TMI Blog2014 (4) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... urce only if tax upon such payment is assessable in the country - Section 195 specifically excludes the liability to deduct tax at source when payment is made to a foreign company which is not chargeable to tax in the country - The payments are as such not chargeable to tax - the assessee had no obligation to deduct any tax – Decided in favour of Assessee. Liability to deduct TDS u/s 194(C) of the Act – Held that:- The assessee was not liable to deduct any tax at source in so far as the payment of airfreight made to the foreign carrier was concerned - But the other payments were in fact made to the resident agent and to that extent tax was deductible - Payments made to the resident agent otherwise than on account of airfreight payable to his principal are open to deduction at source u/s 194(C) – thus, the order of the CIT(A)is set aside and the matter is remitted back to the AO – Decided partly in favour of Assessee. - I.T.A. No. 98 of 2010 - - - Dated:- 19-2-2014 - GIRISH CHANDRA GUPTA AND SUDIP AHLUWALIA, JJ. For the Appellant : Mr. D.K. Shome, Sr. Adv. and Mr. A.K. Ganguly, Adv. For the Respondent : Mr. S.B. Saraf, Adv. ORDER The Court : The subject ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents cannot be regarded as income under the Income-tax Act. It may be noted that section 195 contemplates not merely amounts, the whole off which are pure income payments, it also covers composite payments which have an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in section 195(1), namely, chargeable under the provisions of the Act . It is for this reason that vide Circular No. 728 dated October 30, 1995 the Central Board of Direct Taxes has clarified that the tax deductor can take into consideration the effect of the DTAA in respect of payment of royalities and technical fees while deducting TAS. It may also be noted that section 195(1) is in identical terms with section 18(3B) of the 1922 Act. In CIT v. Cooper Engineering Ltd. [1968]68 ITR 457 it was pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes and have not received the airfreight payments in their own right. In copies of airway bills, which have been filed before us in the papeprbook, the name of these agents is shown as Issuing carrier's agents and the city as also the agent's code is given as Agent's IATA code . There is thus enough material to demonstrate that the persons having received money for the airfreight have received the same in their capacity as issuing carrier's agent i.e. agent of the airline concerned. The airfreight payment is thus made to the foreigh airlines, namely SIA, Emirates, British Airways and Lufthansa- though through the agent, i.e. PDP and DHL etc. 7. In view of the above discussions, in our considered view, the payments cannot be said to have been made to a resident company, and, accordingly, the provisions of Section 194 C, which apply only on the resident recipients, do not come into play. 5. Mr. Shome also drew our attention to a division bench judgment of this Court in the case of ABN AMRO Bank, N.V. v. Commissioner of Income Tax West Bengal - III, Kolkata Anr. reported in 343 I.T.R. 81 wherein the following views were expressed;- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order as also the order of the CIT (appeals) wherein the defence of the assessee has specifically been recorded. He submitted that in a desperate attempt to avoid disallowance, the assessee, after the assessment was made and during pendency of the appeal before the CIT (appeals) paid the requisite amount of tax which should have been deducted but such delayed payment, he contended, could not have cured the defect and the payments made by the assessee were not allowable. Therefore, they were rightly disallowed by the assessing officer, CIT as also the Tribunal. He submitted that the obligation to deduct tax at source is firmly established under section 194 (C) and the omission to make such deduction is incurable. Consequences are that the payments made cannot be deducted from out of income of the assessee. Replying to the submission of Mr. Shome, Mr. Saraf contended that the point as regards the applicability of section 195 of the Income Tax Act or the fact that the payment was in fact made to a foreign carrier who is a non-resident has been made for the first time in this Court. He submitted that even assuming that the major part of the amount paid was on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum. There is also nothing in the language of the subsection which permits exclusion of an amount paid on behalf of the organization to the contractor according to clause 13 of the terms and conditions of the contract in reimbursement of the amount paid by him to workers, from the sum envisaged therein, as was suggested on behalf of the appellant. After hearing the learned advocates, we are of the opinion that the following questions of law arise in this case. (a) Whether payment made to the four several agents indicated above or any part of such payments were in fact made to the non-resident foreign carrier ? (b) Whether the payments made to the non-resident on account of airfreight is chargeable to tax under the provisions of the Income-Tax Act, 1961 ? (c) If an answer to the question (b) is in the negative, whether there is any liability on the part of the assessee to deduct tax at source under section 194(C)? Each of the four agents indicated above are undisputedly the agents of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency. The payments are as such not chargeable to tax. The assessee, therefore, had no obligation to deduct any tax. For the aforesaid reason question (b) formulated above is answered in negative. Since the question (b) has been answered in the negative, we are of the opinion that the assessee was not liable to deduct any tax at source in so far as the payment of airfreight made to the foreign carrier was concerned. But we are of the opinion that the other payments made indicted above were in fact made to the resident agent and to that extent tax was deductible. The submission of Mr. Saraf that this bifurcation is not possible on the basis of the judgement in the case of Associated Cement Co. Ltd. (supra) is according to us, not tenable. The bifurcation which was being considered by the Apex Court in that case was with regard to an attempt on the part of the assessee to find out the element of profit made by the contractor. Payments made to the resident agent otherwise than on account of airfreight payable to his principal are open to deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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