Withholding under Section 195 requires chargeability to tax; secondment reimbursements do not trigger tax absent the treaty "make available" test.

A payer's application under Section 195(2) for a nil deduction certificate was maintainable because that remedy is available to the person making payment and is not confined to composite payments. The remittances for seconded employees were not shown to satisfy the treaty's "make available" requirement under Article 12(4), so they could not be treated as fees for included services and withholding under Section 195 was not attracted on that basis. Deduction could not be insisted on the gross remittance where chargeability itself was not established. The secondment arrangement and reimbursement of actual costs were therefore held insufficient, on the recorded facts, to support taxability or withholding.

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Issues: (i) Whether the payer's application under Section 195(2) for a nil deduction certificate was maintainable; (ii) whether the remittances for seconded employees were chargeable as fees for included services under the treaty and therefore subject to tax deduction at source; (iii) whether deduction could be insisted on the gross remittance; and (iv) whether the impugned order correctly treated the secondment arrangement and reimbursement payments as taxable.

Issue (i): Whether the payer's application under Section 195(2) for a nil deduction certificate was maintainable.

Analysis: The application under Section 195(2) is made by the person responsible for payment, whereas Section 197 is invoked by the recipient. The statutory scheme reflected in the Rules and prescribed forms distinguishes the two remedies. A payer is not barred from seeking a determination under Section 195(2) merely because it considers the remittance not chargeable to tax. The proceeding under Section 195(2) is a tentative safeguard and not confined to cases of composite payments only.

Conclusion: The application was maintainable.

Issue (ii): Whether the remittances for seconded employees were chargeable as fees for included services under the treaty and therefore subject to tax deduction at source.

Analysis: By virtue of Section 90(2), the treaty provision prevails where it is more beneficial. Article 12(4) requires not merely rendering of technical or consultancy services, but that such services make available technical knowledge, experience, skill, know-how or processes. The material relied on did not establish satisfaction of the make available requirement. In the absence of that element, the payment could not be characterised as fees for included services under the treaty, and the domestic deeming provision could not be used to enlarge the withholding obligation.

Conclusion: The remittances were not shown to be chargeable as fees for included services, and withholding under Section 195 was not attracted on that basis.

Issue (iii): Whether deduction could be insisted on the gross remittance.

Analysis: The gross-basis logic applicable to provisions such as Section 194C and Section 194J does not control Section 195, which operates only when the sum is chargeable under the Act. Section 195(2) itself contemplates determination of the appropriate proportion chargeable to tax. Where the payment is not shown to be chargeable, insistence on deduction from the entire remittance is unwarranted.

Conclusion: Deduction on the gross remittance was not justified.

Issue (iv): Whether the impugned order correctly treated the secondment arrangement and reimbursement payments as taxable.

Analysis: The order proceeded on an incomplete understanding of the secondment arrangement and the relationship between the parties during the period of secondment. The relevant contractual terms indicated control of the payer over the secondees for the limited purpose of the arrangement, and reimbursement of actual costs did not by itself establish taxable income in the hands of the non-resident. The reliance on contrary factual settings in earlier precedent did not cure the failure to apply the treaty's make available requirement to the present arrangement.

Conclusion: The impugned order was unsustainable and liable to be set aside.

Final Conclusion: The withholding application succeeded, the rejection order was quashed, and the payer was entitled to a nil deduction certificate under Section 195(2).

Ratio Decidendi: Under Section 195, withholding arises only when the remittance is chargeable to tax, and where the applicable treaty requires services to make available technical knowledge or similar capability, mere secondment or reimbursement of actual costs does not by itself create a withholding obligation.

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