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2015 (12) TMI 838 - MADRAS HIGH COURT

2015 (12) TMI 838 - MADRAS HIGH COURT - [2015] 378 ITR 621 (Mad) - TDS liability - tax liability in terms of Section 201 (1) - Held that:- In the present transaction, admittedly there is no liability to tax. As a result, the question of deducting tax at source and the assessee violating the provisions of Section 195 does not arise and therefore, the assessee cannot be treated as an assessee in default. The Supreme Court has clearly held that the provisions relating to TDS would apply only to tho .....

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demand unsustainable in law. In the instant case, we hold that the original authority having accepted "Nil" tax liability, the question of levy of interest would not arise. The C.I.T. (Appeals), in paragraph 24.1 of his order dated 30.01.2004, had held that there should be determination of interest under Section 201 (1A) contrary to his own findings in paragraph 24.2. The authority has accepted in the second limb that there exists '' no tax liability'' in terms of Section 201 (1) of the I.T.Act. .....

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: Mr. R. Vijaya Raghavan for M/s. Subbaraya Aiyar Padamanabhan and Ramamani For the Respondent : M/s. Hema Muralikrishnan JUDGMENT ( Judgment of the Court was delivered by R. Sudhakar, J.) The assessment year in question is 2002-2003. The cause of action for the present appeal is purchase of shares by the assessee / appellant from M/s.Suzuki Motor Corporation, Japan, who sold the same in dollar terms in a sum of US $ 18,83,239 equivalent to ₹ 9 crores. M/s. Suzuki Motor Corporation, Japan .....

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putation of capital loss on the sale of 6,000,000 equity shares of ₹ 10/- each held by M/s. SUZUKI MOTOR CORPORATION, Japan, in TVS SUZUKI LIMITED ( now known as TVS Motor Company Limited), Chennai 600 006. 1. Agreed sale price in Indian ₹ 90,000,000 2. Sale price converted in US Dollars (A) 1,883,239 @ ₹ 47.79=1 US $ (as on 5.11.2001) 3. Cost of acquisition in the hands of Suzuki Motor Corporation, Japan, in foreign currency viz. US $ Date of Remittance No. of Shares Amount in .....

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...) ( sd.....) 2. This transaction, according to the Department, would attract the provisions of Section 195 of the Income Tax Act, and, therefore, the first assessment order was passed by the Assessing Authority on 25.04.2003. This was objected to by the assessee by way of appeal before the Commissioner of Income Tax (Appeals), who passed the following order on 30.01.2004 : 24. Taking into consideration of the facts, I am of the considered opinion that the orders passed by the assessing office .....

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giving effect to this order. ii) The assessing officer should re-compute the liability of the appellant under sec. 201 (1) by computing tax liability of the deductee and ignoring the return of income filed on behalf of the deductee unless the decision of the concerned assessing officer is reversed by a competent authority. In the result, the appeal of the appellant is partly allowed. Though the order in paragraph 24 as above appears to be misplaced, the effect of the order is that the Assessing .....

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quently, payment of interest in terms of Sec. 201 (1A) would not arise is the contention of the assessee appellant. 4. The Income Tax Officer, while giving effect to the order of the Commissioner (Appeals) dated 30.01.2004 accepted the assessee's contention that there is no tax liability in terms of Section 201 (1). However, by complying with the directions issued by the Commissioner (Appeals) in his order dated 06.08.2004, the Income Tax Officer, vide his order dated 12.08.2004, determined .....

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ition for rectification of the order dated 22.03.2004. This petition was disposed by an order u/s. 154 dated 16.04.2004. The assessee had filed an appeal with the CIT (A) against the order u/s 201 (1) and 201 (1A) dated 22.03.2004. The order of the CIT (A) in ITA No.8/2004-05/A-XI dated 06.08.2004 has been received. 2. The CIT (A) has stated in page 4 "The stand of the apellant is correct. The AO is hereby directed to give effect to para 24 (ii) of the order of CIT (A) dated 30.01.2004 and .....

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) 201 (1A) Demand vide order dt.16.04.2004 Rs.1,80,00,000/- ₹ 60,30,000/- Demand as per this order Nil ₹ 60,30,000/- Reduction in demand Rs.1,80,00,000/- Nil 3. The reduction in demand as a result of this order is ₹ 1,80,00,000/-. The assessee is hereby directed to make payment of demand of ₹ 60,30,000/- which was levied u/s. 201 (1A), immediately." 5. Aggrieved against paragraph 24.1 of the Order of the Commissioner of Income Tax Appeals, the assessee approached the .....

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tax, nor paid the tax to the Government and therefore, the assessee is in default in respect of the tax not deducted or paid to the exchequer and once, it is found that the assessee is in default, the interest under Section 201 (1A) is mandatory. 6. Assailing the said order, the assessee has preferred this appeal which was admitted on the following questions of law :- " 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant is lia .....

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1) 3. Whether on the facts and circumstances of the case, the Tribunal was right in confirming the computation of levy of interest under Section 201 (1A) on the basis of notional rate of tax on the entirety of sale consideration and computed till date of the order passed by the assessing officer totally ignoring the provsions of Section 201 (1A) " 7. The provisions of law which are relevant to the issue on hand viz. Sections 195, 201 (1) and 201 (1A) of the Income Tax Act, read as follows : .....

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sequences of failure to deduct or pay. 201. [(1) Where any person, including the principal officer of a company, (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, .....

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te on which such tax was deductible to the date on which such tax is actually paid 45[and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200].] " 8. A reading of Section 195 of the I.T. Act makes it clear that any person responsible for paying to a non resident shall, at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier, .....

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under the provisions of the Act" in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. (See : Vijay Ship Breaking Corporation v. CIT [2009] 314 ITR 309). 9. One more aspect needs to be highlighted. Section 195 falls in Chapter XV .....

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in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in section 195(1). Therefore, this court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to .....

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strue section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean oblit .....

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d 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 Incometax 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 so .....

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hat the Income-tax Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the Incometax Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no pro .....

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ct. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, section 195(2) provides a remedy by which a person may seek a determination of the & .....

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ug the loophole as the said interpretation requires the payer to make a declaration before the Incometax 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, .....

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ee-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 for the said sum as an "expenditure". Under section 40(a)(i), inserted, vide Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for tech .....

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ssessee he will definitely claim deduction under the Income-tax Act for such remittance and on inquiry if the Assessing Officer finds that the sums remitted outside India come within the definition of royalty or fees for technical service or other sums chargeable under the Income-tax Act then it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008, with effect from April 1, 2008, sub-section (6) has been inserted in section 195 which .....

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he C.I.T. (Appeals) dated 30.01.2004, is in consonance with the decision of the Supreme Court. In the present transaction, admittedly there is no liability to tax. As a result, the question of deducting tax at source and the assessee violating the provisions of Section 195 does not arise and therefore, the assessee cannot be treated as an assessee in default. The Supreme Court has clearly held that the provisions relating to TDS would apply only to those sums which are chargeable to tax under th .....

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