1990 (10) TMI 141 - AT - Income Tax

Summary

Issues:
1. Whether the appellant, Delhi Electric Supply Undertaking (DESU), was liable to deduct tax under section 195.
2. Whether the order under section 195(2) was valid in light of subsequent events.
3. Whether the appellant is entitled to a refund of the tax deposited.

Analysis:
1. The appellant, DESU, entered into an agreement with an American company for electricity generation. The Income Tax Officer (ITO) directed DESU to deduct tax under section 195 @ 40%. DESU contended that as it was treated as an agent of the non-resident company under section 163, it was not obligated to deduct tax under section 195. The appellant cited a judgment stating that an agent of a non-resident was not liable to deduct tax under section 195(1). However, the Tribunal held that the tax amount deposited by DESU belonged to the American company and was already appropriated towards the demand created by the assessment order. As an assessment had been made against the American company, DESU could not claim a refund in its own right. The Tribunal dismissed the appeal, stating that DESU had deducted the tax despite the order under section 163, and thus, no refund was permissible.

2. Referring to a similar case, the Tribunal highlighted that subsequent events had overtaken the order under section 195(2). DESU did not seek cancellation of the order under section 195(2) after being treated as an agent of the non-resident company. The Tribunal emphasized that the tax liability of the foreign company needed to be determined in the pending appeals against the assessments. The Tribunal concluded that as the order under section 195(2) was valid at the time it was passed, and DESU complied without raising legal objections, no relief could be granted in the present appeal. The Tribunal agreed with the Departmental Representative that the circumstances prevailing at the time of the order's issuance were crucial in determining its validity.

3. The Tribunal held that DESU was not entitled to a refund of the tax deposited under section 195(2) as it belonged to the American company. The assessment against the American company had already been made, and the amount deposited was appropriated towards that demand. As DESU had deducted and paid the tax despite being treated as an agent of the foreign company, the Tribunal found no grounds for refund. The Tribunal emphasized that the pending assessment proceedings would determine the tax liability of the foreign company, and the appeal against the order under section 195(2) did not warrant a refund of the tax deposited by DESU.