Court grants petitioner refund, rejects Revenue's distinction on tax, upholds section 10(6A) exemption.

The Court ruled in favor of the petitioner, setting aside previous orders and directing a refund with applicable legal observations. The Court emphasized that tax deduction aims to collect lawfully leviable tax, not additional amounts, and found the Revenue's distinction between foreign company assessment and tax deduction at source baseless. The Court highlighted that section 10(6A) exempts tax paid by an Indian concern to the Central Government from the foreign company's total income computation, supporting the petitioner's claim for a refund under section 10(6A).

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Issues involved: Interpretation of section 10(6A) of the Income-tax Act, 1961 in relation to section 195 for tax computation and refund.

Summary:
The petitioner, benefiting from a non-resident company's services, had to pay U.S. dollars 14,950 to the non-resident company, leading to income-tax payable under section 195. The petitioner sought a no-objection certificate for tax determination and paid Rs. 1,09,825 as tax. Subsequently, the petitioner claimed a refund of Rs. 45,930 citing section 10(6A) which disallows grossing up of tax. The petitioner's request for refund was denied, leading to a legal challenge.

The petitioner argued that section 10(6A) prevents levy of tax on tax, applicable from the remittance date of May 10, 1984. However, the Commissioner rejected the claim under section 264, stating section 10(6A) pertains to foreign company assessment, not tax deduction at source under section 195.

The Court analyzed section 10(6A) which excludes tax paid on behalf of a foreign company from its total income. The Revenue contended that section 10(6A) applies only during foreign company assessment, not tax deduction at source. However, the Court found this distinction baseless, emphasizing that tax deduction aims to collect lawfully leviable tax, not additional amounts.

Referring to Circular No. 372, the Court highlighted that section 10(6A) exempts tax paid by an Indian concern to the Central Government from the foreign company's total income computation. The Court ruled in favor of the petitioner, setting aside previous orders and directing refund with applicable legal observations.

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