TMI Blog2010 (6) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the Revenue against the common order of Learned CIT(Appeals)-X Ahmedabad dated 05/11/2004. The issue involved pertained to Assessment Years 2001-02, 2002-03 and 2003-04 which has been dealt with by the Learned CIT(Appeals) in a single order pertaining to applicability of the provisions of section 201(1) and 201(1A) of the I.T. Act, 1961. In an identical manner, barring the quantum involved, Revenue has challenged that the Learned CIT(Appeals) has erred in deleting the TDS amount alongwith interest u/s.201(1) 201(1A) of the I.T. Act, 1961 for all the years. For the sake of reference, ground raised by the Revenue is reproduced below:- 1. The Ld.CIT(A) has erred in law as well as on facts of the case in deleting the TDS amount alongwith interest u/s.201(1) and 201(1A) of the Income-tax Act of Rs.56,88,910/-, Rs.26,19,492/- and Rs.69,30,792/- respectively. (sic.) [A.Y. 2001-02, 2002-03 2003-04] . 2. Facts in brief as emerged from the corresponding assessment order passed u/s. 201(1) and 201(1A) of the I.T. Act, 1961 dated 02/06/2004 were that the assessee was subjected to survey u/s.133A of the I.T. Act, 1961. It was noticed that the assessee has paid Sales Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in India and did not have any branch office in India. On account of these facts, it was argued before the Assessing Officer that the provisions of section 9 of the I.T. Act, 1961 were also not applicable. A clarification was also rendered that Circular No.759 and Circular No.10 of 2002 issued by CBDT were also not applicable because those Circulars were applicable only where income is chargeable to tax in India. Thereafter, on receiving the replies, the Assessing Officer has discussed those two Circulars viz. CBDT Circular No.759 and Circular No.10 of 2002. According to Assessing Officer, the payments have been made to the non-residents without following the procedure laid down in CBDT Circulars as well as in section 195 of the I.T. Act, 1961. Had the assessee followed the correct procedure, the Income-tax Authorities would be in a position to come to know whether the amount remitted was chargeable to tax in India? In the opinion of Assessing Officer, the assessee had failed to discharge its onus completely. Further, according to Assessing Officer, the assessee had also failed to follow the procedure laid down by Circular No.759 and Circular No.10 of 2002. Finally, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign agents was not an income accruing or arising in India, therefore, there was no question of applicability of the TDS provisions, hence, the orders levying the tax on account of non-deduction of tax were reversed . 7. Before we hereinafter proceed to decide these appeals, it is necessary to mention that the order-sheet of the case reflects that these appeals were blocked in the past because the respondent-assessee has made a petition before the Hon'ble President to allow him to be an intervener in the case of M/s.Prasad Productions Ltd. (ITA No.663/Mds/2003 A.Y. 2002-03). A Special Bench was constituted by the Hon'ble President for disposal of the question on the following points:- Whether for the purposes of sections 201(1) and 201(1A), when an assessee responsible for making payment to a Non-resident, has not applied to the Assessing Officer u/s.195(2) for deduction of tax at a lower or Nil rate of tax, he is under statutory obligation to deduct tax at source computed on the entire payment to the nonresident treating the same as income chargeable to tax, in the light of decision of the Apex Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT (239 ITR 587 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expression any other sum chargeable under the provisions of this Act: would mean sum on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. Consideration would be whether payment of sum to non-resident is chargeable to tax under the provisions of the Act or not? That sum may be income or income hidden or otherwise embedded therein. If so, tax is required to be deducted on the said sum-what would be the income is to be computed on the basis of various provisions of the Act including provisions for computation of the business income, if the payment is trade receipt. The scheme of tax deduction at source applies not only to the amount paid which wholly bears income character such as salaries, dividends, interest on securities etc., but also to gross sums, the whole of which may not be income or profits of the recipient, such as payments to contractors and subcontractors and the payment of insurance commission. It is true that in some cases, a trading receipt may contain a fraction of sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable under the Act. CIT vs. Superintending Engineer, Upper Sileru (1985) 46 CTR (AP) 238: (1985) 152 ITR 753 (AP ): TC 5R.385 affirmed; P.C. Ray Co. (India) (P) Ltd. vs. A.C. Mukerjee, ITO (1959) 36 ITR 365 (Cal): TC 5 R.355 approved. 9.1. Therefore, the view expressed by the Hon'ble Court was that the only thing which is required to be drawn by the tax deductor is to file an application for determination by the Assessing Officer that such sum would or would not be chargeable to tax in the hands of the recipient. On such determination, if any, tax at appropriate rate would be directed to be deducted at the source. Further, the Court has also said that 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 therein before making payment. The tax deductor has to discharge the application of tax deducted at source. It was concluded by the Hon'ble Court that the High Court was, therefore, correct in holding that the assessee in that appeal, to make the payments to the nonresidents, was under obligation to deduct tax at source u/s.195 of the I.T. Act, 1961 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the eventuality contemplated in (d) above, the assessee would not be permitted to argue that the amount paid to the recipient is not chargeable under the provisions of the Act. The assessee may be treated as in default and would suffer the consequences provided under the Income-tax Act. However, in case in the assessment proceedings relating to the recipient, it is ultimately held that the sum received by the recipient was not chargeable to tax, the effect of that would be that it was no obligation on the assessee to deduct tax at source on the sum paid to the said non-resident and in that eventuality, the assessee will not be treated as in default and would be absolved of any consequences for not deduction the tax at source. 9.3. Out of the above reproduced portion, for our purpose clause (d) is relevant wherein the Hon'ble Court has opined quote In case no such application is filed before the Assessing Officer for obtaining such certificate or such application is rejected by Assessing Officer and direction is issued by the Assessing Officer to deduct such tax at a particular rate the payer is duty bound to deduct tax as per the directions of the Assessing Officer and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally it was concluded by Learned CIT(Appeals) that the foreign agents were paid their sales commission in their respective countries and no such activity was ever carried out in Indian soil. Most importantly, one more finding on facts was recorded by the Assessing Officer that the foreign agents were not having any permanent establishment in India. Thus, the argument is that once the impugned payment was made directly to the foreign agents as also remitted abroad in their respective countries, then as per the provisions of section 9 of the I.T. Act, 1961 the income had not arisen or accrued in India. 9.5. In the light of the above background, we have carefully perused the order of the Special Bench and have noticed that now this issue set at rest as far as the proceedings before the Tribunal are concerned and we have no alternative but to be governed by the view taken therein; relevant portion is reproduced below:- The Hon'ble ITAT Chennai B Special Bench in the case of ITO (International Taxation) vs. Prasad Production Ltd. (2010) 37 DTR (Chennai)(SB)(Trib) 418 held as under (vide paragraph Nos.24 to 26):- Considering the circumstances in the background of which the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative in nature. However, if the AO comes to the conclusion that the payment or a part of it is chargeable to tax, it will culminate into an order under s. 201. It is noteworthy that because of the exercise that precedes the making of the order under s. 201, it has been held to be an assessment order. And since quite an\ intense exercise precedes, the order under s. 201, the payer-has every reason to be aggrieved if the order is adverse to him and hence the same-is appealable under s. 246A. Whatever may be the final outcome of the proceedings under s. 201, the ultimate liability of the assessee including the consequences provided under s. 40(a)(i) would depend on the assessment in the case of the payee. When the payer is of the view that no part of the payment bears income character, such a view has to be bona fide. If the bona fides are doubtful, the payer will have to face all the consequences under the Act. If the assessee has not applied to the AO under s. 195(2) for deduction of tax at a lower or nil rate of tax under a bona fide belief that no part of the payment made to the non-resident is chargeable to tax, then he is not under any statutory obligation to deduct tax at sour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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