplicity of proceedings and safeguard the interests of both parties, the Court granted interim relief by staying further proceedings under Sections 201 and 201(1A) of the Act against the petitioner. The Court also directed the petitioner to maintain a specified sum in an escrow account to meet any potential TDS requirements. The case was scheduled for a hearing on a later date, allowing both sides to submit written submissions and relevant judgments. In conclusion, the Civil Application was disposed of with the aforementioned directions, providing temporary relief to the petitioner pending the final resolution of the Writ Petition challenging the tax deduction obligations under Section 195 of the Income Tax Act, 1961 for payments to non-residents.
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