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TMI Blog2016 (5) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... nectivity India Private Limited ('TECIL') was an "Assessee in Default" for not deducting and remitting tax on provision for expenses created in the financial statement as on March 31 and reversed in subsequent month. 3) That the learned CIT(A) failed to understand that the provision for expenses were created in the financial statement for the purpose of complying with the mercantile system of accounting and taxes were withheld as and when the actual invoices were received from vendors. 4) That the Learned CIT(A) failed to appreciate that the provision for expenses were contingent in nature, and hence tax was not withheld on such provisions. 5) The Appellant prays for appropriate relief based on the above grounds of appeal and the facts and circumstances of the case and in deletion of the tax payable amounting to Rs. 29,82,454. 6) That the Appellant craves leave to add to and/ or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. Briefly, facts of the case are that the assessee is a company engaged in the business of manufacture and trading in electrical and electronic inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Power Transmission Corporation Ltd. vs. DCIT (Kar.) ii. E.D.Sassoon & Co.Ltd. vs. CIT (26 ITR 27)(SC) iii. Ramsh R.Saraiya vs. CIT (55 ITR 699)(SC) iv. Bharat Earth Movers vs. CIT (112 Taxman 61 (SC) v. Taparia Tools Ltd. vs. JCIT (126 Taxman 544)(Bom) vi. CIT vs. Life Insurance Corporation (25 Taxman 6)(MP) vii. CIT vs. Kannan Devan Hill Produce Co. Ltd. (30 Taxman 460(Ker.) viii. Director of Income-tax vs. Ericsson Communications Ltd.(ITA 106/2002)(Del.) ix. CIT vs. Rishikesh Apartments co-op. Housing Society Ltd. (119 Taxman 239)(Guj) x. Dishnet Wireless Ltd. vs. DCIT (ITA Nos.320 to 329/Mds/2014)(ITAT, Madras) xi. Director of Income-tax vs. Telco Construction Equipment Co. Ltd.(ITA No.478/Bang/2012 (ITAT,Bang) xii. M/s.Bosch Ltd. vs. ITO (ITA No.1583/Bang/2014)(ITAT, Bang) xiii. Pfizer Ltd. vs. ITO (TDS)(OSD) (28 Taxmann.com 17(ITAT, Mumbai) xiv. Industrial Development Bank of....vs. ITO (107 ITD 45)(ITAT, Mumbai) xv. xvi. Uttar Pradesh Financial Corporation vs. ITO (ITA Nos.642 l& 643/Lkw/2010)(ITAT,Lucknow) 5.2 On the other hand, learned DR relied on the orders of the lower authorities. 6. We heard the rival submissions and pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the payer. On analysis of provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in section 195. For example, section 194C casts an obligation to deduct TAS in respect of " any sum paid to any resident". Similarly, sections 194EE and 194F, inter alia, provide for deduction of tax 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 provide information to the Income tax Officer (TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e section 4,5 and 9. This reasoning flows from the words " sum cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssarily 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 provision in the Income-tax Act by which a payer can obtain refund. Section 237 read with section 199 implies that only the recipient of the sum i.e. the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act. In a given case where the payer is an assessee 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 Incometax 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 requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from April 1, 2008. It will only apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. Applicability of the judgment in the case of Transmission Corporation (supra) In Transmission Corporation's case (1999) 239 ITR 587(SC) a nonresident had entered into a composite contract with the resident party making the payments. The said composite contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Transmission Corporation case (1999) 239 ITR 587 (SC) which are put in italics have been completely, with respect misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the nonresident is not at all ' chargeable to tax in India'., then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lay down that tax at source is deductable only from " sums chargeable" under the provisions of the Income Tax Act, i.e. chargeable under sections 4,5 and 9 of the Income Tax Act." 10. Now to determine where there was income accrued or not considering the fact that the provisions were made at the year end is reversed in the beginning of the next accounting year goes to show that there was no income accrued. Mere entries in the books of accounts does not establish the accrual of income in the hands of the payee as held by the Hon'ble Supreme Court in the case of CIT Vs M/s Shoorji Vallabhdas & Co. 46 ITR 144 wherein it was held as follows; " That the subsequent agreement had altered the rate of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes the tax deductor to deduct "income-tax" on "any income by way of interest other than income by way of interest on securities". The phrase "any income" and "income-tax thereon" if read harmoniously, it would indicate that the interest which finally partakes the character of income, alone is liable for deduction of be income-tax on that income by wav of interest. If the said interest is not finally considered to be an income of the deductee, as per reversal entries of the provision in the present case, section 194A(1) of the Act would not be made applicable. In other words, if no income is attributable to the payee, there is no liability to deduct tax at source in the hands of the tax deductor. In view of the admitted fact that interest being not paid to the payees (suppliers) being reversed in the books of account, we are of the considered opinion that there would be no liability to deduct tax as no income accrued to the payees (suppliers). It is true that in the case of Ericsson Communication Limited (supra), the Delhi High Court was dealing with the case of section 195 of the Act wherein obligation of a person to deduct tax at source would be applicable to the "income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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