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TMI Blog2015 (8) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... e Vendors and allocation key has been placed in the paper book. It has not been disputed that the cost of reimbursement paid to Lionbridge USA is not chargeable to tax in India. If that is so, then assessee was not required to withhold the tax u/s 195 and this proposition is well supported by a decision of Hon’ble Supreme Court in the case of G E India Technology Centre P Ltd (2010 (9) TMI 7 - SUPREME COURT OF INDIA). Secondly, here in this case, it is not a question where Lionbridge US has developed software which has been given for use to the assessee. The software has been purchased from Microsoft, the cost of which has been distributed amongst all the group entities. It is pure case of reimbursement of cost and admittedly, there is no mark-up. Accordingly, there was no liability to deduct TDS on such reimbursement of cost. - Decided in favour of assessee. - ITA No. : 7121/Mum/2012 - - - Dated:- 5-8-2015 - SHRI B R BASKARAN AND SHRI AMIT SHUKLA, JJ. For The Appellant : Shri Ajit Kumar Jain For The Respondent : Shri Vivek A Perampurna PER AMIT SHUKLA, AM: The aforesaid appeal has been filed by the assessee against impugned order dated 03.09.2012, passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities. The Assessing Officer held that the assessee should have withheld the tax on the amount remitted to Lionbridge US, as such a payment amounts to payment towards royalty . Accordingly, he treated the assessee in default u/s 201(1) and calculated the amount of TDS deductible and interest thereon u/s 201(1A). 3. Before the CIT(A), the assessee filed its detailed submission along with the various judicial decisions. However, the Ld. CIT(A) rejected the assessee s contention and confirmed the action of the Assessing Officer. 4. Before us, Ld. Counsel Shri Ajit Kumar Jain, submitted that the assessee would have been liable to withhold the tax u/s 195 on the amount remitted to non-resident, only if the income would have been chargeable to tax in India in the hands of the nonresident. Here in this case, the Lionbridge US has purchased a software from Microsoft Inc. and has allocated the cost of purchase to various group entities including assessee without any mark-up, thus amount paid by the assessee is only reimbursement of cost incurred by Lionbridge US. There is no such income of Lionbridge USA, which is taxable in India. He submitted that the present case of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed amongst all the group entities. It is pure case of reimbursement of cost and admittedly, there is no mark-up. Accordingly, there was no liability to deduct TDS on such reimbursement of cost. On first proposition, the Hon ble Supreme Court in the case of G E India Technology Centre P Ltd (supra) the has elaborated this concept and deductibility of TDS in the following manner :- 7. Under Section 195(1), the tax has to be deducted at source from interest (other than interest on securities) or any other sum (not being salaries) chargeable under the I.T. Act in the case of non-residents only and not in the case of residents. Failure to deduct the tax under this Section may disentitle the payer to any allowance apart from prosecution under Section 276B. Thus, Section 195 imposes a statutory obligation on any person responsible for paying to a nonresident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the I.T. Act, to deduct income tax at the rates in force unless he is liable to pay income tax thereon as an agent. Payment to non-residents by way of royalty and payment for technical services rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the resident to the non- resident was an amount which was not chargeable to tax in India, then no tax is deductible at source even though the assessee had not made an application under Section 18(3B) (now Section 195(2) of the I.T. Act). The application of Section 195(2) preLionbridge Technologies Private Limited ITA No. 7121/Mum/2012 6 supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted. In such a situation, he is required to make an application to the ITO(TDS) for determining the amount. It is only when these conditions are satisfied and an application is made to the ITO(TDS) that the question of making an order under Section 195(2) will arise. In fact, at one point of time, there was a provision in the I.T. Act to obtain a NOC from the Department that no tax was due. That certificate was required to be given to RBI for making remittance. It was held in the case of Czechoslovak Ocean Shipping International Joint Stock Company Vs. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non- resident. Therefore, Section 195 has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in Section 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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