Tax Deduction at Source requires taxable income in India; remittances for a foreign principal could not sustain Section 201 action.

Tax deduction at source was held to arise only where the remittance contains income exigible to tax in India. On the facts, the freight income of the foreign principal had already been treated as not taxable in India under Article 8 of the India-Germany DTAA, and the amounts remitted by the agent were merely collected on behalf of that principal rather than independent payments attracting withholding obligations. Revenue authorities were required to follow binding higher judicial rulings unless their operation was stayed, and the pendency of further proceedings before the Supreme Court did not justify ignoring those rulings. Proceedings under Section 201 and the consequential demand were therefore unsustainable.

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Issues: Whether proceedings under Section 201 of the Income-tax Act, 1961 could be sustained against the agent for non-deduction of tax at source where the underlying freight income of the foreign principal was not exigible to tax in India and the remittances were made on behalf of the principal.

Analysis: The income in question had consistently been treated by the Department and by appellate authorities as not taxable in India under Article 8 of the Double Tax Avoidance Agreement between India and Germany. The remittances made by the petitioner were found to be amounts collected on behalf of the principal and not independent payments attracting tax deduction at source. The Court held that the obligation to deduct tax arises only when the payment contains income exigible to tax in India. It also noted that subordinate revenue authorities were bound by the existing higher judicial pronouncements and could not disregard them merely because the Department had preferred further proceedings. The pendency of an appeal before the Supreme Court did not justify ignoring settled binding orders in the absence of any stay.

Conclusion: The proceedings under Section 201 and the consequential demand could not be sustained, as no tax was deductible at source on the remittances in the facts of the case.

Ratio Decidendi: Tax at source can be required to be deducted only from sums that are exigible to tax in India, and revenue are bound to follow binding appellate decisions unless their operation is stayed by a competent court.

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