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TMI Blog2009 (9) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... sident assessees it is not chargeable to tax even as per section 4 of the Act and if so there is no obligation on the part of the respondents - resident -assessees to deduct any amount in terms of section 195 of the Act and therefore the orders passed under section 201 of the Act calling upon the respondents - assessees to pay the amount by treating them as an assessee in default in respect of the amount as has been contemplated for deduction under section 195 of the Act are all not sustainable. 2. The Income Tax Appellate Tribunal acting as the second appellate authority under the Act having passed the leading Judgment in the case of M/s. Samsung Electronics Co. Ltd., India Software Operations. No. 67. Infantry Road, Bangalore - 560 001 as per its Judgment dated 18.02.2005 passed in ITA Nos.264 to 266/Bang/2002 relating to assessment years 1999-00, 2000-01 and 2001-02 in the case of M/s. Samsung Electronics Co., Ltd., India Software Operations, No.67, infantry Road , Bangalore -560 001 holding that the Income Tax Officer as well as the first appellate authority were both wrong in taking the view that the payments made by the resident payer for purchase of computer programm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.201 [1A] was also levied for the three years, as follows: ASSESSMENT YEARS 201[1] 201[1A] 1999-00 Rs.25,440 Rs.12,211 2000-01 Rs.1,202 Rs.216 2001-02 Rs.16,87,270 Rs.58,447 TOTAL Rs.17,13,912 Rs.70,874 Against the said orders, the assessee moved appeals before the Commissioner of Income Tax [A]. However, by the impugned common order dt.29.11.01, the appeals were dismissed by the Commissioner of Income Tax [A]. Against the said finding, the assessee is in appeal before the Tribunal." 5. The Tribunal for the purpose of allowing the appeals of the assessee though has concluded in all the cases that it was not incumbent on the assessees to deduct any amount under section 195 of the Act and if so the consequence under section 201 of the Act also does not follow, has examined the character of payment in the hands of the non-resident recipient and has held that it is net payment in the nature of royalty for the reason that the payment does not partake the character of royalty in terms of the relevant articles of the Double Taxation Avoidance Agreements [for short 'DTAA'] entered into with several countries and relevant for the purpose of each paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals of other assessees also. 9. There are certain variations in the purpose for which the resident-assessees have purchased/acquired the software, also known as 'shrink wrapped ready to sell, off the shelf software' having regard to the purpose for which the different assessees might have acquired the software and the manner of its use/application such as the assessee in the case of some of these appeals like M/s Sonata Corporation being traders of the software which they acquired/purchased from the non-resident supplier acting as a distributor for non-resident supplier but other assessees as in the case of SAMSUNG itself have acquired the software for producing the end product in which the software is employed or utilized or even wherein software can find applications in the manufacturing/production activity of the assessee itself such as in the case of GE India Technologies Private Limited etc.,. 10. The questions that have arisen for examination in the different appeals by the revenue are framed with corresponding variations depending upon the facts and circumstances of the particular assessee, but the basic question as to whether there was an obligation to deduct and remit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer, and it was in the normal course and in the absence of any DTAA would have been taxable under the Act. 12. In the background of such vacations, the questions of law representative/illustrative of each category that have been raised in these appeals and for examination of which questions, these appeals have been admitted are noticed as under; 1. "whether the Tribunal was correct in holding that an appeal was maintainable u/s. 248 of the Act, even though there was no adjudication by the Authorities under the Act in accordance with Section 195(3), (4) & (5) read with Section 200 of the Act? 2. Whether the Tribunal was correct in holding that the payments made by the Assessee Company for purchase of software from Aaymetrix Asia Pacific, Sinqapore; Peritus Software Service Inc., USA and Astral Computers Pvt. Ltd., Singapore for the amounts of Rs.3,43,095/-, Rs.47,89,419/- and Rs.8,89,611 /- was not liable to income tax in India and consequently no TDS as held by the Assessing Officer and confirmed by the Appellate Commissioner needs to have been deducted? 3. Whether the Tribunal was correct in merely following the judgment passed by its in the case of Samsung Electronics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself, the payment cannot he treated as Royalty as per the Double Taxation Avoidance Agreement and Treaties which is beneficial to the assessee and consequently section 9 of the Act should not take into consideration. 9. Whether the Tribunal was correct in holding that the payment partakes the character of purchase and sale of goods and therefore cannot be treated as royalty payment liable to Income Tax." 13. It is in the background of such developments and the questions having arisen for examination in these appeals, arguments are advanced. 14. While Sri. Seshachala, learned senior standing counsel appears for the appellant - revenue along with Sri. K V Aravind, learned junior standing counsel, in all these cases, many learned senior counsel instructed by their counsel on record have appeared and made submission for the assessees as mentioned below and we have examined all such submissions. 15. Sri. K P Kumar, learned senior counsel appears for M/s. Universal Legal, counsel for the respondents - assessees in ITA Nos.2808 of 2005, 2809 of 2005, 2810 of 2005 and M/s. King & partridges, learned counsel for the respondents - assessees to ITA Nos.1062 of 2006, 1264 of 2006, 1265 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has come to the conclusion that the entire payment is to be taxed at 10% as giving the maximum benefit to the assessee is just and proper. 17. Per contra Sri. K. P. Kumar, learned senior counsel appearing for the respondent would pose the following question for being answered namely whether the NRI is chargeable to tax in India and attempts to answer the question by contending that the Tribunal in paragraph 5.1 at page 35 has held that the Assessee was not correct in law in contending that this case is not covered by Section 9(1) (vi) of the Act. 18. Sri. Seshachala would contend that the first Appellate Authority at page 93 has examined the effect of DTAA, the definition assigned thereunder and also the meaning to be assigned to them. He contends that the royalty as defined under section 9(1) (vi) of the Act and the same defined under Article 12 and 13 of the DTAA agreement of USA and Sweden respectively are one and the same and hence the payment made by the respondent company is in the nature of royalty and not out right sale, since software remains with the transferor. 19. Sri. Seshachala would further contend that the advance ruling reported in 238 ITR 296 which has been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 201(1A). (iv) Software is a scientific work and liable to tax under Section 9 read with DTAA and relies upon the decision in the case of Transmission Corporation Limited Vs. CIT (1999) 239 ITR 587 (SC) at paragraph 8. 22. Sri. K P Kumar, learned senior counsel appearing for the respondent would contend that the words used in section 195 is 'chargeable to tax'. Hence a person deducting tax under Section 195 would have to necessarily first see whether the same is chargeable to tax and then only if it is so he has to deduct and if it is not deemed income within the scope of Section 9(1)(vi) of the Act, then if it is to be taken to be a trading receipt, it will be chargeable to tax as business profit and if other conditions of the DTAA are satisfied then it can become income accruing in India and not otherwise. Sri. K. P. Kumar relies upon the very decision relied upon by Sri. Seshachala and brings to our notice paragraph 8 wherein it is held 'application to deduct tax would arise only in the event of chargeable to tax. Sri Kumar contends that sale of software is goods and it is a trading receipt thus not chargeable to tax in India. Sri Kumar submits that if trading receipt arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, and it contained a qualifying words 'no such person'; this means it refers to Sect ion 200 and thus the respondent does not come within the ambit of deemed defaulter, as the payment was not in the nature of a royalty payment. 24. It is contended by the learned counsel for the assessee that once they do not come under the charging provisions namely Sections 4, the question of deducting the ax does not arise as required under Section 195 inasmuch as Section 195 contemplates the deduction of tax only in respect of such income which becomes chargeable under the provision of this Act namely Section 4. Hence , it is contended that once they are outside the purview of chargeability there is absolutely no liability deduct tax and hence the consequential order passed under Section 201 is bad in law. It is contended that the consequence of non-payment is not attracted, if the person has no duty to deduct, as urged. 25. Sri. Sarangan, Senior counsel by relying upon to 239 (1999) ITR 587 and with reference to Paragraph 8 of the Judgement of the tribunal which refers to Section 195(1)(2)(3) of the Income Tax Act , Submits that "any other sum chargeable under the provisions of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and brought to this country then there is no liability of tax in this country. 26. Submission by learned counsel for the assessees is as under, the sum which is to be paid may be income out of different heads of income provided under Section 14 of the Act, that is to say income from salaries, income from house property; profits and gains of business or profession; capital gains and income from other sources. 27. The scheme of tax deduction at source applies not only to the amount paid which wholly bears "income" character such as salaries, dividends, interest on securities, etc., but also t 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 a interest commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transaction, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess of Section195(2) of the Act. 31. Sri Ganesh submits that the judgment of the Supreme Court fully supports the case of the assessee, that entire payment is not chargeable to levy in terms of the charge under Section 4 of the Act, then no obligation to deduct at all under Section 195 of the Act 32. Learned counsel for the assessees have put forth several contentions based on a good number of authorities, both of the Supreme Court and several high Courts, to drive home the points (1) that the payment is not a payment in the nature of a royalty payment; (2) that it is more a payment in the nature of a payment made to acquire a copy-righted article partaking the character of a payment made to some goods or some merchandize; (3) that even assuming for argument's sake, the payment is to be accepted as a royalty payment under the Income Tax Act, without conceding, even then, in terms of the double taxation avoidance agreements, it does not retain the character of a royalty payment and as it is an accepted proposition of law that the provisions of double taxation avoidance agreements prevail over the provisions of the local laws viz., the income Tax Act and a deemed definition of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO v. SRIRAM BEARINGS LTD. (224 ITR 724 SC) * CIT v. TATA ENGG. & LOCOMOTIVE CO. LTD. (245 ITR 823 BOM) * CIT v. P.V.A.L. KULANDAGAN CHETTIAR (267 ITR 654 SC) * DCIT v. TORQOUISE INVESTMENT & FINANCE LTD. (300 ITR 1 SC) * ANJALEEM ENTERPRISES (P) LTD. V. CCE [(2006) 2 SCC 336)] * CCE v. H. P. INDIA SALES (P) LTD. [(2007) 8 SCC 404)] * SPRINT R. P. G. INDIA LTD. v. COMMR. OF CUSTOMS [2000 (116) ELT 6 SC] * PUNJAB NATIONAL BANK v. R. L. VAID [2004 (172) ELT 24 SC] * STATE OF KARNATAKA v. C. LALITHA [(2006) 2 SCC 747] * RAJENDRA SINGH v. STATE OF U. P. [(2007) 7 SCC 378] * CCE v. SRIKUMAR AGENCIES [2008 (232) ELT 577 SC] * SAMSUNG ELECTRONICS CO. LTD. INDIA SOFTWARE OPERATIONS v. ITO (TDS)-I, BANGALORE * TATA CONSULTANCY SERVICE v. STATE OF AP [(2004) 271 ITR 404 (SC)] * TRANSMISSION CORPORATION OF INDIA OF AP LTD. v. CIT [(1999) 239 ITR 587 (SC)] * UNION OF INDIA v. AJADI BACHAO ANDOLAN & ANOTHER [(2003) 263 ITR 706 (SC)] * CIT v. VIJAY SHIP BREAKING CORPORATION [(2003) 261 ITR 113] * CIT v. INTERNATIONAL DATA MANAGEMENT LTD. [ (2003) 314 ITR 177] * CIT v. ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. [ITA 2158 AND 1270 OF 2006] * CIT v. ELI LILLY AND CO. (IND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to tax in the following year, known as assessment year and for the assessing officer to finalize the assessment and to determine the specific tax liability of the assessee, it necessarily involves an exercise of gathering information, seeking for further explanation and then passing orders etc., there is bound to be a time gap between the actual earning of the income and the date of determination of the tax-liability and as it was the experience of the revenue that realization of tax becomes much more difficult when once the income earned has been spent by the assessee, even before the finalization of the tax liability for the assessment year and by the time a demand notice is served following the assessment order, the assessee either may not be left with much funds or may not even be available (in India) for enforcing the tax liability and to get over such situations framers of the Act have envisaged the scheme of advance payment of tax as indicated in chap — XV and XVI of the Act providing for an accelerated method of collecting tax, where under, some part of the tax liability is recovered in advance at source and remitted to the Income Tax Department which can ensure avo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the revenue. A failure may result in the defaulting resident (assessee) payer being treated as a defaulter or even being, proceeded against, for recovery of the amount which the resident payer should have deducted and remitted to the credit of the Income Tax Department. 41. It is in this background, considerable effort has been put in by the learned senior counsel appearing for the assessees to impress upon us that in the first instance the receipts in the hands of non-resident suppliers/receipt is not at all in the nature of income in the hands of the non-resident suppliers and therefore there is no tax liability and that the view taken by the tribunal is the proper view and no need for interference. 42. A further extension of this argument is to contend that the view taken by the assessing authority and first appellate authority to the effect that payment is in the nature of a royalty payment to the supplier and therefore liability for payment of tax in itself is not available if the receipt the hands of the non-resident or any part of the amount does not partakes the character of income in the hands of the non- resident in thecountry of the residence of the non-resident, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be otherwise got rid of or can be wriggled out, learned counsel for the assessees have resorted to the above noticed arguments and a good number of authorities are cited in support of such contentions. 47. However, on part of the revenue, submission of Sri. Seshachala, learned senior standing counsel is straight and simple and to point out that the nature of the obligation on the part of the resident payer and consequence of non-deduction of the requisite percentage of the payment at source and not adhering to the requirement of section 195 of the Act is not a matter which is res integra anymore but is fully and squarely covered by the Judgment of the Supreme Court in the case of 'TRANSMISSION CORPORATION OF A.P. LTD., vs. THE COMMISSIONER OF INCOME TAX' reported in (1999)239 ITR 587 [SC]. 48. Section 195 of the Act for non-compliance with which obligations as provided in this section, the revenue had proceeded against the respondents assessees for recovery in terms of section 201of the Act. Section 195 of the Act reads as under: 195. Other sums. - (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1). (4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith." 49. The background to various submissions made by the learned senior counsel appearing for the assessees and as noticed above is to counter the argument of Sri. Seshachala, learned senior standing counsel appearing for the revenue that not only the Judgment of the Supreme Court in TRANSMISSION CORPORATION OF A.P. LTD.,'s case [supra] covers the question and against the assessee but also in the wake of the reliance placed by the learned standing counsel for the revenue on the advance ruling rendered by the authority for advance ruling in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore in the absence of fulfillment of requirement of section 195[1] of the Act, the further non-compliance with the requirements of sub-sections [2], [3], [4], [5] of section 195 of the Act may not even arise for examination, such argument cannot be accepted for the simple reason that in the first instance there is no exercise for determination of the tax liability of the non-resident recipient of the payment. Secondly, the binding nature of the Judgment of the Supreme Court in TRANSMISSION CORPORATION OF A.P. LTD.,'s case [supra] cannot in any way be diluted or diminished as the Supreme Court being directly involved in the exercise of interpreting the provisions of section 195 of the Act in that case and having interpreted the provisions of section 195 of the Act in the manner in which they have done, such, interpretation is the law declared by the Supreme Court and cannot be avoided or wished away by any assessee but at any rate by any other court in this country including the High Court functioning as an appellate authority under section 260-A of the Act and even if learned senior counsel appearing for the assessees contend to that effect and also that it was not within the knowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4.Sub-s. (2) of s. 4 inter alai, provides that in respect of income chargeable under sub-s.(1), income-tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that is to be paid to the non-resident is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income provided under s. 14 of the Act, that is to say, income from salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. The scheme of tax deduction at source applies not only to the amount paid which wholly bears "income" character such as salaries, dividends, interest on securities, etc., but also to gross sums, the whole of which may not be income or profit 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 sum as taxable income. It is true that in some cases, a trading receipt may contain a fraction of sum as taxable income, but in other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sements, which were of the nature of gross revenue receipts, were yet sums chargeable under the provisions of the IT Act and came within the ambit of s. 18(3B) of the Act. 10. Hence, in our view there is no substance in the contention of the learned counsel for the appellant that the expression "any other sum chargeable under the provisions of this Act" would not include cases where any sum payable to the non-resident is a trading receipt which may or may not include 'pure income'. The language of s.195(1) for deduction of income-tax by the payee is clear and unambiguous and casts an obligation to deduct appropriate tax at the rates in force. We makes it clear that the learned counsel for the parties have not advanced any Submissions with regard to other findings given by the High Court. 11. In this view of the matter, the answer given by the High Court that (i) the assessee who made the payments to the three non-residents was under obligation to deduct tax at source under s. 195 of the Act in respect of the sums paid. to them under the contracts entered into; and (ii) the obligation of the respondent-assessee to deduct tax under s. 195 is limited only to appropriate proportion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a provision for assessing the tax liability of a non-resident nor as to whether under section 9 of the Act, any income is deemed to have resulted in the accrual or arisal of income to the non-resident in India, but by simply accepting the operation of the mandate under section 195 [1] on every resident payer making a payment to a non-resident recipient in respect of any goods/service supplied by the non-resident, which the resident payer is making use of in the running of its business or any other activity indulged in as part of the business/professional activity of the resident assessee as in such a situation, the payment to the resident recipient prima-facie bears the character of an income recipient and therefore the obligation under sub-section (1) of section 195 springs up. 54. The Judgment of the Supreme Court in TRANSMISSION CORPORATION OF A.P. LTD., 's case [supra] is a binding authority for this proposition and there is absolutely no scope for the High Courts even to examine an alternative argument either on the premise that the ruling of the supreme court in TRANSMISSION CORPORATION OF A.R LTD., 's case [supra] is not a binding precedent or on the premise that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther appeal to the Tribunal and opinion rendered by the Tribunal on the question answering it in favour of the assessee is of no consequence in law, is not a proper exercise of its appellate powers; an answer of this nature is not binding in law and is necessarily liable to be set aside and the question answered in favour of the revenue. 57. In this context, an incidental argument was raised though feebly, to the effect that a recovery of the nature as attempted by the assessing officer purporting to be for the reason of failure on the part of the assessee to comply with the requirement of section 195 [1] of the Act and therefore the consequential order under section 201 of the Act cannot sustain the order for the reason that section 201 of the Act does not cover consequential action on the failure of an assessee on non-compliance of the requirements of section 195 of the Act and the provision in turn being linked to section 200 of the Act and section 200 of the Act providing for consequential action only in a situation where any person who has actually deducted the amount in accordance with the preceding statutory provisions enabling for deduction of tax at source and for remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to he an assessee in default in respect of the tax: Provided that no penalty shall be charged under Section 221 from such person. principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1-A) With prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pter-XVII of the Act providing for collection and recovery by way of a deduction effected at source of payment and the deduction is in advance i.e., even before the determination of the actual tax liability of the non resident foreign company. 60. The amount deducted by the resident who is responsible for making payments to the non-resident is only a provisional or tentative amount which is kept as a buffer for adjusting this amount against the possible tax liability of the non-resident assessee. The amount deducted under section 195 of the Act is not the same as determining the liability of the non-resident assessee for payment of tax under the Income Tax Act, 1961. A non-resident may be or may not be liable to pay any tax. The amount which is deducted by making payment and which is at a fixed percentage of the amount may be even much more than the actual tax liability of the non-resident company and even may be less than the actual tax liability of the non-resident company in a given case But these aspects are all not determinative of the actual deduction in terms of section 195 [1] of the Act and the rate of deduction is the rates as in force and as given in advance by the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he obligation for deduction imposed on a resident payer in terms of section 195[1] of the Act is by the method of invoking the procedure contemplated under sub-section [2] of section 195 of the Act i.e., only when the person responsible for paying any such sum chargeable under this Act on a non-resident, considers that the whole of such sum would not be income chargeable in the case of the recipient, by making an application to the assessing officer to determine by general or special order the appropriate proportion of such sum so chargeable and upon such determination alone, being allowed the liberty of deducting the proportionate sum so chargeable to tax to fulfil the obligation cast under sub-section [1] of section 195 of the Act. 64. In so far as a resident payer who has not admittedly taken any steps nor had made any efforts to have the proportionate amounts so deductible in terms of the determination by the assessing officer i.e., the resident payer who has not filed an application under sub-section [2] of section 195 of the Act cannot, later, after having failed to deduct and remit the amount turn around and contend that no part of the payment had resulted in any taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the resident payer like the respondents in the present appeals being a premature one for the purpose of actual determination of the tax liability of the non-resident recipient. 66. If one is allowed the liberty of giving a rough and crude comparison to the manner in which the provisions of section 195 of the Act operates on a resident payer who makes payment to a non-resident recipient and if the payment bears the character of a semblance of an income receipt in the hands of the non-resident recipient, then the obligation on the part of the resident payer who makes such a payment to the non-resident recipient is like a guided missile which gets itself attached to the target, the moment the resident assessee makes payment to the non-resident recipient and there is no way of the resident payer avoiding the guided missile zeroing on the resident payer whether by way of contending that the amount does not necessarily result in the receipt of an amount taxable as income in the hands of the non-resident recipient under the Act or even by contending that the non-resident recipient could have possibly avoided any liability for payment of tax under the Act by the over all operation of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient in respect of an amount received by it from a resident payer while examining an appeal at the instance of an a complaining of the correctness or otherwise of enforcement of a demand raised in terms of section 201 of the Act even when admittedly the resident payers were not in any way enabled not to deduct any amount or to deduct an amount which is a part of the amount actually liable to be deducted by the resident payer which is the amount to be arrived at, by working out the amount in terms of the provisions of the Finance Act, relevant and applicable to the case, providing for the rate/percentage at which the resident payer was required to be deducted from payment and remit the same to the account of the revenue as part of the obligation of the resident payer in terms of section 195[1] of the Act. 71. On the lines of reasoning and logic that we have indicated above and on the proper understanding and application of the provisions of section 195 of the Act, as interpreted and declared by the Supreme Court in TRANSMISSION CORPORATION OF A.P. LTD., 's case [supra] while there was absolutely no scope for the assessing authority or the first appellate authority or even the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted to the non-resident recipient So that the resident payer can deduct only the reduced amount and remit it to the credit of the account of the revenue and while doing so i.e., while examining an application under section 195[2] of the Act, the assessing officer cannot embark on an exercise as though it is meant to determine the actual tax liability of the non-resident assessee is that if such a situation is permitted to take place and if the income of the non-resident is sought to be assessed in advance, even in the hands of a resident payer there can arise conflicting decisions and versions, in so far as the tax liability of the non-resident is concerned as even after a determination under section 195[2] of the Act, where under the tax liability of the non-resident is determined in the hands of the resident payer and that too prematurely, then the exercise may not be productive as it will be always open to the non-resident to contend that no part of the receipt was taxable in India and is able to make good this position, on the basis of a return of income filed later by the non-resident assessee, it will result in there being two versions of the actual tax liability of the non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the receipt in the hands of the non-recipient was getting out of the net of taxation under Income Tax Act, 1961 due to one or the other reason. 75. In all these appeals, there being no dispute nor can there be any dispute regarding the payments made by the resident payers, bearing the character of an income receipt in the hands of the non-residents as the payments whether are in respect of a merchandise i.e., a payment for buying /purchasing/acquiring a packaged software product and is a commercial transaction or even be in the nature a royalty payment, as was opined by the assessing officers and affirmed in appeals by the first appellate authorities, nevertheless, the payment definitely being in the nature of a payment resulting in some possible income In the hands of the non-resident recipient, the obligation imposed on the resident payers in terms of section 195[1] of the Act springs into action, the moment, there is to be a payment to the non-resident and admittedly in all these appeals, the payers who are the respondents in all these appeals, having not taken any steps or not having invoked the relieving provisions of sub-section [2] of section 195 of the Act, such obligat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders passed by the assessing authorities and affirming orders passed by the first appellate authorities, so far as it relates to confirming the demand raised on all these respondents-assessees in terms of the provisions of section 201 of the Act for the failure of the respondents assessees to comply with the requirement of section 195[1]of the Act. 79. Accordingly, these appeals are allowed. IN ITA Nos. 919/2007 & 921/2007: 80. While these two batches of appeals had also been heard along with the above appeals, it is noticed that they strike a slightly different note, in the sense, though ultimately the question may be one of the extent and the manner of obligation of a resident payer to deduct an amount at a percentage of the payment made to a non resident recipient, these matters have reached this court under section 260-A of the Act even before the stage had reached wherein either the first appellate authority or the second appellate authority had opined on merits about the correctness or otherwise of the order passed by the original/assessing authority in respect of 11 remittances [corresponding to ITA Nos.931 to 941/Bang/2006] and another 31 remittances [corresponding to I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before it and therefore the registry should have necessarily assigned 11 numbers of appeals instead of one appeal in ITA No.919 of 2007 and 31 numbers of appeals instead of ITA No.921 of 2007 and should have also recovered commensurate court fee from the appellants. Registry is also hereby directed to take such corrective measures in all other appeals, wherein also such situations arise and act for correcting the number of appeals and also for recovering the deficit court fees, which was payable by the appellants. 86. Insofar the question of law raised in these appeals are concerned it is one of maintainability of an appeal under Section 248 of the Act, by a resident payer/assessee who had in fact deducted the amount in terms of sub-section (1) of Section 195 and remitted the amount to the account of the Revenue, but is nevertheless disputing such liability. 87. The question has to be necessarily answered in the 'affirmative' holding that the Tribunal was correct in reversing the order passed by the Commissioner of Income Tax (Appeals), who had rejected the appeal under Section 248/249 at the threshold as not maintainable. The assessee who has in fact deducted and remitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely identical to one subsisting in the present case and therefore the Tribunal was bound to have recorded an independent finding and therefore the impugned order is perverse? Definitely wrong, answered in the negative, against the assessee and in favour of the revenue 4 Whether the Tribunal based on fact that the Assessee has imported software from Aaymetrix Asia, Pacific, Singapore; Peritus Software Service Inc., USA and Astral computers Put Ltd., Singapore on payment of Rs.3,43,095/-. Rs.47,89,419/- and Rs.8,89,611/- was bound to have taken into consideration the Ruling of the Advance Ruling Authority (238 ITR 296); the Double Taxation Agreement between India and USA and India and Singapore, provisions of Section 9(1)(vi) of the Income Tax Act; Indian Copyright Act, 1957 the Revised entry on Article 12 of OECD; the Internal Revenue Service Regulation of USA; the Views of the High Powered Committee on E-Commerce and other facts and circumstances of the present case which could have clearly shown that the payments made by the Assessee was liable to tax in India and consequently the Assessee was bound to deduct tax at source? In the negative, against the assessee and in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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