TMI Blog2007 (2) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be done by them is to file an application for determination by the Assessing Officer that such sum would not be chargeable to tax in the case of the recipient or for determination of the appropriate proportion of such sum so chargeable or for grant of certificate authorising the recipient to receive the amount without deduction of tax, or deduction of income-tax at any lower rates or no deduction. On such determination, tax at the appropriate rate could be deducted at the source. If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. He has to discharge the obligation of tax deduction at source. We have already clarified in the initial portion of the order that the provisions regarding computation of income and tax cannot be mixed up and confused with the provisions regarding deduction of tax at source. We rail to understand what prevented the assessee from making an application u/s. 195(2) and claim the so called benefits u/s. 44BB. We are at a loss to understand how the assessee sitting in his own office can take such a decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and not from the gross payments made to the non-residents. (3) He grossly erred in ignoring the provisions of section 44BB of the Income-tax Act, 1961, to arrive at the income of the non-residents to whom payments were made by the appellant company. 2. The brief facts of the case are that during the year the assessee had made certain payments in foreign currency in pursuance of an agreement with ONGC and Hardy Exploration and Production (India) Inc. ( HEPPII , for short) to drill oil wells in Indian waters off the coast of India. For execution of these contracts the assessee-company had taken two drilling units which were owned by M/s. Frontier Drilling ASA. Bergen, Norway and M/s. Frontier Ice. AS. Bergen, Norway. For this, the assessee-company was required to pay charter hire for the two drilling units, rig management fees and service fees. The assessee-company had made payment in foreign currency as under : Bare boat rentals relating to the assessment year 2002-03 Rs. But TDS deducted during the year 1,64,19,256 Bare boat rentals 37,96,34,157 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was liable to deduct tax at 30 per cent. plus surcharge of 5 per cent. and because this amount has not been deducted by the assessee, therefore the provisions of section 40(a)(i) were attracted. In this background the Assessing Officer out of the total payment made in foreign currency after allowing the payment proportionately to the tax deducted by the assessee, disallowed the balance of Rs. 45,40,62,871. 5. Before the Commissioner of Income-tax (Appeals), similar contentions were reiterated. The learned Commissioner of Income-tax (Appeals) observed that the provisions of section 195 of the Act were independent of the provisions of section 44BB. He further observed that as per the provisions of section 195(1) tax was required to be deducted at source at the rates in force at the time of making payments of any sum to a non-resident. In case such sum was not fully chargeable to tax then section 195(2) would come into operation and the assessee could have made an application to the Assessing Officer to determine the appropriate proportion of such sum, which was chargeable to tax and then the tax was required to be deducted under section 195(1) on such proportion. He furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc., which was used in the business of oil exploration or production. Since the provision was introduced by the Finance Act, 1987, with effect from April 1, 1987, therefore, it was applicable in the year before us. 7. Learned senior counsel for the assessee then referred to the provisions of section 40(a)(i) and argued that the purpose of this provision was not to determine tax but it was there to ensure that taxes have been properly deducted by the assessee from payments made to non-resident. He emphasized that this provision also contains the expression other sum chargeable under this Act , which means disallowance if any has to be restricted only to that portion of the sum which is chargeable to tax. He then referred to section 4, which is the charging section and submitted that any tax shall be charged for any assessment year as prescribed under the various Central Acts, which is generally in the form of Finance Act, in respect of total income. He then referred to section 2(45), which is the definition section and defines total income as amount of income referred to in section 5 computed in the manner laid down in this Act. He then took us to sub-section (2) of section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is provision was for the benefit of the assessee and an option has been given for the assessee under this provision to approach the tax authorities where the assessee feels that the whole of the amount is not chargeable to tax and in such cases the assessee can approach the Department and seek lower deduction of TDS. He submitted that the assessee need not compulsorily comply with the provisions of section 195(2). He further argued that in case the assessee chooses not to make an application under section 195(2) then it cannot lead to disallowance automatically. He contended that in the case before us since the provisions of section 44BB were directly applicable the assessee was confident that non-resident to whom payments were being made was covered under section 44BB and that is why the assessee did not choose to make any application under section 195(2). He submitted that application is required to be made where the assessee has any doubt that how much percentage is to be subjected to tax in respect of a particular payment. Since no doubt existed in the mind of the assessee because of application of section 44BB no application was made under section 195(2). He also invited our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Next, learned senior counsel referred to Transmission Corporation of A.P. Ltd. [1999] 239 ITR 587 (SC) and submitted that since the assessee as well as the Department are relying on this decision, it would be appropriate to analyse the decision in detail and for that he submitted that he would like to start with the decision rendered by the Andhra Pradesh High Court where the case was titled as CIT v. Superintending Engineer [1985] 152 ITR 753. In that case, the Andhra Pradesh State Electricity Board ( Electricity Board for short) made payments to three foreign parties on which no tax was deducted. In case of one party, the Electricity Board had made an application under section 195(2). During the proceedings under section 201, the Assessing Officer estimated the tax to be deducted on whole of the payments in respect of two foreign parties where no application was made and in case where application was made, the profit was estimated and tax to be deducted was determined. Various questions were raised before the hon'ble Andhra Pradesh High Court, but learned counsel for the assessee pointed out that ultimately the court itself reframed the questions by observing that two fundam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to them under the contracts entered into; and (ii) the obligation of the respondent-assessee to deduct tax under section 195 is limited only to the appropriate pro portion of income chargeable under the Act, are correct. 12. He submitted that the hon'ble Supreme Court has very clearly concluded that the obligation of the assessee to deduct the tax under section 195 is limited only to the appropriate proportion of the income chargeable under the Act. 13. He further submitted that by doctrine of merger, the judgment of the Supreme Court should be read together with the judgment of the Andhra Pradesh High Court. The Andhra Pradesh High Court has clearly held that even if no application is made under section 195(2) even then the Income- tax Officer should determine only that amount of tax deductible which pertains to proportion of income chargeable to tax. As observed by the hon'ble Andhra Pradesh High Court there may be so many reasons for the assessee not to make an application under section 195(2), particularly the reason that the assessee may be under the honest belief that no proportion of sum referred to in section 195(1) is chargeable to tax. Even then the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any manner whatsoever. Therefore, reference to section 44BB itself is contrary to the scheme of the Act. He submitted that tax has to be deducted as per the provisions of section 195, which has very clearly cast a duty on every assessee to deduct tax at a particular rate, because if tax is not required to be deducted as per this provision then there is a remedy provided under section 195(2). So many questions are required to be considered if tax is not to be deducted as per section 195(1) like whether non-resident party is having a permanent establishment ? or covered by DTAA ? nature of services ? etc. All these facts are required to be examined and such facts can be examined only when the assessee submits an application under section 195(2). He read out the provisions of section 195(1) and 195(2) and submitted that as per section 195(1) the assessee is required to deduct tax at the prescribed rate when any payment is made to a non-resident. Even though the expression or any other sum chargeable under the provisions of this Act is used but the assumption would be whole of such sum is chargeable to tax because sub-section (2) of this section very clearly provides a remedy to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 195 prescribes for specific rates of deduction and only in case of salary, tax is to be deducted at the average rate. This clearly shows that in case of salary, the responsibility is given to the employer only to compute the income and then deduct the tax accordingly, whereas in all other cases, tax is to be deducted at the specified rates only on gross sums and deductor has no authority to determine the proportion of income on which tax is required to be deducted. 17. He further argued that in this case, non-resident may not have filed any return because such assessee may be taxable at the higher rate and just to avoid such situation tax deduction provisions are there. He submitted that if the deduction prescribed under section 195 is not made or made at a lower rate, then the Department may not have any remedy against such assessee. Then he referred to Circular No. 528 ([1989] 176 ITR (St.) 154 ) and took us to the contents of the Circular and submitted that the Board has clearly clarified that in order to ensure effective compliance of provision in section 195 of the Act relating to tax deduction at source in respect of payments outside India, the scope of section 40(a) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession . . . on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B which means whenever tax is not deducted as per the provision then disallowance is attracted. In any case, the decision in the case of P. V. Rajagopal v. UOI [1998] 233 ITR 678 (AP) was rendered in respect of salary where tax is required to be deducted only on the income at the average rate whereas under section 195 tax is to be deducted at the flat rate. He also invited our attention to the observations of the court at page 695 which is as under : The alternate remedy is for an assessee to apply to the Income-tax Officer for a certificate under section 197 that the amount presumably is not subject to deduction of tax at source or should be subject to deduction at a lower rate. This section may work well in the case of unusual or extraordinary payments. But in the case of an interest subsidy payable to thousands of employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 194A. Therefore, in respect of the tax payable on the said interest income, the assessee also cannot be taken to be liable to pay interest. Otherwise, it will mean that there are two persons under the Act to pay interest on tax on the same income. The Legislature would not have contemplated such a situation where in respect of the tax on interest income two persons are liable to pay interest for the delayed payment of tax. We are, therefore, inclined to hold that wherever there is a possibility of a deduction of tax at source, the person who had failed to deduct tax at source is liable to pay interest and not the asses see, as otherwise, there will be charging of interest twice on the payment of tax in relation to the same income. Such an interpretation should normally be avoided. In this case, therefore, the Tribunal appears to be right in holding that in terms of section 215 interest could not be levied on the assessee on the tax which is deductible at source. (emphasis supplied). 21. Further the learned Departmental representative referred to the decision of the apex court in the case of Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435, where it was clearly held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9] 239 ITR 587, he submitted that this case was decided under section 201 of the Act. He then referred to the decision of the High Court in this case and referred to pages 758 and 762 of the judgments rendered by the High Court and pointed out that in this case application under section 195(2) was also moved and therefore the Assessing Officer got the opportunity to determine the amount of profits comprised in the gross payments. Therefore, as far as reference to the second question by learned counsel for the assessee is concerned, the facts are quite distinguishable. In any case, from every judgment, it is not the decision on every small fact which could be applied in other cases but the doctrine of precedent would remain restricted only to the ratio decided in a particular decision and in this regard he referred to pages 594 and 595 of the Transmission Corporation of A.P. Ltd. v. CIT [1999] 239 ITR 587 (SC). He submitted that clearly the ratio seems to be that if no application is made under section 195(2), the income-tax has to be deducted on the gross amount. 24. He then referred to the decision of the Delhi Bench of the Tribunal in the case of HNS India VSAT Inc. v. Deputy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding taking on hire of rigs and other machines for exploration of oil in the Indian shore. These facts clearly establish that section 44BB was applicable to such non-resident parties and since the assessee was not entertaining any doubts in this situation, therefore it was never though appropriate to make an application under section 195(2). He then referred to section 194C and submitted that when direct decision in the form of Transmission Corporation of A.P. Ltd. v. CIT [1999] 239 ITR 587 (SC) is available in respect of deduction of tax under section 195, then there is no need to refer to the decision of Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435 (SC). In any case it is settled principle that when two decisions from the Supreme Court are available, then the latter decision in respect of that issue should be followed. In this regard, he relied on the decision of the Delhi High Court in the case of Bhika Ram v. UOI [1999] 238 ITR 113. Then referring to the case of HNS India VSAT Inc. v. Deputy DIT [2005] 95 ITD 157 (Delhi) he submitted that, that decision is clearly distinguishable because there are two distinguishing features, viz., (i) in that case no tax was deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits than prescribed as presumptive profits in sub-section (2) of section 44BB. We agree with learned counsel of the assessee that the purpose of introduction of section 44BB was simplification of taxation in case of non-residents, who were engaged in the business of providing services and facilities in connection with or supply of plant and machinery on hire used or to be used in the exploration or for exploration of mineral oils because such taxation involved number of complications. However, we have to agree with the learned Departmental representative that any party claiming the benefit of section 44BB has to file return and then only the income-tax authorities can pronounce whether such party is entitled to the benefit of the provisions of section 44BB or not. This issue cannot be decided by a party who is supposed to make payment to non-resident without filing any details in the form of return by such non-resident party with the tax authorities. Therefore, the learned Departmental representative is clearly right that the issue regarding application of section 44BB to the non-resident party to whom payments were made by the assessee-company cannot be examined in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable under this Act, which is pay able, (A) outside India, or (B) in India to a non-resident not being a company or to a foreign company, on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with other provisions of Chapter XVII-B : Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 28. A plain reading of the above provision would clearly show that no deduction shall be allowed in terms of sections 28 to 38 for any expenditure payment for which has been made to a non-resident, on which tax has not been deducted in accordance with the provisions of Chapter XVII-B. A careful reading of the provision would show that it is starting with non- obstante clause, which means, it would prevail over sections 30 to 38, which are basically sections dealing with deductions to be given for computing the business profits under various sections. This in turn in plain words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not required to deduct any tax 30. We also find no force in the submission that the provision of section 195(2) is not mandatory in the sense that being a beneficial provision the assessee may or may not choose to make application under this provision. In the same breath, a further argument in this respect was raised that merely non-making of application under section 195(2) cannot attract disallowance under section 40(a)(i). On the face of it, this argument may look attractive, but when we look at the whole of section 195 and Chapter XVII-B, then the real picture would emerge. As contended by the learned Departmental representative, Chapter XVII-B deals with collection of taxes and Part B of this Chapter specifically deals with the provisions of tax to be deducted at source. Section 195 reads as under : 195. (1) Any person responsible for paying to a non-resident not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries', shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out the amount of tax to be deducted on a particular portion of sum chargeable, this provision is absolutely necessary. As per sub-section (2), whenever a person responsible for paying any sum chargeable . . . considers that whole of such sum would not be income chargeable in the case of recipient he may make an application to the Assessing Officer to determine the appropriate portion of such sum so chargeable and upon such determination, tax shall be deducted under sub-section only on that proportion of sum which is so chargeable which means the person responsible for making payment etc. cannot himself decide what is the appropriate proportion which is chargeable to tax. The expression by general or special order and the appropriate proportion in this sub-section are key words to understand the meaning in the sense that there may be situations where only one particular portion of such sum is taxable in case of similar assessees and the income-tax authorities may make a general order that in such type of assessees that a particular proportion of the sum has to be considered as income chargeable to tax and tax can be deducted accordingly. It seems the Central Board of Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum paid to the non-resident does not wholly represent the income; and (b) If section 195 is applicable to such cases, whether the Income- tax Officer could enforce deduction of tax at source on the gross amount of trading receipts or only in respect of that portion of the trading receipts which may be chargeable as income under the Act. 33. The court further observed that though the first question was only referred but the second aspect is also an integral part of the first question and it is necessary to reframe the question in order to bring the real controversy between the parties. Then he mainly relied on that ultimately the hon'ble High Court has replied question No. 2 as under (page 772 of 152 ITR) : (2) The obligation of the respondent-assessee to deduct tax under section 195 is limited only to the appropriate proportion of the income chargeable under the Act forming part of the gross sums of money paid to the three non-residents above referred. 34. He submitted, this means even if no application is made under section 195(2) even then the Income-tax Officer is required to compute the tax to be deducted only on the appropriate portion which was chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lus 3 per cent. surcharge. By this process the Assessing Officer concluded that the Electricity Board was under obligation to deduct tax amounting to Rs. 14,60,568 and for failure to deduct such tax, the interest was charged under section 201(1A) and corresponding interest on the same of Rs. 14,60,568 was worked out at Rs. 12,77,996. The net result was that against the net payment of Rs. 3,65,237 paid to non-resident, the Income-tax Officer determined the tax deductible at source along with interest at Rs. 27,38,564, which seemed to be very curious to the hon'ble High Court. Similarly astounding figures were arrived at in respect of other payments. E.g., in case of R.C. No. 205 of 1978 the Electricity Board had entered into an agreement with Oerliken Engineering Co. In this case against the payment made amounting to Rs. 17,00,784, the tax deductible was arrived at Rs. 72,01,554 and interest under section 201(1A) at Rs.58,55,747 totalling to Rs. 1,30,57,301. 36. We think that the importance of question No. 2 framed by the hon'ble Andhra Pradesh High Court should be judged in the background of the above noted facts as well as it should be kept in mind that the above decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of the recipient he may make an application to the Income-tax Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. It is not necessary to refer to the other provisions contained in section 195, as they are not relevant for our purpose. We are unable to find in the language of section 195, any support for the argument that the expression 'any other sum' occurring in the section refers necessarily to sums which represent wholly income or profits. As we have already pointed out, the scheme of tax deduction at source applies not only to amounts paid which wholly bear 'income' character, but also to gross sums the whole of which is not income or profits to the recipient, such as payments to contractors and sub-contractors under section 194C and the payment of insurance commission under section 194D. That being so, it is not possible to accept the contention of learned counsel for the Electricity Board that there is no sanction to deduct tax at source from sums which do not repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter. We do not also find anything inconsistent in the scheme of the Act or in the exigencies requiring deduction of tax at source to protect the interests of the Revenue borne out of the sums consisting of only a small moiety of income. The safeguard provided in sub-section (2) of section 195 protects the interests of the person receiving such sums because an application can always be made to the Income-tax Officer to determine the appropriate proportion of the sum chargeable under the Act, so that tax deduction at source can be confined only to such appropriate proportion and not to the gross amount. It should also be borne in mind that whatever tax is deducted at source under section 195 from out of the gross sum is not irretrievably lost to the recipient. It is only a provisional payment which will be made to the Central Government to the credit of the recipient. The provisions of the Act enable the recipient, whether such recipient is a resident or non resident, to file a return of income in the regular course and prove to the satisfaction of the Income-tax Officer the income chargeable under the Act. After such determination if the tax provisionally deducted at source under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has reproduced the provisions of sections 190 to 197 and then by analysing the provisions, it was observed as under : Before considering section 195, it is to be stated that the said section is in Chapter XVII containing provisions for collection and recovery of tax. The said Chapter is divided into various parts as A to F. Part A-General deals with deduction at source and advance payment. Section 190, inter alia, provides that notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment, as the case may be, in accordance with the provisions of the Chapter. Hence, before a regular assessment is made, tax on income shall be payable by deduction or collection at source or by advance payment in accordance with the other provisions. Section 191 provides for direct payment of income-tax by the assessee where provision is not made under the Chapter for deducting income-tax at the time of payment. Thereafter, Part B of the said Chapter contains a group of sections which provides for 'deduction of tax' at source. Section 192 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipient, he may make an application to the Assessing Officer to determine 'the appropriate proportion of such sums so chargeable' ; upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. (c) Not only this, but sub section (3) provides that any person entitled to receive any interest or other sum on which income-tax is to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under the sub-section. (d) Further, section 197 provides that the recipient can file an application to the Assessing Officer for a certificate that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax and the Assessing Officer, if satisfied can grant such certificate as may be appropriate. The scheme of sub-sections (1), (2) and (3) of section 195 and section 197 leaves no doubt that the expression 'any other sum charge able under the provisions of this Act, would mean 'sum' on which inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 195 is to see that the sum which is chargeable under section 4 of the Act for levy and collection of income-tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is for tentative deduction of income-tax thereon subject to regular assessment and by the deduction of income-tax, the rights of the parties are not, in any manner, adversely affected. Further, the rights of the payee or recipient are fully safeguarded under sections 195(2), 195(3) and 197. The only thing which is required to be done by them is to file an application for determination by the Assessing Officer that such sum would not be chargeable to tax in the case of the recipient, or for determination of the appropriate proportion of such sum so chargeable, or for grant of certificate authorising the recipient to receive the amount without deduction of tax, or deduction of income-tax at any lower rates or no deduction. On such determination, tax at the appropriate rate could be deducted at the source. If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing on his own ignoring all statutory provisions. 40. A serious doubt was raised by learned senior counsel for the assessee that ratio of the decision in the case of Transmission Corporation of A.P. Ltd. v. CIT [1999] 239 ITR 587 (SC) was basically that the obligation of the assessee to deduct tax under section 195 is limited only to the appropriate portion of the income chargeable under the Act, because of the answer to question No. 2 given by the Supreme Court in the last paragraph of the order. Here we find that though apparently this argument seems very attractive, but when we read the whole judgment carefully we find that there is no force in this submission. This is mainly so, as pointed out by us in the above noted paragraphs that the court was concerned with the determination of amount of tax deductible and interest thereon under section 201 and it was also seen that the Assessing Officer had worked out fantastic figures of such tax and therefore, the court had partly upheld the contention of the Department that the assessee was under obligation to deduct tax at source under section 195 in respect of sums paid to non-residents. Therefore, it becomes clear that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case courts must carefully try to ascertain the true principle laid down by the decision 43. Now, the question is what is the ratio of the decision of Transmission Corporation of A.P. Ltd.'s case [1999] 239 ITR 587 (SC). As pointed out by the learned Departmental representative basically the issue involved in the case of Transmission Corporation of A.P. Ltd.'s case [1999] 239 ITR 587 (SC) was determination of tax and interest, etc. under section 201 and one of the issue was whether the provisions of section 195 of the Act are applicable to cases where some paid to non-resident does not wholly represent income. The hon'ble Andhra Pradesh High Court as well as the hon'ble Supreme Court has very clearly observed that if is held that tax is to be deducted only on the proportion of income comprised in the gross payment made to non-resident in the absence of section 195(2), then the provisions of section 195(2) would be otiose and, therefore, it may not be correct to interpret the provision in this fashion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as amounts by way of reimbursement under clause 13. But the deduction of tax at source made by the appellant under section 194C(1) of the Income-tax Act, 1961, fell short of the deductions required to be made thereunder. The appellant\qs claim was that it was not liable to deduct any amount under the section. Notices were served on the appellant to show cause as to why action should be taken under sections 276B(1), 201 and 221 for short deduction. On these facts the hon'ble apex court considered the provisions of section 194C, which at the relevant time read as under : 194C.(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and . . . shall, at the time of credit of such sum to the account of the con tractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier deduct an amount equal to two per cent of such sum as income tax on income comprised therein. (emphasis supplied) 46. A reading of the above pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responding provision as in section 195(2) in section 194C, therefore/the deduction was required to be made on the gross amount. Whereas in the case of section 195 the assessee always is at liberty to approach the Department with a request that only smaller proportion, i.e., appropriate proportion as mentioned in the section is taxable. Then it is the Assessing Officer who can decide what proportion is taxable. Therefore these observations of the hon'ble apex court further clarify the intention of the Legislature as well as the meaning of the decision rendered in the case of Transmission Corporation of A.P. Ltd. v. CIT [1999] 239 ITR 587 (SC). 48. We also find that the issue is covered squarely against the assessee by the decision of the Tribunal in the case of HNS India VSAT Inc. v. Deputy CIT [2005] 95 ITD 157 (Delhi) where it was held that when the assessee had not deducted tax from the payments made to non-residents against various jobs relating to installation and no application under section 195(2) was made then the assessee was under obligation to deduct tax at source and having failed to make any such deduction the Assessing Officer was fully justified in disallowin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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