2014 (9) TMI 58 - HC - Income Tax

TDS not deducted u/s 195 - Amount paid to non-resident foreign company Interpretation of section 40(a)(i) and 9(1)(v) Held htat - Revenue has not placed the relevant documents under which the payments were made or relating to the settlement. Revenue has not placed even copy of the report given by the DCIT - Full particulars and details regarding the purchase price, whether there was specific stipulation regarding delayed payment, consequences, when did the title in the goods pass to the respondent assessee etc. are not on record and not discussed in the assessment order - in the absence of the details and documents and keeping in mind the findings of fact recorded by the Tribunal, it is difficult to answer the questions and issues - the provision was not specifically invoked by the AO - taxability would depend on whether the income was exempt u/s 10(15)(iv)(c) of the Act - The assessment order is woefully silent and quiet on the material aspects - the amount paid was in settlement of delayed payment for the goods purchased and was not paid in respect of any borrowing made from the Kashpo International Ltd. Decided against Revenue.

Summary

Issues:
1. Whether deduction for payment to non-resident company without TDS under Section 195 is permissible?
2. Correct interpretation of provisions of Section 40(a)(i), Section 195, and Section 9(1)(v) of the Income Tax Act.
3. Whether the payment made represents interest or sale consideration, and if tax deduction is required.

Analysis:
1. The case involved an appeal by the Revenue related to the assessment year 1986-87 concerning a payment of &8377; 19,94,704 to a non-resident foreign company for brushless motors. The Assessing Officer did not disturb this expenditure initially.
2. The Commissioner of Income Tax set aside the assessment order directing fresh assessment to determine if tax deduction under Section 195 was required. The Assessing Officer invoked Section 9(1)(i) and held the amount taxable in India due to non-deduction of tax at source.
3. The CIT (Appeals) held the payment was not interest but part of the purchase price. The Tribunal dismissed the appeal, stating the payment was part of the purchase price and not taxable in India. The issue revolved around whether the payment was interest or sale consideration.
4. The Tribunal referred to past judgments on interest payments to non-residents but concluded the payment was part of the purchase price. The Revenue failed to provide relevant documents or details for a proper adjudication.
5. The Court noted the absence of crucial details and documents. It refrained from answering the legal questions against the assessee due to insufficient evidence. The taxability would depend on whether the income was exempt under relevant sections or Double Taxation Avoidance Agreement provisions.
6. The withdrawal of Circular No. 23 of 1969 was discussed, stating that liability under Section 9(1)(i) may not apply if the sale was on a principal-to-principal basis made outside India. The Revenue's failure to address these aspects led to the dismissal of the appeal.

This detailed analysis of the judgment highlights the issues, arguments, and conclusions drawn by the authorities and the court, emphasizing the complexities surrounding tax deductions, payment characterization, and the necessity for proper documentation in tax assessments.