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TMI Blog2009 (10) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... wards expenses incurred by VOAMC on mobilization and demobilization of the dredger. The said amount was claimed as deduction by the assessee in the computation of income for the relevant assessment year. Apart from the aforesaid, a sum of Rs.2,679,736/- incurred on mobilization and demobilization during financial year 200203, in relation to the above contract was also claimed as deduction during the relevant previous year, since the appellant had been following the completed contract method and the contract was completed during the relevant previous year. The said costs related essentially to transportation of dredger, survey equipment and other plant and machinery from countries outside India to the site in India and re-transportation of the same on completion of the contract, including fuel cost incurred on transportation. The aforesaid services were contracted by VOAMC and were provided by various non-resident parties. The appellant reimbursed the cost relating to mobilization and demobilization incurred by VOAMC on the basis of invoices received by VOAMC from the non-resident service providers. In the return of income, the assessee claimed, deduction for reimbursement of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of income in the hands of recipient nonresident to be taxed in India is a separate issue and in the absence of any certificate obtained from the concerned Assessing Officer u/s 195 (2), it was obligatory on the part of the assessee to deduct tax at source from the payments made to the concerned nonresident. That the payer/assessee having failed to deduct such tax as required by section 195 the payments made to the recipient non-resident were liable to be disallowed as per the specific provisions contained in section 40(a) (i). That while deciding the issue whether for such payments made to non-resident by the payer/assessee deduction u/s 40(a) (i) could be allowed to the payer or not. We are not required to look into the nature of such payments made to non-resident nor are required to look into whether such payments are income or part of the income in the hands of recipient non-resident taxable in India and many other relevant factors relating to taxability of the payments in the hands of recipient nonresident as its income in India. That having held so the detailed arguments of both the parties on the question of the nature of the payments made by the payer to the payee non-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(i) is attracted only when there is a contravention of the provisions contained in section 195 of the Act, i.e., where tax is not deducted out of payment chargeable to tax in India, in the hands of the non-resident. 8. It was further submitted that the liability to deduct tax at source under section 195 of the Act or sustainability of disallowance under section 40(a)(i) cannot be determined in vaccum of the ultimate liability to pay tax fastened upon the non-resident recipient. It is incumbent upon the assessing/appellate authority to come to a definite finding that the non-resident is chargeable to tax in India in respect of the remittance before invoking the provisions of section 40(a)(i) of the Act. Our r attention in this regard was invited to the landmark decision of the Supreme Court in the case of Transmission Corporation of A.P. Ltd. v. CIT: 239 ITR 587 wherein the apex Court, at page 594 of the judgment, observed that: . The scheme of sub-sections (1), (2) and (3) of section 195 and section 197 leaves no doubt that the expression any other sum chargeable under the provisions of this Act would mean sum on which income-tax is leviable. In other words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t tax by the payer/assessee under section 18(3B) did not arise. 10. Our attention in this regard was also invited to the recent decision of the Special Bench of the Tribunal in the case of Mahindra Mahindra Ltd. v. Dy.CIT: 122 TTJ 577(Mum) (SB) wherein the Tribunal has elucidated the scheme and scope of section 195 of the Act as under: 18.4 If however the amount paid or payable to the non-resident is not chargeable to tax under the regular provisions of this Act or such amount is not taxable by virtue of the provisions Double Taxation Avoidance. Agreement (hereinafter called the DTAA) entered into by India with such other country of which the nonresident is resident, in accordance with Chapter IX, then the provisions of Chapter XVII about the collection and recovery of tax are ruled out and the person responsible for paying such sum cannot be fastened with any liability for deduction of tax at source and cannot under any circumstance be treated as assessee in default. 18.10. The underlying principle behind the deduction of tax at source is the presumption that there will be some liability of the payee towards tax on the sum paid to him. If there is no such liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome to the account of the payee or at the time of payment thereof, whichever is earlier, deduct income-tax thereon at the rates in force. Under sub-section (2), the person paying the amount, if he considers that the whole of the amount would not be income chargeable to tax in the hands of the recipient, may make an application to the Assessing Officer to determine the appropriate proportion of such sum so chargeable and upon such determination, the tax shall be deducted only on the chargeable proportion of the amount. It is, therefore, clear that the obligation to deduct tax is only with reference to the income element imbedded in the remittance. This position has been affirmed by the judgment of the Supreme Court in the case of Transmission Corpn. of AP Ltd. (supra) in the penultimate paragraph of the judgment where it has been held that the High Court was right in holding that the obligation of the assessee to deduct tax under section 195 is limited only to the appropriate proportion of income chargeable under the Act. It is therefore clear that any remittance which does not have an income element which is chargeable to tax need not suffer tax deduction at source. ******* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect: i) CIT v. Estel Communication Pvt. Ltd: 217 CTR 102 (Del) ii) CIT v. ICL SHIPPING LTD. 315 ITR 195 (Mad) iii) Raymond Ltd. v. ACIT: 86 ITD 791 (ITAT Mum) iv) Sonata Software v. ITO (2006) 6 SOT 700 (ITAT Bangalore). v) MPHSIS BFV v. ITO (2006) 9 SOT 756 (ITAT Bangalore) vi) Royal Airways Ltd. v. ADIT: 90 ITD 259 (ITAT Delhi) vii) NQA Quality Systems Registrar Ltd. v. DCIT (2005): 2 SOT 249 (ITAT Delhi) viii) Wipro Ltd. v. ITO: 90 TTJ 191 (ITAT Bangalore) ix) ACIT v. Malayalee Manorama Co. Ltd: 94 ITD 121 (ITAT, Cochin) x) Cushman Wakefield (S) Pte Ltd., In Re: 305 ITR 208 (AAR) xi) KnoWerX Education India (P) Ltd. vs DIT: 301 ITR 207 (AAR) xii) Cairn Energy India (P) Ltd v. ACIT in ITA Nos. 208 to 211/Mds/2006 for AYs 1996-97 to 1999-2000 ITAT Chennai xiii) IMP Power Ltd. v. ITO: 107 TTJ (Mum) 522 xiv) JCIT v. George Williamson (Assam) Ltd: 116 ITD 328 (Gau) xv) AB Hotel Ltd. v. DCIT: 2008 25 SOT 368 xvi) DCIT v. Venkat Shoes in ITA No. 996/Mds/2008 for AY 2004-05 xvii) HNS India VSAT Inc. v. Dy. DIT: 95 ITD 157 (Del) xviii) ITO v. Kirtilal Kalidas Diamond Exports in ITA No. 1868/Mum/2005 for AY 2001-02 xix) Advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the Tribunal held that the provisions contained in sec.195 are urgent provisions meant for collecting tax during the financial year itself. Therefore, the nature of enquiry and the nature of adjudication u/s 195 (1) is necessarily summary and generally peremptory in nature. The proceedings u/s 201 provides an opportunity to the assessee to show that he is not liable to deduct tax and the only way to show it is either u/s 195(2) or by producing a certificate u/s 195(3). It was in this context, the Tribunal held that it was obligatory for the assessee to approach the Assessing Officer u/s 195(2) or for the payee to obtain a certificate u/s 195(3), only to absolve the assessee of his liability. However, in the present case, we are dealing with the regular assessment of the assessee itself in which we are concerned with the deductibility of expenditure u/s 40(a)(i) of the Act. Under these proceedings, the Assessing Officer has to come to a definite finding whether commission paid to foreign agent was in fact chargeable to tax in India or not because on that finding depends the determination of the total income of the assessee. Accordingly, in these proceedings, the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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