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TMI Blog2005 (5) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (2) of section 195 to the Assessing Officer also goes against the assessee because as held by Hon ble Supreme Court in the case of Transmission Corporation of AP Ltd. v. CIT [ 1999 (8) TMI 2 - SUPREME COURT] , if no such application is filed, income-tax on the sum chargeable under the Income-tax Act, 1961 payable to a non resident is required to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. Thus, we are of the view that there was nothing on record to conclusively establish that the income of the concerned sub-contractor was not chargeable to tax in India and that the payments made to them were not covered by the provisions of section 195(1). In that view of the matter, we hold that the assessee-company was under an obligation to deduct tax at source from the payments made to the sub-contractors in terms of section 195(1) and having failed to do so, the Assessing Officer was fully justified in disallowing the same by invoking the provisions of section 40(a)(i). As such considering all the facts of the case, we are of the view that there was no infirmity in the impugned order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pervision. M/s. Hughes Telecom Co. was awarded contract for installation of telephony system in Mumbai. This job was sub-contracted by the said company to HNSIPL (Indian) who, in turn, gave the said job to the assessee. During the relevant period, installation was done by the assessee at 12 different sites in Mumbai. In its return of income filed for the year under consideration declaring a total income of Rs. 2,42,61,670, a net profit ratio of 39.3% was shown by the assessee. During the course of assessment proceedings, it was noticed by the Assessing Officer that the said rate of net profit was lower than the NP rate of 56.5% shown by the assessee while obtaining certificate under section 195/197. It was also noticed by the Assessing Officer that the assessee company has sub-contracted various jobs relating to installation to the contractors in US and payments were claimed to have been made to the said contractors in US against the sub-contracted work. Since no tax at source was deducted by the assessee from the payments made to the said contractors outside India as required by section 195, the Assessing Officer sought explanation of the assessee in this regard. In reply, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of the provisions of section 195 to the payments made to sub-contractors has to be examined independently at the assessment stage before invoking the provisions of section 40(a)(i). The Assessing Officer, however, found no merits in the submissions made on behalf of the assessee company and observing that the payments made by the assessee to the sub-contractors were clearly and unambiguously attributable to Indian operations, he held that the provisions of section 195 were clearly applicable to the said payments and tax was required to be deducted by the assessee therefrom. The terms of contracts with the subcontractors also could not be filed/furnished by the assessee before the Assessing Officer. He therefore, disallowed the entire expenses claimed by the assessee on account of payment made to sub-contractors amounting to Rs. 58,72,144/- keeping in view the provisions of section 40(a)(i) as well as his finding based on the nature and scope of services claimed to be provided by the sub-contractors to the assessee which according to him, did not fall, within the scope of assessee's contract. He also disallowed the expenses of Rs. 22,90,926/- claimed to have been incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her time vide its letter dated 25th November, 2003 which was allowed to the appellant. Vide its submissions dated 17th December, 2003 it has been admitted by the appellant these sub-contractors work on continuing basis and the terms and conditions are determined on the basis of global understanding. As a result, there are no separate agreements entered into with these sub-contractors for each and every project. Therefore, it is clear that the appellant has not been in a position to submit the copy of agreement between sub-contractors and also has not given the basis of amount paid to the contractors. The appellant has not given the basis of predecided rates for various activities carried on through the sub-contractors. I have gone through the vouchers and nature of services rendered by the sub-contractors which are mainly in equipment installation. FSU installation and are absolutely technical in nature. It has also been admitted by the appellant that these services are being provided on a continuing basis and the duration of the project has been of about five years. These services have been provided by the foreign sub-contracts in India and for Indian project on continuing basis a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company with WSS and pointed out that the assessee company was entitled to subcontract any or all of the work to be performed under the said contract. He submitted that part of the work to be performed in pursuance to the said contract was got done by the assessee company through subcontractors and payment was also made for the services rendered by the sub-contractors. He submitted that the expenditure incurred by the assessee company on account of such payments thus was a business expenditure of the assessee company and the same was rightly claimed by it as deductible in computing the business income. He submitted that the Assessing Officer, however, disallowed the same by invoking the provisions of section 40(a)(i) read with section 195 since no tax at source was deducted by the assessee company from the payments made to the subcontractors. In this regard, he contended that the sub-contractors were not liable to tax in India for the various reasons explained by the assessee company before the authorities below and therefore, no tax was deductible from the payment made by it to the said sub-contractors as per the provisions of section 195. He submitted that the services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned DR, on the other hand, submitted that the claim of the assessee that income of the sub-contractors was not taxable in India was found to be unacceptable by the authorities below for the specific reasons given in their orders and in the absence of any supporting evidence to support and substantiate this claim of the assessee, there was nothing to establish that the income of the said contractors was not chargeable to tax in India. He contended that, in any case, it was not for the assessee to decide this issue relating to the taxability of income of the concerned subcontractors in India since the machinery for this purpose was provided in sub-section (2) of section 195 itself whereby concerned Assessing Officer could have been approached to decide this aspect. He contended that the chargeability of income of the concerned sub-contractors to tax in India was a separate issue and in the absence of any certificate obtained from the concerned Assessing Officer under section 195(2), it was obligatory on the part of the assessee to deduct tax at source from the payments made to the concerned sub-contractors. He contended that the assessee company having failed to deduct such ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of project by the assessee in India in terms of its main contract with WSS and the department having not preferred any appeal before the Tribunal disputing the same, the first basis given by the Assessing Officer for disallowing the claim of the assessee-company for sub-contracting expenses no more survives. 7. Secondly, the expenses claimed by the assessee on account of subcontracting expenses on account of payments made to sub-contractors were disallowed by the Assessing Officer by invoking the provisions of section 40(a)(i) since the assessee had failed to deduct tax at source from the payment so made to the sub-contractors as required by the provisions of section 195. In this regard, the contention of the assessee before the learned CIT(A) as well as before us is that the income of the subcontractors was not chargeable to tax in India and therefore, payments made to them were not hit by the provisions of section 195 requiring the assessee to deduct tax at source therefrom. In support of this contention, the first plea raised by the assessee is that the concerned sub-contractors had no business existence or connection in India nor did they have any permanent establishment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Transmission Corporation of AP Ltd. v. CIT [1999] 239 ITR 587, if no such application is filed, income-tax on the sum chargeable under the Income-tax Act, 1961 payable to a nonresident is required to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. As such, considering all the facts and circumstances of the case, we are of the view that there was nothing on record to conclusively establish that the income of the concerned sub-contractor was not chargeable to tax in India and that the payments made to them were not covered by the provisions of section 195(1). In that view of the matter, we hold that the assessee-company was under an obligation to deduct tax at source from the payments made to the sub-contractors in terms of section 195(1) and having failed to do so, the Assessing Officer was fully justified in disallowing the same by invoking the provisions of section 40(a)(i). As such considering all the facts of the case, we are of the view that there was no infirmity in the impugned order of the learned CIT(A) confirming the said disallowance made by the Assessing Officer and upholdi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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