TMI Blog1999 (8) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 195 relating to the deduction of tax at source come into operation in respect of sums paid to a non-resident, whether or not such sums represent only income or profits if such sums are paid to the non-residents during the course of regular trading operation. That finding is challenged in these appeals. Before deciding the question involved, we would refer to a few facts of the matter : The appellant, the Andhra Pradesh State Electricity Board (hereinafter referred to as "the Board"), made certain payments to non-residents against the purchase of machinery and equipment and also against the work executed by the non-residents in India of erecting and commissioning the machinery and equipment. The Board entered into two separate agreements with Charmilles Engineering Works Ltd., Geneva, Switzerland, one for the purchase of Nos. 95,000 BHP Francis Turbines and another for purchase of two numbers Butterfly Valves. There were two other contracts for the assembly, erection and testing and commissioning of the aforesaid equipment. The payments were made to the non-resident company for the financial years 1966-67 to 1972-73. The Board also entered into an agreement with Oerlikon E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court for the payments made to the non-resident company : R. C. No. 205 of 19 78 : "Whether, on the facts and in the circumstances of the case, the Superintending Engineer, Civil Circle, Upper Sileru, is liable to deduct income-tax under section 195 of the Income-tax Act, 1961, on the payments made to the non-resident company for the assessment years 1966-67, 196768, 1968-69 and 1969-70 ?" Similar questions with regard to payments made to the two other non- residents as stated above were also referred in R. C. Nos. 203 and 204 of 1978. At the time of hearing of the matter, the High Court stated that two fundamental questions arose for consideration and they were : (a) whether the provisions of section 195 of the Act are applicable to cases where the sum paid to the non-resident does not wholly represent income ; and (b) if section 195 is applicable in such cases, whether the Income-tax Officer could enforce deduction of tax at source on the gross amount of trading receipts or only in respect of that portion of the trading receipts which may be chargeable as income under the Act ? The court observed that the question referred deals with only the first aspect mentioned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring of these appeals, learned counsel for the appellant submitted that section 195 would be applicable where the payment to the non-resident is "wholly income" chargeable to tax as it provides that any person responsible for paying to a non-resident "any sum chargeable under the provisions of this Act", shall, at the time of payment, deduct income-tax thereon at the rates in force. It is his contention that under the Income-tax Act, tax can be levied and collected on the income but when the payments made to the non-resident were not entirely income, but a trading receipt, there is no question of deduction of income-tax at the source as the section does not provide for it. He submitted that the expression "any other sum chargeable under the provisions of the Act" occurring in section 195 of the Act conveys only one meaning that tax at the source could be deducted when the sum paid is total income "chargeable" under section 5 of the Act. If the payment is anything more than or other than income, it does not answer the definition of total income under section 5 of the Act. The substance of the contention is what is taxable under the Income-tax Act is pure income or profits and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1). 197. Where, in the case of any income of any person other than a company--- (a) income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194A, 194D and 195, (b) being a non-resident, income-tax is required to be deducted at the time of payment at the rates in force under the provisions of section 194, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Income-tax Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. (2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Income-tax Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. . . ." Before considering section 195, it is to be stated that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. in all these cases, what is deducted is the amount specified in the said sections without there being any actual assessment. Thereafter, section 195 deals with deduction of tax in cases where payment is to be made to a non-resident which, inter alia, provides : (a) Any person responsible for paying to a non-resident, any interest, or any sum, chargeable under the provisions of this Act (other than interest on securities and salary), shall, at the time of payment, deduct income-tax thereon at the rates in force. Sub-section (1) of section 195 excludes from its operation the sum which is to be paid as interest on securities or the sum which is chargeable under the head "Salaries" as the deduction on such sum would be governed by other sections, namely, section 192 and section 193. (b) Where the person responsible for paying any sum chargeable under the Act to a non-resident considers that the whole of such sum would not be chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine "the appropriate proportion of such sums so chargeable" ; upon such determination, tax shall be deducted under sub-section (1) only on that proportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salaries, dividends, interest on securities, etc., but also to gross sums, the whole of which may not be income or profits of the recipient, such as payments to contractors and sub-contractors and the payment of insurance commission. It has been contended that the sum which may be required to be paid to the non resident may only be a trading receipt, and, may contain a fraction of the sum as taxable income. It is true that in some cases, a trading receipt may contain a fraction of the sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain a large sum as taxable income under the provisions of the Act. Whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. The purpose of sub-section (1) of section 195 is to see that the sum which is chargeable under section 4 of the Act for levy and collection of income-tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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