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2007 (11) TMI 332 - AT - Income TaxDeduction Of Tax At Source u/s 195 - disallowance on reimbursement of mobilization and demobilization cost debited in the Profit and Loss Account u/s 40(a)(i) - chargeability of income - Non-resident recipient - PE in India - Scope, limitations, rights and duties of payer and the payee under the provisions of sections 195 of the Income-tax Act - Indian and Netherlands DTAA - HELD THAT:- In our opinion it is not material for the payer either to make the whole of the payment to the recipient/non-resident or to make part of the payment to the payee after deduction of the tax at source at the prescribed rates because in either of the conditions the payer/assessee has to part with the whole of the payment required to be made to the non-resident by him. More so when the deduction of the tax at source u/s 195 is subject to regular assessment and the right of non-resident is not adversely affected because at the time of regular assessment if the payee/recipient succeeds in proving before the Assessing Officer that such receipts, from the payer/assessee, were not its income and so it was not bound to pay tax thereon then such tax deducted at source by the payer/assessee and deposited with the Government is bound to be refunded or adjusted against the payment of tax, if any, to the recipient non-resident by the ITO at the time of regular assessment. We may mention that neither it is the duty nor it is desirable from the payer/assessee to examine whether any tax is deductible at source from the payments made to the nonresident. In case it feels that the tax is required to be deducted at source or required to be deducted at a lower rate then it is required to obtain such certificate u/s 195(2) from ITO or for non-deduction of tax at source. This is a safeguard provided u/s 195(2), 195(3) and 197 to payer and payee because before the Assessing Officer while obtaining certificate such facts are required to be established by them. Now reverting to the facts of the instant case of the assessee, the undisputed position emerges as under:- (a) The payer/assessee has made payments to the non-resident for the services rendered for mobilization and demobilization of dredgers to Adani Port in India. An application u/s 195 was moved for issuing 'Nil' tax withholding certificate on which an order u/s 195(2) was passed on 4-3-2001 and 17-4-2002 wherein VOAMC i.e., the non-resident company was held to have a PE in India on the ground that it was executing the Adani contract in India as the assessee did not have the technical competence or the infrastructure to execute the aforesaid contract. That reimbursement of charges/payments to VOAMC were liable to tax in India.. It is clear from the facts that the order dated 22-11-2002 u/s 195(2) remained unchallenged by the assessee and the assessee/payer did not fully comply with the requirement of section 195 except allegedly deducting the tax at source at Rs. 6,98,26,456 against Rs. 8,65,57,909 determined in terms of order passed u/s 195(2) of the Act. Since the payer assessee has moved an application under sub-section (2) of section 195 to the Assessing Officer for obtaining a certificate for issuing 'nil' tax withholding certificate and the same having been rejected by the Assessing Officer and no appeal having been filed or the order being reversed the same has become final and for non-compliance with the provisions of section 195 by the payer by not deducting tax at source the Assessing Officer was fully justified in refusing deduction claimed by the payer assessee for such payments under section 40(a)(i) of Income-tax Act. Hence the impugned order of CIT (Appeals) in this regard is upheld. Since before us the assessee has claimed to have deducted tax at source for a sum of Rs. 6,98,26,456 in terms of the order u/s 195(2) out of the total amount of Rs. 8,65,57,909 under consideration, as determined in the order passed u/s 195(2) the Assessing Officer is directed to verify this fact and in case the same is found to be correct the Assessing Officer should allow the benefit of the same to the assessee out of the total amount of Rs. 8,65,57,909 under consideration. In this view of the matter the instant appeal and the grounds of appeal taken therein stand decided in terms of the order. In the result the appeal of the assessee is partly allowed in terms of the order hereinabove.
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