TMI Blog2012 (5) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 106/Chny./2009 dated 11.6.2010 dismissed the appeal of the assessee and held that assessee was obliged to deduct tax at source on the payment of commission effected by it. 3. We have heard the submissions of A.R. It has been fairly admitted that the issue is covered against the assessee by this Tribunal in an appeal against revision under Section 263 of the Act passed by CIT. This Tribunal, vide paras 5 to 7 of its order in I.T.A. No. 106/Chny./2009 dated 11.6.2010, held as under:- 5. We have heard the rival submissions. Perusal of the order of the C.I.T shows that the Ld. C.I.T. has raised two issues in his 263 order. The first one is in respect of the royalty of an amount of ₹ 19,84,000/-, he has restored to the file of the Assessing Officer for examination. The assessee has not objected to this. In respect of second issue being consultancy charge of ₹ 95,99,000/- paid to the two representative of the assessee, it is noticed that Ld. C.I.T has enhanced the assessment. Perusal of the assessment order passed on 27.12.06, which is the subject matter of revision shows that the Assessing Officer has not verified or stated anything about the verification of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current journals, magazines pertaining to the automobile industry to support the research department activities of the assessee companies group. Perusal of the obligations clearly show that it is not plain reimbursement of expenses, but in fact the two non-residents being the representative have been remunerated for the services rendered by them to the assessee. The representatives must have technical knowledge as they are to assist in selling the products of the assessee and also assist the assessee s group of companies in getting the technical knowledge for bettering the products. Further, perusal of the order of the C.I.T shows that the Ld. C.I.T has drawn support from the decision of the Hon ble Supreme Court in the case of Transmission Corporation of A.P. Ltd reported in 239 ITR 587, as also the decision of Delhi Bench of this Tribunal in the case of Van Oord ACZ India (P) Ltd., reported in 112 ITD 79 to draw an inference that the payer is required to deduct tax on such payments made to non residents u/s.195 and it should be at the rates in force and if the assessee payer wants to deduct at lower rate than the prescribed rate or if no deduction is required to be made, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that income which is chargeable to income-tax under sub-section (1) of sec.4, the provisions of TDS and advance tax shall apply. Impliedly, if the income is not chargeable to tax, provisions of TDS and advance tax will not apply. This aspect has been again clarified by the Supreme Court in the case of Eli Lilly Co. (312 ITR 225). In this case, it was argued that TDS provisions are independent of the charging provisions which are applicable to the recipient of income whereas the TDS provisions are 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. Section 4 is the charging section. Under sec.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-section (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 35 ITA 663/03 contained in Chapter XVII-B. In fact, if a particular income falls outside sec.4(1) then the TDS provisions cannot come in. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable , is to be understood as * that only part of such sum has income character, and it is not to be understood to mean * that the entire payment is without income character. If the payer fails to make an application under sec.195(2), then the payer will have to deduct tax from the entire payment. We repeat, that this ruling of the Supreme Court is applicable only where the entire payment bears income character and also where part of the payment bears income character. To put it differently, if the payer has a bona fide belief that no part of the payment has income character, then sec.195(1) will not apply because as we have observed earlier, sec.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 subsections (2) and (3) of sec.195 together. In para 24 above, on the basis of the judgment in the case of Transmission Corporation (supra), it is observed that where only a part of the payment bears income character, the payer may make an application under sec.195(2) for deduction of tax at appropriate rates. This is the purport of subsection (2). Sub-section (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s expected to know what income is taxable or not taxable in his own case, why can t he decide in respect of the payment he is making to non-resident. It is to be appreciated that the payer has not to determine the tax liability of the total income of the payee. He has to consider the chargeability only in respect of the payment he is making to the payee. Further, subsection (2) states, Where the person responsible for paying (emphasis supplied) any such sum chargeable under this Act to a non-resident considers (emphasis supplied) that the whole of such sum would not be income chargeable in the case of the recipient,... (emphasis supplied). Consider the words which are underlined by us. They clearly indicate that it is the payer who will first consider 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 visualise various situations that can arise for the applicability of sec.195: (a) If the bona fide belief is that no part of the payment has any portion chargeable to tax, sec.195 would be totally inapplicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved at page 595 of 239 ITR. Secondly, the Delhi High Court has held in the case of D.D.A. Vs. ITO (230 ITR 9) that an order passed under sec.201(1) is an assessment order and the said decision has been affirmed by the Supreme Court in 252 ITR 772. In any case, the liability of the payer cannot exceed that of the payee. And if the payer is dissatisfied with the order under sec.201, he will have recourse to appeal against the said order. Thus, interests of both the parties are protected. (b) If the payer believes that whole of the payment is chargeable to tax and if he deducts and pays the tax, no problem arises. (c) If the payer believes that only a part of the payment is chargeable to tax, he can apply under sec.195(2) for 41 ITA 663/03 deduction at appropriate rates and act accordingly. No interest is jeopardised. (d) If the payer believes that a part of the payment is income chargeable to tax, and does not make an application under sec.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 (supra) and the relevant observation is on page 595 of the report. Thus, the interest of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Van Oord ACZ India (P) Ltd., the Special Bench has come to conclusion that if the assessee has a bona fide belief that no part of the payment has any portion chargeable to tax then the provisions of Sec.195 would be totally inapplicable. The main crux of the decision lies in the bona fide belief of the assessee. The bona fide belief cannot be proved by any person other than the assessee. There is a substantial difference between the conduct of the assessee and the bona fide belief. The assessee might not have deducted TDS that would be the conduct of the assessee but that he felt that there is no income in the hands of the recipient in respect of the payments made by the assessee to the non-resident recipient is to be shown to prove the bona fide as mentioned earlier. The payments made by the assessee to two representatives is plain and simple remuneration and not reimbursement of expenses. In fact, in the submissions made by the assessee, which is extracted in page-3 page-5 of the order of the C.I.T the word used is remunerated. The remuneration is well understood to encompass within itself the element of income. In the circumstances, it cannot be said that the assessee had a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the condition that the income of the non-resident, which has accrued in India has been offered for taxation in the country in which they are resident. In the assessee s case here, we are dealing with the applicability of the provision of Sec.195 and consequently the effect of non-deduction of TDS u/s.195 r.w.s. 40(a)(i). As we have held that the assessee does not have a bona fide belief for non-deduction of tax nor the assessee has been able to prove that it had bona fide belief that the income of the non-resident representative were not taxable in India and hence we are of the view that the Ld. C.I.T. was right in holding that non deduction of TDS u/s.195 does deny the assessee the benefit of deduction of expenditure of the remuneration paid to the two non-residents to the extent of ₹ 95.99 lakhs and consequent enhancement of the assessment thereof. In the circumstances, the appeal of the assessee is dismissed. We, therefore, do not find any merits in the appeal filed by the assessee which, therefore, stands dismissed. 4. In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court after conclusion of hearing on 3rd May, 2012. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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