TMI Blog2010 (4) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 source on any part of the payment. - I. T. A. No. 663 /Mds/ 2003 - - - Dated:- 9-4-2010 - Member(s) : PRADEEP PARIKH., N. BARATHVAJA SANKAR., HARI OM MARATHA. ORDER-PRADEEP PARIKH, VICE PRESIDENT: The Hon'ble President, vide his order dt. 22nd April, 2009 and as modified by the order dt. 10th Aug., 2009, has constituted this Special Bench under s. 255(3) of the IT Act, 1961 (the Act) to hear and decide the following question in accordance with law: "Whether for the purposes of ss. 201(1) and 201(1A), when an assessee responsible for making payment to a non-resident, has not applied to the AO under 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 non-resident 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 (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC)?" 2. All the grounds raised in this Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company was awarded a contract by the Tourism Department of the Government of Andhra Pradesh to establish IMAX theatre at Hyderabad. The assessee entered into an agreement on 20th Dec., 2000 with IMAX Ltd., Canada for purchase of equipment, maintenance and installation. As per the agreement, the total consideration was to be US $ 13,65,000 for purchase of the system and US $ 9,50,000 as technology transfer fee. During the year under consideration, the assessee remitted US $ 9,02,500 (rupees equivalent 4,31,75,600) on 25th Dec., 2001 to IMAX Ltd. on account of technology transfer fee without deducting tax at source. The assessee was required to show-cause as to why demand should not be raised under s. 201 of the IT Act, 1961 (the Act) for non-deduction of tax. In the course of these proceedings, the assessee filed copies of Sch. C to the agreement for maintenance, installation and trademark giving specification of system installation, testing and training services. The AO asked for a detailed break-up of the amount which was remitted to IMAX. The assessee could not provide the said break-up. On the basis of letters and copies of agreement on record, the AO found that the payment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represents consideration for installation, testing and operator training before the theatre is ready for screening. He also observed that though the agreement provides for installation and training in the beginning, the amount of remittance represents a part of sale consideration of the equipment. Accordingly, he held that there is no ambiguity in regard to the portion which is taxable and the portion which is not taxable. According to him, the entire sum is not chargeable to tax at all and therefore, the decision in the case of Transmission Corporation of A.P. Ltd. was not applicable. He, therefore, cancelled the order passed by the AO under s. 201(1) and 201(1A) of the Act. 5. The learned Departmental Representative submitted that the assessee has not deducted tax at source on the ground that the remittance made to IMAX was not income chargeable to tax in the hands of IMAX. The main question, therefore, according to the learned Departmental Representative was whether the assessee has discretion under s. 195(2) to decide whether it should or it should not deduct tax. The learned Departmental Representative referred to the judgments of the Supreme Court in the case of Transmissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean to be the rate of income-tax specified in the Finance Act or in the DTAA entered into by the Government under s. 90 or an agreement notified by the Government under s. 90A of the Act. Therefore, it was contended that since s. 201(1) covers s. 195 also, the AO cannot proceed on a notional basis to raise demand under s. 201(1) of the Act. It was contended that the liability of the deductee and the deductor cannot be different and s. 201(1) does not contemplate to determine any shortfall by the deductor. In this connection reference was made to s. 191 as also to the Explanation thereunder. Shri Vijayaraghavan referred to the judgment of the Supreme Court in the case of CIT vs. Wesman Engg. Co. (P) Ltd. (1991) 92 CTR (SC) 62 : (1991) 188 ITR 327 (SC) to contend that the assessee is not debarred from disputing the liability raised under s. 201 of the Act. It was even open for the Department to treat the assessee as a representative assessee of non-resident under s. 160/163 of the Act. The next argument was that s. 195(2) was not meant for the legal determination of the chargeability of income but it was meant only to consider if there were any brought forward losses on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax in India. Several other decisions were relied upon by Shri Vora to which we shall advert to later. 8. Shri L.V. Srinivasan (party in person) appeared as intervener on behalf of Areva T D India Ltd. His submissions are summarised as follows: (a) The choice was with the deductor whether to follow the procedure under s. 195(2) or to approach a chartered accountant as prescribed in the Board's circular. Referring to the judgment of the Supreme Court in the case of Transmission Corporation, it was contended that in that case the Court did not have the occasion to consider the above-referred circular as the judgment was rendered much prior to the date of issue of circular. Therefore, it was contended that certain observations of the Court in that judgment cannot be made applicable. In support of this proposition reliance was placed on the decision of the Chennai Bench of the Tribunal in the intervener's own case in ITA No. 2235/Mad/2005, dt. 7th April, 2006. In any case, referring to the judgment of the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC), it was submitted that one should not pick out a word o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 246A(1) and s. 248 to contend that these provisions implied that it was not obligatory for the deductor to always obtain a certificate under s. 195(2) of the Act. 10. Shri Padamchand Khincha, chartered accountant appeared as intervener on behalf of Sasken Communication Technologies Ltd. His submission was that payments can be classified into three categories, viz., (a) purely capital payments which are not taxable, (b) payments which are of revenue nature but are exempt from tax either under the Act or under DTAA, and (c) payments with pure income characterisation. In the last category, there may be a portion which may not be taxable and the portion which is taxable is generally referred to as trading receipts. It was pointed out that sub-s. (2) of s. 190 was the guiding provision for entire Chapter XVII of the Act. It provides that either TDS or advance payment of tax cannot prejudice the charge of tax under s. 4(1) of the Act. Relying on the judgment of Eli Lilly, it was also pointed out that TDS provision was a machinery provision. Shri Khincha referred to Circular No. 786, dt. 7th Feb., 2000 (referred to by Shri Banusekar also) and contended that it is only the circular that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short period till the full text of the judgment is available. We did appreciate the contention of the learned Departmental Representative but proceeded with the hearing for the reason that about three interveners and one counsel for the assessee had come from out of Chennai and accordingly we did not want to inconvenience them. We assured the learned Departmental Representative that if the full text of the judgment comes within a reasonable time and before the order in this case is passed, we shall certainty consider the same. On 20th Nov., 2009, the learned Departmental Representative brought to our notice that the full text of the judgment is now available and he placed a copy of the same on record. It has since been reported in (2009) 227 CTR (Kar) 335 : (2009) 31 DTR (Kar) 257 : (2010) 320 ITR 209 (Kar) also. Accordingly, in order to give opportunity to both the parties to explain the judgment and thereby assist the Bench, the matter was reposted for hearing. Therefore, the contentions of the parties in relation to the judgment of the Karnataka High Court are narrated in the paras that now follow. 13. The learned Departmental Representative relied on the judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident assessee in respect of the payment received by the non-resident from a resident assessee cannot be an exercise that can be resorted to even for the purpose of determining the extent of obligation on the part of the resident payer and to ascertain as to whether there is any scope for relieving the resident payer totally from the obligation of deduction or even partially, as an answer for that can be obtained only by going through the procedure envisaged under s. 195(2) of the Act.........." Placitum 58 "..........as they are all virtually exercises to be embarked only at the time of determination of the actual tax liability of the non-resident assessee and in the absence of a return being filed by the non-resident assessee, examination of such questions does not arise while the AO is in the exercise of taking consequential action on an assessee who has failed to fulfil his obligation under s. 195(1) of the Act and, therefore, goes against the assessees and are answered accordingly." Placitum 74 ".......... Also an erroneous order and demand being raised by the AO under s. 201 of the Act, such as an incorrect description of the resident payer or incorrect comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) 250 : (2008) 300 ITR 231 (SC). 15. Shri Rajan Vora also argued on behalf of the assessee. His effort was to draw distinction between collection and recovery of taxes on the one hand and chargeability of income on the other. It was pointed out that the Board issues circular every year for the purposes of deduction of tax at source from salary under s. 192 of the Act. The issuance of such a circular would not have been necessary if tax was to be deducted on the entire amount of gross salary. Drawing analogy from this, Shri Vora argued that any payment in order to attract deduction of tax at source, must partake the character of income. He referred to s. 40(a)(i) of the Act to point out that the words used were "chargeable under this Act" and hence while considering any disallowance under this provision, the AO has to consider whether the payment was chargeable to tax or not. Next, Shri Vora referred to the alternate procedure prescribed by the Board of obtaining a chartered accountant certificate in lieu of the procedure under s. 195(2) of the Act. It was contended that the Karnataka High Court has not referred to this aspect at all in its judgment. Finally, referring to cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Jindal Thermal Power Company Ltd. in which it has been held that order under s. 201 is clearly appealable. On the other hand, in the case of Samsung Electronics Ltd. it has been held to be not appealable. To resolve these conflicting views, Shri Banusekar drew our attention to the judgment of the Andhra Pradesh High Court in the case of Ushodaya Enterprises Ltd. vs. Commr. of Commercial Taxes in Special Appeal No. 22 of 1996 decided on 24th March, 1998. At para 21 of the judgment, it has been observed as follows: "............. we can safely evolve the principle that in a case of conflict arising from the decisions of co-equal Benches of the Supreme Court, the High Court is free to disregard the decision which is based on an obvious mistake of fact or the one which purports to follow the ratio of an earlier decision though such ratio is found to be non-existent............ We are unable to persuade ourselves to subscribe to the view that the later decision should be automatically followed despite the fact that it rests on a conclusion based on an erroneous impression that an earlier decision took a particular view which in fact it has not taken.........." Reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even in cases where the payments are of capital nature or are otherwise not taxable. However, it is not proper to read the conclusion in isolation but the same has to be read in conjunction of what has been stated by the Court itself in the earlier part of its judgment. Such harmonious reading of the judgment is necessary to avoid getting a distorted view of the judgment. For this proposition, the learned counsel referred to the judgment of the Supreme Court in the case of Goodyear India Ltd. Ors. vs. State of Haryana (1991) 188 ITR 402 (SC). The observations of the Karnataka High Court on which Shri Khincha relied upon are reproduced below: Placitum 50: "..........the present situations and appeals are not appeals involving such questions but only appeals involving the question as to whether the payment or any part of the payment has a character of income within the meaning of s. 9 of the Act read with the charging section and that the contention being that no part of the payment made to the non-resident can become income either under the IT Act or enjoys an exemption under the DTAA.........." After reproducing extensively the observations of the Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.; (iv) Transmission Corporation of A.P. Ltd. vs. CIT. (b) The judgment in Samsung is contrary to at least five other High Court decisions and one ruling of the Authority for Advance Rulings, viz.,- (i) Porbandar State Bank vs. CIT (1950) 18 ITR 134 (Bom); (ii) CIT vs. Cooper Engineering Ltd. (1968) 68 ITR 457 (Bom); (iii) Czechoslovak Ocean Shipping International Joint Stock Co. vs. ITO (1971) 81 ITR 162 (Cal); (iv) CIT vs. Superintending Engineer, Upper Sileru (1985) 46 CTR (AP) 238 : (1985) 152 ITR 753 (AP); (v) CIT vs. Manager, State Bank of India; (vi) AL Nisr Publishing, In re (I999) 154 CTR (AAR) 268 : (I999) 239 ITR 879 (AAR). (c) The judgment in Samsung is contrary to some earlier decisions of the Karnataka High Court itself, viz. (i) Hyderabad Industries Ltd. vs. ITO (1991) 95 CTR (Kar) 164 : (1991) 188 ITR 749 (Kar); (ii) Jindal Thermal Power Co. Ltd. vs. Dy. CIT (2009) 225 CTR (Kar) 220 : (2009) 182 Taxman 252 (Kar) : (2009) 26 DTR (Kar) 172; (iii) Asstt. CIT vs. Motor Industries Co. (2001) 165 CTR (Kar) 377 : (2001) 249 ITR 141 (Kar); (iv) CIT vs. Infosys Technologies Ltd. (2007) 207 CTR (Kar) 620 : (2007) 293 ITR 146 (Kar). (d) The judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there are conflicting views between non-jurisdictional High Courts. In case of the first situation it was submitted that the Tribunal should follow the view which is favourable to the assessee as laid down by the Supreme Court in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC). In the second situation, the learned counsel submitted that the Tribunal may have the following options: (i) Follow the view in favour of the assessee or the view which appeals to the Tribunal as laid down by the Special Bench in the case of Rishi Roop Chemical Co. (P) Ltd. vs. ITO (1991) 39 TTJ (Del)(SB) 660 : (1991) 36 ITD 35 (Del)(SB). (ii) Follow the view which is the better view in the opinion of the Tribunal as laid down by the Ahmedabad Bench of the Tribunal in Chandulal Venichand vs. ITO (1991) 40 TTJ (Ahd) 358 : (1991) 38 ITD 138 (Ahd). (iii) Follow an earlier Special Bench decision, if available on the subject as laid down by a Third Member decision of the Ahmedabad Bench in Kanel Oil Export Inds. Ltd. vs. Jt. CIT (2009) 126 TTJ (Ahd)(TM) 158 : (2009) 30 DTR (Ahd)(TM)(Trib) 130 : (2009) 121 ITD 596 (Ahd)(TM). With regard to option (iii) above, it was pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te as to what is the issue before the Special Bench. Simply put, the question is that is it obligatory for the assessee to deduct tax at source on the entire payment if he has not applied to the AO under s. 195(2) of the Act for deduction of tax at a lower or nil rate of tax. The question is both, easy as well as difficult to answer. It is easy because scores of decisions are available on the subject from different judicial forums including several decisions from the Supreme Court itself. It is difficult because despite so many authorities available on the subject, the volcano of s. 195 has been sporadically erupting. The issue simply refuses to die down or at least go into a dormant mode for some time. The key judgment is that of the Supreme Court in the case of Transmission Corporation. The difficulty gets compounded because both the sides rely on this judgment heavily according to their respective understanding and interpretation of the judgment. The latest judgment on the issue, that is by the Karnataka High Court in the case of Samsung has added a new dimension to the controversy. Bewildered as we are in the maze of multiple authorities and are caught in the cauldron, we shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may make an application in the prescribed form to the AO for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-s. (1). (4) A certificate granted under sub-s. (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the AO before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of Revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-s. (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. (6) The person referred to in sub-s. (1) shall furnish the information relating to payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicable to the payer of income. In reply to this contention, the Court observed at placitum 30 as follows: "To answer the contention herein we need to examine briefly the scheme of the 1961 Act. Sec. 4 is the charging section. Under s. 4(1), total income for the previous year is chargeable to tax. Sec. 4(2), inter alia, provides that in respect of income chargeable under sub-so (1), income-tax shall be deducted at source whether it is so deductible under any provision of the 1961 Act which, inter alia brings in the TDS provisions contained in Chapter XVII-B. In fact, if a particular income falls outside s. 4(1) then the TDS provisions cannot come in." From the above two decisions of the Supreme Court, it is abundantly clear that s. 195 will be applicable only if the payment made to the non-resident is chargeable to tax. Let us revert to the case of Transmission Corporation. In that case, the argument of the assessee was that s. 195 would be applicable only if the whole of the payment constitutes income chargeable to tax. This argument of the assessee is on p. 591 of 239 ITR. The Supreme Court negatived this argument. At p. 594 of the Report, the Supreme Court observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then s. 195(1) will not apply because as we have observed earlier, s. 195 will apply only if the payment is chargeable to income-tax, either wholly or partly. 25. We now take up the discussion with regard to sub-ss. (2) and (3) of s. 195 together. In para 24 above, on the basis of the judgment in the case of Transmission Corporation, it is observed that where only a part of the payment bears income character, the payer may make an application under s. 195(2) for deduction of tax at appropriate rates. This is the purport of sub-s. (2). Sub-s. (3) is materially different from sub-s. (2) in two ways. Firstly, under sub-s. (2), it is the payer who applies to the AO for deduction of tax at lower rates. Under sub-s. (3), it is the payee who makes an application to the AO. The second and the more important difference between the two sub-sections is that under sub-s. (2), the payer can make application only for deduction of tax at a lower rate, whereas under sub-s. (3), the payee can make application to receive the payment without any deduction of tax. The question that arises is that why it is only the payee who can make an application to receive payment without deduction of tax and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the payment or any part of it bears income character. Therefore, in our view, it is the payer who is the first person to decide whether the payment he is making bears any income character or not. Now we can visualize various situations that can arise for the applicability of s. 195: (a) If the bona fide belief is that no part of the payment has any portion chargeable to tax, s.195 would be totally inapplicable. (b) If the payer believes that whole of the payment is income chargeable to tax, he will be liable to deduct tax under s. 195(1) of the Act. (c) If he believes that only a part of the payment is chargeable to tax, he can apply under s. 195(2) for deduction at appropriate rates. (d) If the payer believes that a part of the payment is income chargeable to tax and does not make an application under s. 195(2), he will have to deduct tax from the entire payment. (e) If the payer believes that the entire payment or a part of it is income chargeable to tax and fails to deduct tax at source, he will face all the consequences under the Act. (f) If the payer believes that he has to deduct tax and expresses this duty of his to the payee, it is for the payee then to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payer believes that a part of the payment is income chargeable to tax, and does not make an application under s. 195(2), he will have to deduct tax from the entire payment. This is the mandate of the judgment in the case of Transmission Corporation and the relevant observation is on p. 595 of the Report. Thus, the interest of the Revenue stands protected. (e) If the payer believes that the entire payment or a part of it is income chargeable to tax and fails to deduct tax at source, he will face all the consequences under the Act. The consequences can be the raising of demand under s. 201, disallowance under s. 40(a)(i), penalty, prosecution etc. The interest of the Revenue stands protected. (1) If the payee wants to receive the payment without deduction of tax, he can apply for a certificate to that effect under s. 195(3) and if he gets the certificate, no one is adversely affected. (g) If the payee fails to get the certificate, he will have to receive payment net of tax. No interest is jeopardised. Thus, in all the possible situations described above, the interests of all the parties are protected. Further, one cannot lose sight of one underlying principle in the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the AO accompanied by a certificate from an accountant (other than an employee) as defined in the Explanation below s. 288 of the IT Act, 1961, in the form annexed to this circular. The person making the remittance shall submit the undertaking along with the said certificate of the accountant to the RBI, who in turn shall forward a copy thereof to the AO." Two important aspects are noteworthy in the above circular. Firstly, in the first para the Board confirms that the payer has to deduct tax at source only when he is paying any sum chargeable under the Act. Secondly, it was the office manual of RBI which compelled the payer to obtain a no objection certificate from the Department. The Board must have appreciated the difficulty faced by the remitters that even where the sums paid to the non-resident were not chargeable under the Act, the RBI manual compelled the remitter to obtain the no objection certificate. To mitigate this hardship, the Board evolved the procedure of filing an undertaking by the remitter and a certificate obtained from a chartered accountant. Considering the circumstances in the background of which the procedure was evolved, it is clear indication that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to business income and asks a question, amongst others, whether it is liable to tax in India or not, and if not, the reasons thereof. Finally, column No. 9 requires the chartered accountant to state the reasons for non-deduction of tax at source if no tax is deducted. The new format of the chartered accountant certificate clearly establishes the legal position of s. 195 that the payer need not undergo the procedure of s. 195 at all if he is of the bona fide belief that no part of the payment is chargeable to tax in India. If at all the payer believes that the entire payment is chargeable to tax, he has to deduct tax at source under s. 195(1) of the Act. If he is of the bona fide belief that only part of the payment is chargeable to tax, he may apply for deduction at appropriate rates under s. 195(2) of the Act. We just mentioned above that the payer need not undergo the procedure of s. 195 at all if he is of the bona fide belief that no part of the payment is chargeable to tax. In this situation, the payer has the option to furnish the undertaking and the chartered accountant certificate. He may also furnish these documents in case the tax is deducted at lower rates. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efer to certain judicial pronouncements cited at the Bar. Though scores of decisions have been cited by the appellant and the interveners, we shall be referring only to a few of them. In the case of Vijay Ship Breaking Corpn. Ors. vs. CIT, the question before the Supreme Court was whether usance interest partakes the character of purchase price and therefore TDS is not deductible. Of course when the Supreme Court delivered its judgment, the Act had been amended by adding Expln. 2 to s. 10(15)(iv)(c) exempting the said income from Indian taxation. Nonetheless, the Court did observe that since tax was not assessable in India, there was no question of TDS being deducted by the assessee. It has been argued by the Department that since the TDS provisions are tentative in nature, and hence not prejudicial to the interests of the payer, it is mandatory for the latter to undertake the exercise under s. 195 of the Act. In this connection, the Supreme Court has held in the case of Bhawani Cotton Mills Ltd. vs. State of Punjab AIR 1967 SC 1616 that if a person is not liable for payment of tax at all, at any time, the collection of tax from him, with a possible contingency of refund at a lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no right of appeal is to be rejected. In the case of CIT vs. Infosys Technologies Ltd., the Karnataka High Court held that the stock option did not amount to perquisite and did not come under "salary" and hence the order under s. 201(1) was not valid. In the case of Asstt. CIT vs. Motor Industries Co., the Karnataka High Court held that the assessee was not obliged to deduct tax at source in respect of the amounts credited to the suspense account in its books of account as at that point of time the collaboration agreement was not in force. 33. Only two decisions of the jurisdictional High Court have been cited before us. One is in the case of CIT vs. India Pistons Ltd. (2006) 203 CTR (Mad) 330 : (2006) 282 ITR 632 (Mad). In that case, the AO had disallowed interest paid on foreign bills under s. 40(a)(i) on the ground that no TDS was deducted. The High Court gave a finding that since the amount was not a loan and the amount of interest paid was not interest on loan, deduction of tax at source is not attracted. The second decision is in the case of Areva T D India Ltd. vs. ITO (2008) 218 CTR (Mad) 128 : (2008) 10 DTR (Mad) 82 : (2008) 299 ITR 76 (Mad). This matter arose from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State, in the absence of any judgment of the jurisdictional High Court on the point. The golden rule of interpretation of taxing statutes that where two reasonable views are possible, the view in favour of the taxpayer must be adopted is a simple rule which could be followed by a Division Bench of the Tribunal when confronted with judgments of High Courts other than those of the jurisdictional High Court, but that rule may not always work effectively when a Special Bench is constituted to decide the issue, for, if the Special Bench is merely to adopt the rule the same can be done with equal case by a Division Bench also and a reference to a Special Bench can turn into an academic exercise. Therefore, there is a duty cast on the Special Bench to examine the issue in the light of the various views expressed by the High Courts of other States and take guidance from them with utmost respect and humility. But even so, such an examination can cover only a limited sphere, for, as already pointed out, no lower Tribunal can afford to take the weight of the judgments of High Courts, though of different States, lightly and proceed to consider the entire issue afresh, as if for the first time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in the case of Samsung Electronics. Further, in substance we have followed the Supreme Court judgments discussed above and also the other High Courts judgments discussed earlier. As mentioned in the case of Lalsons, even the Division Benches could have followed those decisions. However, being conscious of the fact that this is a Special Bench, we have tried to examine and explain the issue in the light of various views expressed by various High Courts and have taken guidance from them with respect and humility. In our examination of the various views, we found it necessary to explain the practical application of the principles laid down by the superior Courts. Two specific issues, in our opinion, required such explanation. One issue is as to who decides whether the payment made to the non-resident is chargeable to tax or not. Based on the language used in s. 195(2) (explained by us in para 26) and on the basis of the principles laid down by the superior Courts we have come to the conclusion that at the first instance it is the payer who decides whether the payment has any income character or net. The second issue is whether the payer can enter into an exercise which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of the High Court, though not of the jurisdictional High Court, on the ground that it is above the Tribunal in the judicial hierarchy. However, the Third Member took note of two exceptions to this simple view. One is that when there are several decisions of non-jurisdictional High Courts expressing contrary views, it has been recognised that the Tribunal is free to choose to adopt that view which appeals to it. Following this principle, the Ahmedabad Bench in the case of Chandulal Venichand, which was also cited before us chose the decision of a particular High Court because it appealed to them the most. The second exception mentioned by the Third Member is when a judgment is rendered per incuriam. In the present case, as mentioned earlier, we do not have any direct decision of the jurisdictional High Court. Amongst the non-jurisdictional High Courts, we have contrary decisions from Karnataka High Court itself. Since the decisions rendered by the said High Court rendered prior to the decision in Samsung Electronics appeal to us more, we have tried to follow the same. Moreover, from the judgment in the case of Samsung Electronics, it appears that perhaps the alternative proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. It further held as follows: "The question referred for the consideration of the Larger Bench highlights the various aspects including its factual background on which the assessee based its claim that the sum of Rs. 1,07,29,848 was not income at all. The stand of the Revenue is also reflected in the question when reference is made to the assessability of the aforementioned amount under the head 'Income from other sources'. The question is framed in order to enable the possible interveners to understand the issue or the range of controversy going to be considered by the Special Bench, so that they could assist the Bench by placing their views on the issue concerned. However the entire appeal is open before the Special Bench, and is not confined to the question framed like a question of law framed and referred to the High Court under s. 256 of the IT Act, 1961. We overrule the preliminary objections of the Revenue." In the present case, the grievance of the Department reflected in the grounds of appeal is covered by the question referred to the Special Bench. We have mentioned this fact in para 2 of this order. Further, s. 255(3) also provides that the President may, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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