TMI Blog2017 (4) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... to that assessee”. However, the provisions of Section 115A prescribed taxability of royalty in the hands of the non-resident @ 10%, and, therefore, adopting the more beneficial rate of 10%, the payer was required to deduct tax at source from the royalty payment so made by the assessee. That is precisely what the assessee has done. The payment was made by the assessee on 12.5.2011 and the tax so deducted was payable within 7 days from the end of May 2011, i.e. by 7th June 2011. The assessee has, however, deposited the said tax deducted at source on 20th June 2011. The delay in depositing the tax deducted at source was thus only for 12 days. To this limited extent, the Assessing Officer could have levied interest under section 201(1A) of the Act. However, the authorities below have upheld the tax liability under section 20(1A) by computing the period of delay with reference to the date on which the amount was credited to payee’s account. That is where the authorities below were in error and we vacate the action of the authorities below to that extent. It is only at the point of time when payment takes place, that the income embedded in payment becomes taxable under the DTAA as al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctible at source as 07.12.2010, being 7 days from the end of the month in which amount was credited in the books of accounts. This demand was quantified at ₹ 6,90,530 Aggrieved, assessee carried the matter in appeal before the CIT(A). It was contended by the assessee that the taxability on the amount of ₹ 5,02,35,336, which is taxable under article 12(3) of India Italy Double Taxation Avoidance Agreement [(1996) 220 ITR (St) 3] only at the point of time when it is actually paid, did not arise at the point of time when credit was afforded to the recipient in the books of accounts. Learned CIT(A) rejected this plea, and, while doing so, he observed as follows:- 4.2 I have given my careful consideration to the facts of the case and the submission of the AR. The first issue to be decided is whether the appellant was liable to deduct tax at source at the time of crediting sum in the account of Saira Europe S.P.A. Italy or at the time of payment thereof. In this regard, it will be useful to refer to the provisions of section 195 of the income tax act under which the tax was deductible by the appellant: - 195. (1) Any person responsible for paying to a non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been provided in the first proviso to subsection (1) quoted above. In case the amount payable is not chargeable in the hands of the payee, subsections (2) and (3) of section 195 provide for procedure to be followed for non-deduction of tax at source. In view of this, the action of the AO in treating due date of payment of tax as 07/12/2010 and charging interest from the date of deduction of tax to the date of payment, in accordance with the provisions of section 201(1A) of the IT Act, is hereby upheld. 3. The assessee is aggrieved and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. It is only elementary that the tax deduction source liability under Section 195 is a vicarious liability in the sense that it s survival in the hands of tax-deductor is wholly dependent on existence of tax liability in the hands of recipient of income. When a credit afforded by, or a payment made by, an Indian resident, to a nonresident, does not trigger the taxability of that income in the hands of recipient, the tax deduction liability does not come int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Act. 6. The decision to withhold tax from a credit or payment to a non-resident is not taken in vacuum. It is taken in the light of the tax liability of the non-resident in respect of the amount in question, and, if there were any doubts on this proposition, these doubts have now been set at rest by Their Lordships. Essentially, therefore, the provisions of Section 195 are to be read in conjunction with the charging provisions under the statue, as also in conjunction with the relevant double taxation avoidance agreements which override these charging provisions. Of course, this is subject to the rider, as set out in Section 90(2) itself, that the provisions of the relevant DTAA are to be ignored in a situation in which provisions of the Act are more beneficial to the assessee vis- -vis the provisions of the Act. As we make these observations, we may refer to, for the sake of completeness, wordings of Section 90(2) which are as follows: Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information concerning industrial, commercial or scientific experience. 4. The term fees for technical services as used in this Article means payments of any amount to any person other than payments to an employee of the person making payments, in consideration for the services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such a case the royalties or fees for technical services shall be taxable in that other Contracting State according to its own law. 6. Royalties and fees for technical ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e royalty so credited by the assessee is not taxable at the time of credit of such amount to the account of payee, in the light of law laid down by Hon ble Supreme Court in the case of GE Information Technology (supra), it does not give rise to any tax withholding obligations under section 195 (1) either. 9. As regards the point of time when the payment is actually made, i.e. the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, the taxability in the hands of the recipient arises by @ 20% in terms of the provisions of article 13(2) above. However, even though the assessee is covered by the Indo Italian DTAA, the provisions of the Income Tax Act continue to apply to the extent such domestic law provisions are more beneficial to the assessee, as, even in the cases covered by the DTAAs and in terms of the provisions of Section 90(2), the provisions of this (Income Tax) Act shall apply to the extent they are more beneficial to that assessee . However, the provisions of Section 115A prescribed taxability of royalty in the hands of the non-resident @ 10%, and, therefore, adopting the more beneficial rate of 10%, the payer was required ..... X X X X Extracts X X X X X X X X Extracts X X X X
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