TMI Blog2014 (3) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... T and Anr., [2010 (9) TMI 7 - SUPREME COURT OF INDIA ] a person paying any sum to the non-resident is liable to deduct tax u/s 195 only if such sum is chargeable to tax in India and not otherwise - the Assessing Officer observed that assessee not deducted the TDS as required u/s 195 and, therefore, he treated the assessee as ‘the assessee in default’ - lower authorities did not go into the merits of the case on a question of chargeability of income tax –thus, the order is set aside and the matter remitted back for fresh consideration to determine the income chargeable to tax – Decided in favour of Assessee. - ITA Nos. 309 & 310/Hyd/2011 - - - Dated:- 21-2-2014 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Sri S. Ravi For the Respondent : Sri D. Sudhakar Rao ORDER Per Chandra Poojari, AM: These appeals preferred by the assessee are directed against separate orders of the CIT(A)-V, Hyderabad dated 20/01/2011 for the assessment years 2008-09 and 2009-10. Since the facts and issues are common in these appeals, they were clubbed and heard together, therefore, a common order is passed for the sake of convenience. 2. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in upholding the action of the Assessing Officer in applying surcharge @ 10% while determining the withholding tax liability without appreciating that the said surcharge is not applicable under the facts of the case where the foreign nationals have incurred capital loss and hence there is no taxable income exceeding Rs. 10 lakhs for surcharge to be applicable. 6. The learned CIT(A) erred in confirming levy of interest u/s 201(1A) of the Act. 7. The learned CIT(A) erred in observing that the appellant company would be liable for penal action for non-deduction of tax at source without appreciating that as the foreign nationals had incurred capital loss, the appellant company was under a bonafide belief that tax is not required to be withheld at source u/s 195 of the Act. 3. To dispose of these appeals, we refer to the facts from AY 2008-09 being ITA No. 310/Hyd/2010. Briefly the facts of the case are that the assessee company is a part of the Sanofi Aventis Group of France. Sanofi Aventis had entered into an agreement with Merieux Alliance and acquired 80% shares of Shanta Biotechnics Ltd. The Assessing Officer passed an order u/s 201(1) of the Act holding that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional evidence. The additional evidence was in the form of information regarding some of the NRIs from whom the tax had not been deducted at source but who had later paid the taxes. A detailed paper book in 2 volumes was also filed incorporating the additional evidence. This additional evidence was sent in the 2 paper books to the Assessing Officer for his remand report which was received by the CIT(A) on 16/12/2010. Upon being confronted with a copy of the remand report, the assessee gave its counter comments on 20th December, 2010. 4.1 The CIT(A) after considering the submissions of the assessee along with additional evidence, and remand report from the Assessing Officer and counter comments from the Assessee, elaborately discussed and examined the issue with various case laws and held as follows: 8.5.1.......it is held that the transactions in question were chargeable to tax in India and the appellant had a statutory duty to deduct tax. In the absence of any applications u/s 195(2) tax was to be deducted as per the schedule by the appellant. Therefore, the Assessing Officer correctly held the appellant to be assessee in default . However, subsequently, some non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay the tax. This is because there is no mechanism available in the Act to refund such tax to the payer if the payee subsequently does pay the tax. Thus, in the absence of any such mechanism, an interpretation should be placed on sections 191 and 201 of the Act which make the provisions workable. 6.2 Without prejudice to the above, the AR submitted that in good faith and with the intent of cooperating with the tax department, information is being collected from NRIs regarding their tax compliance and some of them have paid their taxes or would be filing their return of income in India and paying taxes on the capital gains accrued in India as soon as they receive the PAN for which they have applied. Therefore, the AR submitted that the it would be the assessee s earnest endeavour to see that all tax liabilities are met. 6.3 The AR submitted that payer cannot be called upon to deduct and pay tax where the payee has paid taxes. In this connection, it is submitted that where the taxes are paid by the payee, the payer cannot be once again asked to withhold tax at source u/s 195 and pay the same to the credit of the Government Treasury. Reference in this connection was made to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD 49) Sterling Abrasives (IT No.2243, 2244/Ahd/ 2008 dated 23-12- 2010) and Metro Metro vs. ACIT (ITA No.393/Agra/2012 dated 1-11-2013). Hence under the Act the disallowance u/s 40(a)(i)for FTS payments cannot be upheld. 2. GE India Technology Centre P. Ltd. Vs. CIT and Anr., [2010] 327 ITR 456 (SC) 3. M/s New Bombay Park Hotel Pvt. Ltd. Vs. ITO, ITA No. 7641/Mum/2011, order dated 01/10/2013. 4. Sterling Abrasives Ltd. Vs. ITO, ITA Nos. 2243 2244/Ahd/2008, order dated 23/12/2010. 5. Channel Guide India Ltd. Vs. ACIT, [2012] 25 Taxmann.com 25 (Mum.) 6. Mahindra and Mahindra Ltd. Vs. DCIT, [2009] 313 ITR (AT) 263 (Mum) (SB). 7. On the other hand, the learned DR submitted that the assessee had not deducted at source on the sale consideration paid to the foreign nationals as the same was statutorily required u/s 195(1) of the Act and the assessee had also not exercised the option available u/s 195(2) nor any of the payees had exercised the option available u/s 195(3) or 197. The DR, therefore, contended that since the assessee failed in fulfilling the obligation u/s 195(1) of the Act, the Assessing Officer has rightly treated the assessee as the assessee in def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te proportion of income chargeable under the Act forming part of the gross sum of money payable to the nonresident. It is for this reason that the CBDT has clarified in Circular No. 728 dated October 31, 1995, that the tax deduction can take into consideration the effect of the DTAA in respect of payments of royalties and technical fee while deducting tax at source. The expression chargeable under the provisions of the Act in section 195(1) shows that the remittance has got to be of a trading receipt, the whole part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted. 8.1 It was contended by the learned AR that there is no obligation on the part of the assessee to deduct any amount from the payments as they were fully and bonafidely satisfied that the amount was not taxable in the hands of the non-resident in India and being so, it was chosen not to deduct TDS and also not made application u/s 195(2)/195(3). It was argued that u/s 195 the word used in are chargeable to tax and hence, a person deducts any tax u/s 195 would have necessarily has to seen whether the sum shall be chargeable to tax and then onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person paying any sum to the non-resident is liable to deduct tax u/s 195 only if such sum is chargeable to tax in India and not otherwise. 8.6 So considering the facts and circumstances of the present case, the Assessing Officer observed that assessee not deducted the TDS as required u/s 195 and, therefore, he treated the assessee as the assessee in default . However, lower authorities did not go into the merits of the case on a question of chargeability of income tax. Therefore, it is appropriate to set aside the orders of the lower authorities and remit back the issue in dispute for denovo consideration to determine the income chargeable to tax. Accordingly, in the light of the judgment of the Hon ble Supreme Court in the case of GE India Technology Centre P. Ltd., we are inclined to remit the entire issue to the file of the of the Assessing Officer for fresh consideration and decide the same in accordance with law. 8.7. As we have remitted the issue of treating the assessee by the revenue authorities as the assessee in default u/s 201(1) of the Act, the other grounds raised by the assessee become irrelevant at this stage and, therefore, the same are not required to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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