TMI Blog2016 (5) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... 06-07. 2. The assessee raised the following grounds of appeal: The grounds mentioned herein are without prejudice to one another. 1) That the order passed by the Learned Commissioner of Income-Tax (Appeals), LTU ['CIT(A)'] under section 250 of the Income-tax Act, 1961 ('Act') is contrary to the facts, is bad in law and liable to be quashed. 2) That on the facts and in the circumstances of the case, the Learned CIT(A) erred in upholding the action of the Income-tax Officer (LTU) (TDS) ['Learned AO] by confirming that TE Connectivity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing aggrieved by this order of the TDS officer, an appeal was filed before the CIT(A), who vide impugned order, confirmed the order of the TDS Officer. 5. Being aggrieved, assessee-company is before us in the present appeal. 5.1 Learned AR of the assessee-company submitted that the provisions are made on ad hoc basis, no payees are identifiable and liability had not crystallized in the hands of the assesseecompany and therefore, the question of deducting TDS at source does not arise. In support of this, learned AR of the assesseecompany has relied on the following decisions: i. Karnataka 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 X X X Extracts X X X X X X X X Extracts X X X X ..... rtment that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words chargeable 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. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the payer to deduct TAS when he pays any income chargeable under the head salaries . Similarly section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act . Which expression, as stated above, do not find place in other sections of Chapter XVII. It is in this sense that we hold that 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 Income tax 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the Income-tax Act. This provision ensures effective compliance with section 195 of the Income tax Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... element of income chargeable to tax in India. It is in this context that the Supreme Court stated, if no such application is filed, income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. He has to discharge the obligation to TDS . If one reads the observation of the Supreme Court, the words such sum clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds of appeal filed by the assessee company in this regard. The Hon ble High Court of Karnataka in the case of Karnataka Power Transmission Corporation Ltd. vs. DCIT (2016) 383 ITR 59(Karn) held that for the purpose of deducting tax at source, the income which finally par takes character of income alone is allowable for deduction of income-tax. If the amount is not considered to be income in the hands of the deductee, the provisions of tax deduction at source would not be made applicable. The relevant paragraph of the judgment is as under: We have examined the applicability of section 194A of the Act to the present case. Section 194A of the Act mandates 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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