1999 (12) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-company was liable to deduct tax at source u/s 195 for payments made to non-residents.
2. Whether the payments made to attorneys in the USA and sales commission to non-residents were chargeable to tax in India.
3. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and the USA.
4. Compliance with procedural requirements u/s 195(2) and 195(3).

Summary:

Issue 1: Liability to Deduct Tax at Source u/s 195
The Income-tax Officer (ITO) treated the assessee-company as an assessee in default for failing to deduct tax from payments made to non-residents during the financial years 1992-93 and 1993-94. The ITO held that the remittances made by the assessee-company were chargeable to income-tax in India and, therefore, the company was duty-bound to deduct income-tax from the remittances made by it. The Commissioner of Income-tax (Appeals) upheld the ITO's order, leading to the assessee filing appeals before the Tribunal.

Issue 2: Chargeability of Payments to Attorneys and Sales Commission
The ITO held that the payments made to attorneys in the USA were for technical services and thus deemed to accrue or arise in India u/s 9(1)(vii)(b). Similarly, the sales commission payments were deemed to be received in India u/s 5(2)(a) as the remittances were made through bank drafts and telegraphic transfers. The Commissioner (Appeals) concurred with the ITO, stating that the income derived by the attorneys and the commission payments were liable to tax in India, and the assessee was obligated to deduct tax at source.

Issue 3: Applicability of DTAA
The Commissioner (Appeals) held that the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the USA did not apply to the facts of the case. The Commissioner reasoned that the attorneys did not perform any services in India, and thus, the DTAA provisions were not applicable.

Issue 4: Compliance with Procedural Requirements u/s 195(2) and 195(3)
The Tribunal noted that the assessee did not comply with the provisions of sub-sections (1), (2), and (3) of section 195. The assessee did not make an application to the Assessing Officer u/s 195(2) to determine whether tax was to be deducted at source, nor did the non-resident recipients obtain a certificate of exemption u/s 195(3). The Tribunal emphasized that the liability to deduct tax at source is a strict liability, and the assessee cannot unilaterally decide that the payments were not chargeable to tax without the concurrence of the Assessing Officer.

Conclusion:
The Tribunal upheld the orders of the lower authorities, stating that the assessee-company was liable to deduct tax at source u/s 195 and had failed to comply with the statutory requirements. Consequently, the assessee was rightly treated as an assessee in default u/s 201. The appeals were dismissed on the grounds of non-compliance with section 195, without delving into the merits of whether the payments were chargeable to tax.