9911796707
TMI Blog2001 (8) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... staining the impugned order which, according to the assessee, is contrary to the scheme of section 195 of the Act. 2. The issue requiring our adjudication lies within a narrow compass of facts. The assessee-company, which owns a hotel known as Le-Meridien Hotel, entered into a franchise agreement with M/s Societe Des Hotels Meridien, France, on 16th September, 1991, for the purpose of being affiliated with their chain of hotels and to benefit from the use of Meridien trade name, service mark, and service name, as well as its marketing and reservation network. Under clause 7.2 of this franchise agreement, the assessee-company was to pay, as compensation for the basic services rendered by the French company, franchise fees worked out @ 1% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cruing inIndiacannot be escaped on the ground that the payer of income maintains his accounts on the cash basis'. On the basis of this reasoning, the Assessing Officer concluded that tax is deductible at source under section 195 as and when any income by way of franchise fees accrues onIndiaand hence becomes liable, as per mercantile basis, to be credited to the account of French company Le. "M/s Societe Des Hotels Meridien". The Assessing Officer was also of the view that the actual method of accounting employed by the tax deductor is not relevant, for determining the TDS liability and the TDS liability must be worked out on the basis of accrual of income in the hands of the foreign company. Accordingly, the Assessing Officer computed liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee', but the case before us does not relate to such assessment under Chapter XV and we are only in seisin of the issue regarding tax deduction at source liability of the tax deductor company. The only relevant question, therefore, is as to at what point of time tax deduction at source liability under section 195 crystallises in the present case - at the time of payment of the franchise fees, at the time of crediting the same to the account of M/s Societe Des Hotels Meridien, or, as argued by the revenue, at the time of the franchise fees accruing to the aforesaid company. The answer to this question is provided by the plain and unambiguous language of section 195 itself which states that tax is to be deducted 'at the time of credit of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of accrual of income. In this view of the matter, we are of the considered opinion that the TDS liability, under section 195, arises only when the income is credited to the account of the payee or on actual payment of the same, whichever is earlier. We further hold that mere accrual of income in the hands of the foreign company cannot be a sufficient proximate reason for tax deductor's liability under section 195 of the Act. In view of this legal position, as also bearing in mind the fact that the Assessing Officer has raised the impugned demand under section 201(1) and 201(1A) on the basis of taking TDS liability at the point of accrual of income in the hands M/s Societe Des Hotels Meridien, we cancel the impugned orders, hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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