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TMI Blog2023 (9) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... hin time in case of resident prayer had become invalid just because subsequently there was no assessment made in the hands of the non-resident payee within 6 years - HELD THAT:- Considering the provisions of Section 201 of the Act, one thing, therefore, is certain, in order to treat the payer as an assessee-in-default, it is of utmost importance that income so paid or credited to the account of payee is capable of being brought within the purview of tax net and such assessment can be lawfully made on the payee. The ITAT also came to the conclusion that assessment should be lawfully made by AO on the payee/recipient. Since that has not been done, the order of AO under Section 201(1) read with Section 201(1A) of the Act was unsustainable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year under consideration, i.e., Assessment Year 2008-2009 had made foreign remittance to Red Hat Asia Pacific Pte Ltd., Singapore without deducting tax at source. The reason for non-deduction of tax at source under Section 195 of the Income Tax Act, 1961 ( the Act ) was that payment for purchase of subscription is not taxable as per the provisions of Article 7 read with Article 5 of the India Singapore Double Taxation Avoidance Agreement ( DTAA ). 3. The Assessing Officer ( AO ) held that the impugned subscription fees liable to be taxed as royalty within the meaning of Section 9(1)(vi) of the Act as well as Article 12(3) under the DTAA and also taxable as fee of technical services within the meaning of Section 9(1)(vi) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making TDS and (b) non-payment of tax by the payee/recipient directly. If both these conditions are satisfied only then a person can be treated as an assessee-in-default. If only one condition is satisfied, the person can not be treated as an assessee-in-default. 7. It was the case of assessee that there was no liability of Red Hat Asia Pacific Pte Ltd., Singapore to pay any tax in India and therefore, one of the twin conditions have not been made. In fact, as recorded by the ITAT, it is admitted by AO in his letter dated 21st March 2017 that no assessment in this regard has been made in respect of the tax liability of payee/recipient, Red Hat Asia Pacific Pte Ltd., Singapore for Assessment Years 2007-2008, 2008-2009 and onwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of treating the person responsible for paying the income as assessee in default by way of passing the order under section 201(1) is, inter alia, tied with the tax liability of the payee on such sum. If no liability of the payee to tax exists at the time when order under section 201(1) is sought to be passed or though the income is chargeable to tax but the liability of the payee to tax has not been determined by passing any order in his hands and further the time-limit for taking action on the payee under any other provision has also passed out, in such a situation again the passing of order under section 201(1) will be mere ritual. It is so because the tax now collected from the payer of income under this order will be incapable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Departmental Authorities should remain vigilant and bring the escaped income to tax at an earlier point of time and further to work against the inaction on the part of the Assessing Officers on one hand and providing certainty to the assessee that after this period no action will be taken against him. Thus it follows that if due to one reason or the other the concealed income of the assessee is unearthed for a period beyond six years from the end of the relevant assessment year, then no tax can be recovered thereon. By the same logic and turning to the point before us when the payee has paid the tax by offering such income for taxation on which tax was deductible but not deducted, then the person responsible cannot be treated as asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erized as the tax . In the same Circular, it has been directed that in such cases the refund should be made to the person making payment under section 195, that is the payer. So if tax is recovered in the first instance from the person responsible for paying by virtue of order under section 201(1) but the income cannot be taxed in the hands of the non-resident either due to such income accruing but no tax remaining due thereon or tax not leviable due to the time-limit for taking action under any provisions of the Act having been expired, in such a situation, the amount of tax shall need to be refunded to the person liable to deduct tax who is for the time being considered as assessee in default. We, therefore, hold that in order to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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