1995 (2) TMI 123 - AT - Income Tax

Summary

Issues Involved:

1. Whether the assessee failed to deduct tax at source under Section 195 of the I.T. Act from payments made to the non-resident.
2. Whether the payments made to the non-resident accrued or arose in India.
3. Whether the payments made in kind (85% of the fish catch) constitute income received by the non-resident in India.
4. Whether the assessee is liable under Section 201 for failure to deduct tax at source and pay interest under Section 201(1A).

Issue-wise Detailed Analysis:

1. Whether the assessee failed to deduct tax at source under Section 195 of the I.T. Act from payments made to the non-resident:

The common controversy in these appeals revolves around whether the assessee failed to deduct tax at source under Section 195 of the I.T. Act from payments made to a non-resident during the assessment years 1991-92 to 1994-95. Section 195 mandates that any person responsible for paying to a non-resident any interest or other sum chargeable under the provisions of the Act must deduct income-tax thereon at the rates in force at the time of credit or payment, whichever is earlier. The assessee did not make any application under Section 195(2) or 195(3) for lower or no deduction of tax. The obligation to deduct tax at source is limited to the appropriate portion of the income chargeable under the I.T. Act, determined at 5% by the CIT (Appeals).

2. Whether the payments made to the non-resident accrued or arose in India:

The CIT (Appeals) agreed with the assessee that no income to the non-resident had accrued or arisen in India, as the operations of the fishing vessels were in the Economic Zone beyond 12 nautical miles from the seashore, i.e., outside India. The Tribunal, in similar circumstances, held that there was no deemed accrual of income in India under Section 9(1) of the I.T. Act because of the Explanation to Section 9(1) and the fact that all fishing operations for earning the hire charges were carried out outside India. The Supreme Court in the case of Performing Right Society Ltd v. CIT and CIT v. Toshuku Ltd. supported this view, emphasizing that income deemed to accrue in India must be reasonably attributable to operations carried out in India.

3. Whether the payments made in kind (85% of the fish catch) constitute income received by the non-resident in India:

The assessee contended that the non-resident was already in possession of the catch when it operated the trawlers outside the taxable territories, and the only event that occurred in the Indian Port was the appraisal of the value of the catch for customs purposes. However, the Tribunal held that until the catch was brought to the Indian Port, it was the property of the assessee and not the non-resident. The non-resident received the hire charges in the form of 85% of the fish catch in India, making it a receipt under Section 5(2) of the Act. The catch was handed over to the non-resident's account after reaching Madras Port, completing other formalities, and thus, the income was received by the non-resident in India.

4. Whether the assessee is liable under Section 201 for failure to deduct tax at source and pay interest under Section 201(1A):

Section 201 deals with the consequences of failure to deduct or pay tax. Sub-section (1A) provides for the payment of interest in addition to the amount of tax deductible by the payer. The Tribunal held that the payment of hire charges was made by the assessee by giving 85% of the fish catch to the non-resident, which constitutes a payment under Section 195. Since the assessee failed to deduct tax at source and pay the required tax, it was deemed to be in default under Section 201 and liable to pay interest under Section 201(1A) of the I.T. Act.

Conclusion:

The Tribunal dismissed the appeals of the assessee, holding that the assessee failed to deduct tax at source under Section 195, the income accrued or arose in India, the payments made in kind constituted income received by the non-resident in India, and the assessee was liable under Section 201 for failure to deduct tax at source and pay interest under Section 201(1A).