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TMI Blog2018 (12) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A)] relating to various assessment years as stated hereinabove. 2. The Revenue has raised the grounds of appeal in ITA No.2844/M/2017 which are as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that the disallowance u/s 40(a)(ia) of the Act cannot be made in respect of the payment of professional fees outside India without realizing that the tax was required to be deducted on these payments u/s 195 of the Income Tax Act, 1961. 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition made u/s 40(a)(ia) of the Act in respect of the payment of professional fees outside India by relying on the order of his predecessors without realizing that the payments in question were made to different entities during the year and the taxability of each of the payments has to be discussed in terms of the domestic Tax provisions as well as the relevant Double taxation Avoidance Agreements with respective countries. 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in relying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advisory services provided by non residents outside India who has no PE in India are not liable to deduction of tax at source under section 195 and therefore no disallowance under section 40(a)(i) of the Act is called for. The Ld. A.R. relied on A.Y. 1999-2000, A.Y. 2001-02, A.Y. 2004-05, A.Y. 2007-08 2008-09. The Ld. A.R. submitted that in view of the issue being covered in favour of the assessee in its own case in the earlier years the appeal of the Revenue should be dismissed. 7. The Ld. D.R. fairly agreed to the contentions of the Ld. A.R. that issue has been decided in earlier years, however relied on the grounds of appeal filed by the Revenue. 8. We have heard the rival submissions of both the parties and perused the material on record including the impugned order and the various decisions in assessee s own case by the various co-ordinate benches of the Tribunal. We find from the perusal of the said orders that identical issue was decided in the earlier years in favour of the assessee. We have perused the decisions of the co-ordinate bench of the Tribunal in A.Y. 2004- 05 in ITA No.1820/M/2009 order dated 22.02.13 wherein the Tribunal has dealt with the issue as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a non-resident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the IT 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 India are common examples of sums chargeable under the provisions of the IT Act to which the aforestated requirement of TDS applies. The tax so collected and deducted is required to be paid to the credit of Central Government in terms of s. 200 of the IT Act r/w r. 30 of the IT Rules 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under s. 201 r/w s. 221 of the IT Act. In addition, he would also be liable under s. 201(1A) to pay simple interest at 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. The most important expression in s. 195(1) consists of the words chargeable under the provisions of the Act . A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Co. vs. ITO (1971) 81 ITR 162 (Cal) that an application for NOC cannot be said to be an application under s. 195(2) of the Act. While deciding the scope of s. 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of s. 195. Hence, apart from s. 9(1), ss. 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying TDS provisions. Reference to ITO(TDS) under s. 195(2) or 195(3) either by the nonresident or by the resident payer is to avoid any future hassles for both resident as well as nonresident. In our view, ss. 195(2) and 195(3)are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this Court in Transmission Corporation (supra) in which this Court has observed that the provision of s. 195(2) is a safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India at all. We cannot read s. 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression sum chargeable under the provisions of the Act from s. 195(1). While interpreting a section one has to give weightage to every word used in that section. While interpreting the provisions of the IT Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Sec. 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT vs. Eli Lilly Company (India) (P) Ltd. (2009) 223 CTR (SC) 20 : (2009) 21 DTR (SC) 74 : (2009) 312 ITR 225 (SC) the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the IT Act form one single integral, inseparable code and, therefore, the provisions relating to TDS applies only to those sums w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that s. 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to non-residents. In other words, according to the Department s. 195(2) is a provision by which payer is required to inform the Department of the remittances he makes to the non-residents by which the Department is able to keep track of the remittances being made to nonresidents outside India. We find no merit in these contentions. As stated hereinabove, s. 195(1) uses the expression sum chargeable under the provisions of the Act. We need to give weightage to those words. Further, s. 195 uses the word 'payer' and not the word assessee . The payer is not an assessee. The payer becomes an assessee in default only when he fails to fulfill the statutory obligation under s. 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-indefault. The abovementioned contention of the Department is based on an apprehension which is ill f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite payments which had an element of income embedded or incorporated in them. The controversy before us in this batch of cases is, therefore, quite different. In Transmission Corporation case (supra) it was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented income chargeable to tax in India , then it was necessary for him to make an application under s. 195(2) of the Act to the ITO(TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the ITO (TDS) to compute the amount which was liable to be deducted at source. In our view, s. 195(2) is based on the principle of proportionality . The said sub- section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. It is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which the High Court will answer is--whether on facts and circumstances of the case the Tribunal was justified in holding that the amount(s) paid by the appellant(s) to the foreign software suppliers was not royalty and that the same did not give rise to any income taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source? Subject to what is stated hereinabove, we set aside the impugned judgment(s) and remit these cases to the High Court to answer the question framed hereinabove. Accordingly, the appeal(s) filed by the appellant(s) stands allowed with no order as to costs. 27. In view of the aforesaid proposition of law, we hold that none of these payments which were not liable or chargeable to be taxed in India, no TDS was required to be deducted under section 195, therefore, the findings given by the Commissioner (Appeals) is factually and legally correct and, accordingly, the same is hereby affirmed. Ground no.2, raised by the Revenue is, thus, dismissed. 9. A perusal of the above decision of the co-ordinate bench of the Tribunal shows that the issue is squarely covered in favour of the assessee. We, therefore, respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X
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