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2010 (7) TMI 3 - SC - Income TaxTDS - payment made to non-resident - section 195 - assessee in default u/s 201 - chartering of fishing vessels - AO observed that the income earned by the non-resident company was chargeable to tax u/s. 5(2) of the Income Tax Act. The assessee made payment to the foreign-company the sums representing hire charges without deducting taxes at source thereby committed default under the provisions of Section 195. - He assessed the assessee as assessee in default - CIT(A) and ITAT confirmed the order of AO - appellant-assessee submits that there was no income chargeable which resulted to the non-resident company as no payment of any sum by the assessee to the non-resident company took place in India and therefore the liability to deduct tax at source under Section 195 of the Income Tax Act or the liability under Section 201 of the Act did not arise. - Held that it is obvious that the assessee was liable to deduct tax under Section 195 of the Income Tax Act on the payment made to the non-resident company and admittedly it having not deducted and deposited was rightly held to be in default under Section 201 of the Income Tax Act.
Issues Involved:
1. Whether the payment made to the non-resident company by the assessee was made in India. 2. Whether the receipt of 85% of the fish catch by the non-resident company was in India. 3. Whether there was a payment to the non-resident by the assessee or merely a receipt of 15% of the value of fish catch from the non-resident to the assessee. 4. Whether the assessee was liable to deduct tax at source under Section 195 of the Income Tax Act on the payment made to the non-resident towards hire charges. 5. Whether the assessee was in default under Section 201 of the Income Tax Act for failing to deduct tax under Section 195. Analysis: 1. Payment Made to Non-Resident Company in India: The Tribunal held that the payment to the non-resident company was made in India. The assessee argued that no payment took place in India as the 85% of the fish catch was sold outside India and the proceeds were realized outside India. However, the Tribunal found that the entire catch belonged to the assessee and 85% of it was adjusted against the liability towards hire charges, making it a receipt in India under Section 5(2) of the Income Tax Act. 2. Receipt of 85% of Fish Catch in India: The Tribunal concluded that the receipt of 85% of the fish catch by the non-resident company occurred in India since all formalities, including valuation and customs clearance, were completed in India. The non-resident company effectively received the charter fee in India, making it chargeable to tax under Section 5(2) of the Income Tax Act. 3. Nature of Payment to Non-Resident: The Tribunal rejected the claim that there was no payment to the non-resident by the assessee but rather a receipt of 15% of the fish catch's value. The Tribunal held that the 85% of the fish catch was a form of payment to the non-resident company for the hire charges, thus constituting a receipt in India. 4. Obligation to Deduct Tax at Source: The Tribunal held that the assessee was liable to deduct tax at source under Section 195 of the Income Tax Act on the payment made to the non-resident towards hire charges, even though the payment was not in cash. The non-resident company received the charter fee in the form of 85% of the fish catch in India, making it subject to tax deduction at source. 5. Default Under Section 201: The Tribunal held that the assessee was in default under Section 201 of the Income Tax Act for failing to deduct tax under Section 195. The non-resident company received income in India, and the assessee did not fulfill its obligation to deduct and deposit the tax, justifying the default determination. Conclusion: The Supreme Court upheld the Tribunal's findings, stating that the non-resident company received the charter fee in India in the form of 85% of the fish catch. This receipt was chargeable to tax under Section 5(2) of the Income Tax Act. The Court distinguished the present case from the cited precedents, emphasizing that the non-resident company had control over the catch in India, making it a taxable receipt. Consequently, the assessee was liable to deduct tax at source under Section 195 and was rightly held to be in default under Section 201 for failing to do so. The appeals were dismissed without any order as to costs.
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