Section 195 withholding applies only to sums chargeable to tax, so non-taxable transponder fees attracted no TDS obligation.

Section 195 requires deduction of tax at source only where the remittance contains income chargeable to tax in the hands of the recipient. On the stated facts, transponder fee payments to the non-resident were treated as not chargeable to tax in India because the recipient's similar receipts had already been found outside the tax net. The payer was therefore not required to deduct tax at source on those payments. The note records that the issue was decided for the assessee, with the remaining grounds becoming academic.

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Issues: Whether transponder fees paid to the non-resident recipient were chargeable to tax in India so as to require deduction of tax at source under section 195.

Analysis: The payment was examined in the light of the principle that the payer's obligation under section 195 arises only when the remittance contains an element of income that is chargeable to tax under the Act in the hands of the recipient. Since the recipient's similar receipts had already been held by the Delhi High Court to be not chargeable to tax in India, the remittance in question could not attract a withholding obligation merely because it was made to a non-resident. Once the underlying income was found to be outside the tax net in the hands of the recipient, the payer could not be fastened with a duty to deduct tax at source on that payment.

Conclusion: The issue was decided in favour of the assessee and against the Revenue; no tax was deductible at source on the transponder fee payments.

Final Conclusion: The appeals succeeded on the additional ground, and the remaining grounds became academic and were not adjudicated.

Ratio Decidendi: Section 195 applies only to sums chargeable to tax in the hands of the recipient, and if the underlying payment is not so chargeable, no obligation to deduct tax at source arises.

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