TMI Blog1999 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... -93 and 1993-94, the ITO found that the above foreign remittances were made by the assessee-company without deducting income-tax at source. On confrontation from the ITO for non-deduction of income-tax the assessee contended that the remittances made by the assessee were not chargeable under the Income-tax Act and, therefore, the company was not under any legal obligation to deduct income-tax as provided in section 195 of the Income-tax Act. The ITO held that the remittances made by the assessee-company under both the heads were chargeable to income-tax in India and, therefore, the assessee was duty-bound to deduct income-tax from the remittances made by it. Regarding the payments of commission made to various nonresidents, the ITO held that the payments are covered by section 5(2)(a). He found that the remittances towards sales commission were made to the non-residents by way of DDs and TTs. The assessee-company purchased the DDs from State Bank of India in Hyderabad and sent the DDs to the non-residents outside India through the medium of couriers. In other cases, the assessee-company remitted the money into their bank accounts in Hyderabad and telegraphic transfers were made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the ITO was justified in passing the impugned orders under section 201 of the I.T. Act. On going through the various case laws on the subject, the learned Commissioner (Appeals) held that the income derived by the Attorneys in USA by way of legal fees from the assessee was liable to be considered as an income accrued or arisen in India under the provisions of section 9(1)(vii)(b) and the assessee-company was liable to deduct tax at source therefrom under section 195 of the I.T. Act at the time of remittance. Likewise, in the case of commission payments, the learned Commissioner (Appeals) held that the commission payments were received or deemed to have been received in India by virtue of the provisions of section 5(2)(a) and they were liable to tax in India and consequently the liability to deduct tax at source was equally existing by way of a statutory obligation. Therefore, he held that the ITO was justified in treating the assessee-company as an assessee in default and thereby raising the demand as provided in section 201 of the I.T. Act. It is against the above order of the Commissioner (Appeals) that the assessee-company has filed these two appeals before the Tribunal. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India would have been worse than the case where technical services were rendered in India, and if the latter itself was exempt, then there was no ground to tax the former. 5. The learned Commissioner of Income-tax (Appeals) erred in holding that commission payments made to foreign concerns were to be subject to deduction of tax at Source under section 195 of the Act. 6. The learned Commissioner of Income-tax (Appeals) erred in not following Circular No. 17 dated 17-7-1953 cited before. 7. The learned Commissioner of Income-tax (Appeals) erred in not applying ratio of judgment of the Supreme Court in the case of CIT v. Toshoku Ltd. [1980] 125 ITR 525 to 531. On a proper reading of the circular in the judgment of the Supreme Court, the agreement entered into between the appellant and its foreign agents, the Commissioner of Income-tax (Appeals) ought to have held that no part of the commission either accrued in India or deemed to have accrued in India, the agents are not liable to be taxed in India and therefore there is no liability to tax thereon under the provisions of the Act." 7. We heard both sides in detail. At the time of hearing, the learned Chartered Accountant appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 472, CIT v. Ogale Glass Works Ltd. [1954] 25 ITR 529, 114 ITR 520 (sic), CIT v. Toshoku Ltd. [1980] 125 ITR 525/4 Taxman 1, Electronics Corpn. of India Ltd. v. CIT [1990] 183 ITR 43/[1989] 44 Taxman 342A and Barendra Prasad Ray v. ITO [1981] 129 ITR 295/6 Taxman 19. He also relied on the decisions in G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 (AP), 18 ITR 845 (Mad.) (sic) and Gurdas Singh v. CIT [1964] 54 ITR 259 (Punj.) and substantially on the decision of the ITAT, Hyderabad Bench, in Dr. Reddy Laboratories Ltd. v. ITO [1996] 58 ITD 104. 10. Shri Rama Swami, learned departmental representative, on the other hand, argued that the issues have been rightly adjudicated by the lower authorities. He argued that only by virtue of some export sales it could not be held that the assessee was carrying on a business outside India so as to keep away from liability arising out of section 9. He argued that the services rendered by the attorneys in USA, as discernable from the records of the case, were in the nature of consultancy services and, therefore, the fees paid by the assessee have been rightly held by the ITO as deemed to accrue or arise in India. In respect of payment of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, have to be read together and as a whole. The duty to deduct tax under section 195(1) is an essential liability cast by statute on a person who is making payments to non-residents. A person responsible for making payments to a non-resident, other than interest on securities and income chargeable under the head "salaries" has necessarily to examine the liability to deduct tax at source. He has to satisfy himself that the payments made by him are not such sums which arc chargeable under the provisions of the Income-tax Act. The liability to deduct tax at source arises only in the case of such payments where those payments are in the nature of income chargeable under the Income-tax Act. The provisions of section 195(1) may create an avoidable inconvenience in such cases where the payments made by a person are not such amounts which are chargeable to income-tax. It is in order to avoid such inconvenience to a person that sub-section (2) of section 195 has been provided. Where the person making such payments to a non-resident thinks that the payments made by him to the non-resident would not be income chargeable in the case of the recipient, he can made an application to the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst under section 201 of the Income-tax Act. If that were the proper course envisaged in law, subsection (2) of section 195 becomes redundant and any person can adhere to or avoid the compliance of section 195(2) according to his convenience and belief. One of the cardinal principles of statutory construction is that no section or provision incorporated in a statute is redundant or irrelevant or ornamental. Every section or provision of a statute is active, relevant and essential in subserving the intention and objects of the legislation of that statute. The scheme of provisions arranged in section 195 are to be construed as a whole. If recourse to sub-section (2) is not made and that sub-section is made redundant at the choice of the person liable to deduct tax at source, then sub-section (1) of section 195 also becomes redundant and an assessee can get away without deducting tax at source. The wholeness of various sub-sections of section 195 is all the more important because the provisions relate to collection and recovery of tax arranged under Chapter VII-D of the Income-tax Act. The scheme is to deduct the tax during the financial year itself. Particularly, the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procures a clearance certificate from the Assessing Officer under sub-section (3) of section 195. 17. In the present case before us, the assessee-company has not made any application to the ITO under section 195(2) to determine whether the assessee was bound to deduct tax at source or not. The non-resident recipients also have not obtained a certificate of exemption from the Assessing Officer under section 195(3). In these circumstances, the assessee should have deducted tax at source before making the remittances to the non-residents as provided in section 195(1). The assessee-company had not done so. Therefore, at the outset itself, it is clear that the assessee has violated the provisions of section 195(1) and has become an assessee in default as provided in section 201. When the assessee-company was heard by the ITO in the course of proceedings under section 201, the assessee-company could have consolidated its position by providing appropriate evidence to the ITO. If it was the contention of the assessee-company that the remittances made by it to the non-residents were not incomes chargeable to Indian income-tax as far as the recipients are concerned, the assessee-company sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion at the first or second appellate stage. This is because, as we have already stated, the provisions contained in section 195 are urgent provisions specifically meant for collecting tax during the financial year itself before the remittances are made to non-residents. If the assessee does not choose to produce the evidences before the Assessing Officer either under section 195(2) or latest in the course of proceedings under section 201, then the only way open for the-assessee is to agitate the matter in a regular proceeding before the Assessing Officer after filing the return of income as an agent of the non-residents as provided under section 163 of the Income-tax Act. 19. Once the assessee-company is found to be an assessee in default, the consequences as provided in section 201 shall invariably follow. Therefore, we find that the ITO is justified in treating the assessee-company as an assessee in default under the provisions of section 201 and making the demand for appropriate tax from the assessee-company. On this short ground alone, we find that the ITO is justified in passing the order under section 201, which is challenged in the appeals before us. 20. As we have found ..... X X X X Extracts X X X X X X X X Extracts X X X X
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