1986 (4) TMI 95 - AT - Income Tax

Summary

Issues:
- Interpretation of section 195(2) of the Income-tax Act, 1961 regarding the liability to deduct tax on a sum remitted to a non-resident.
- Determination of the jurisdiction of the Income-tax Officer (ITO) under section 195(2) in cases where the assessee claims the entire sum remitted is exempt from tax.

Analysis:
The appeal before the Appellate Tribunal ITAT CALCUTTA-B involved the interpretation of section 195(2) of the Income-tax Act, 1961 regarding the liability to deduct tax on a sum remitted to a non-resident. The assessee had filed an appeal against the order of the Commissioner (Appeals) confirming the ITO's decision under section 195(2) to charge a lump sum payment to tax. The grounds of appeal included contentions that the payment was not taxable under section 115A of the Income-tax Act and did not constitute royalty under the Double Taxation Avoidance Agreement between India and France. The assessee argued that the entire payment made to the non-resident should be exempt from tax.

During the hearing, the representative for the assessee contended that the ITO should have declared the entire payment as exempt from tax, while the department's representative supported the Commissioner's order. The Tribunal noted a previous decision regarding the maintainability of appeals under section 248 and inquired about the applicability of the same in the present case. The assessee argued that the facts of this case differed as the liability to deduct tax was being disputed entirely.

The Tribunal analyzed section 195(2) and concluded that the provision only allowed for the determination of the appropriate proportion of the sum liable to tax, not a declaration of complete exemption. It clarified that the ITO's jurisdiction did not extend to declaring the entire sum exempt from tax. As the assessee had sought a declaration that the entire sum was exempt from tax under section 195(2), the Tribunal deemed the appeal misconceived. Consequently, the Tribunal held that the appeal was not maintainable and dismissed it.

In summary, the Tribunal's decision highlighted the limited scope of section 195(2) in determining the proportion of a sum liable to tax and emphasized that the provision did not permit a claim for complete exemption. The Tribunal found the appeal misconceived as the assessee had sought total exemption under section 195(2), leading to the rejection of the appeal.