TMI Blog2010 (2) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... of remand - IT APPEAL NO. 1035/CHD./2010 - - - Dated:- 25-2-2010 - N. BARATHVAJA SANKAR, MS. SUSHMA CHOWLA, JJ. Aman Parti for the Appellant. N.K. Saini for the Respondent. ORDER Ms. Sushma Chowla, Judicial Member. The appeal by the assessee is against the order of CIT(A), Chandigarh dated 9-4-2010 relating to assessment year 2008-09 against the order passed under sections 201 201(1A) of the Income-tax Act. 2. The assessee has raised the following grounds of appeal:- "1. That the Hon'ble CIT(A) has erred both on facts as well as in law in holding that reimbursement of travelling expenditure by the appellant based on actual expenditure incurred forms part of fee for technical services. 2. that the Hon'ble CIT(A) has erred both on facts as well as in law in holding that the provisions of withholding tax under section 195 of the Income-tax Act, 1961 are applicable to reimbursements based on actual expenditure incurred and thus holding the assessee as 'assessee in default'." 3. The issue arising in the present appeal is with connection with the applicability of provisions of section 195 of the Income-tax Act on reimbursement of travelling expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard and hence it cannot be said to be a reimbursement of expenses. 6. We have heard the rival contentions and perused the records. The issue arising in the present appeal is with regard to the withholding of tax under section 195 of the Act on reimbursement of expenses in addition to the fees paid to the provider of services. The assessee had entered into an agreement with M/s. Joint Commissioner Resources (International) for conducting accreditation services, under which, in addition to the amounts payable for such service, the understanding between the parties was to reimburse the expenses of officials of the said concerns with respect of their boarding and lodging and also travel expenses. The assessee has deducted TDS on the survey fee paid by it. The expenses on boarding and lodging of the officials of the said company visiting India for carrying out the services were borne by the assessee directly and hence no dispute has arisen in respect of deduction of tax at sources in respect of such payments. However, in respect of the travelling expenses incurred by the officials of M/s. Joint Commissioner Resources (International), two bills were raised totalling US$ 18275.84 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment in terms of section 200 of the Income-tax Act read with rule 30 of the Income-tax Rules, 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under section 201 read with section 221 of the Income-tax Act. In addition, he would also be liable under section 201(1A) to pay simple interest at 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. The most important expression in section 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Income-tax Act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the recipient and the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the Income-tax Act. It may be noted that section 195 contemplates not merely amounts, the whole of which are pure income payments, it also covers composite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of section 195. Hence, apart from section 9(1), sections 4, 5, 9, 90, 91 as well as the provisions of the DTAA are also relevant, while applying tax deduction at source provisions. Reference to the Income-tax Officer (TDS) under section 195(2) or 195(3) either by the non-resident or by the resident payer is to avoid any future hassles for both resident as well as non-resident. In our view, section 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this court in Transmission Corporation in which this court has observed that the provision of section 195(2) is a safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof. Submissions and findings thereon 8. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from section 195(1). While interpreting a section one has to give weightage to every word used in that section. While interpreting the provisions of the Income-tax Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT v. Eli Lilly and Co. (India) (P.) Ltd. [2009] 312 ITR 225 the provisions for deduction of TAS which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income-tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are "chargeable to tax" under the Income-tax Act. It is true that the judgment in Eli Lilly [2009] 312 ITR 225 was confined to section 192 of the Income-tax Act. However, there is some similarity between the two. If one looks at section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Income-tax Officer (TDS) of payments made to non-residents. In other words, according to the Department, section 195(2) is a provision by which the payer is required to inform the Department of the remittances he makes to non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As stated hereinabove, section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, section 195 uses the word "payer" and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfil the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The abovementioned contention of the Department is based on an apprehension which is ill-founded. The payer is also an assessee under the ordinary provisions of the Income-tax Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an element of income embedded or incorporated in them. The controversy before us in this batch of cases is, therefore, quite different. In Transmission Corporation case [1999] 239 ITR 587 (SC) it was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented "income chargeable to tax in India", then it was necessary for him to make an application under section 195(2) of the Act to the Income-tax Officer (TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the Income-tax Officer (TDS) to compute the amount which was liable to be deducted at source. In our view, section 195(2) is based on the "principle of proportionality". The said sub-section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of "income" chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cases of composite payments, the Courts have held that the obligation to deduct the tax is in respect of the element of income embedded or incorporated in them. But in respect of composite payments, recourse is to made under section 195(2) of the Act and in the absence of the same, tax is to be deducted on entire payment. Following the same, we hold that where the assessee has reimbursed the expenditure which has been actually incurred by the payee, no withholding of tax under section 195 of the Act is warranted, as the same has no element of income embedded in the same. 9. In the facts of the present case, we direct the Assessing Officer to verify the stand of the assessee vis-a-vis the actual incurrence of the expenditure and in case the assessee is able to satisfy with evidence that the aforesaid payments are in fact reimbursement of expenses incurred by the officials of M/s. Joint Commissioner Resources (International), then the same falls outside of purview of section 195 of the Act and there is no liability to deduct tax at source out of such payment. In the alternative in case the assessee is not able to establish its claim of reimbursement of expenses, the said payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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