Withholding tax on non-resident payments fails where the sum is not chargeable to tax in India and no permanent establishment exists.

Tax deduction at source under section 195(1) applies only where the payment to a non-resident is chargeable to tax in India. On the facts, voluntary membership fees, donations and advertisement charges paid to the non-profit International Press Institute were not treated as income accruing or arising in India under section 9(1)(i), and the institute had no permanent establishment in India. The India-Austria treaty was also applied, and its special provisions prevailed over the general charging rule. The payments were therefore outside the scope of tax deduction at source, and the assessee was relieved from withholding tax.

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Issues: Whether tax was deductible at source under section 195(1) on membership fees, donations and advertisement charges paid to the non-resident International Press Institute, and whether such sums were chargeable to tax in India under section 9(1)(i) or under the India-Austria double taxation agreement.

Analysis: Section 195(1) applies only where the payment made to a non-resident is a sum chargeable under the Income-tax Act. The payment here was held to be voluntary, made to a non-profit international membership body having no permanent establishment in India, and the assessee was neither an agent nor a person from whom the institute could enforce payment. On the facts, the assessee did not constitute a source of income in India for the institute, and the receipts did not answer the statutory requirement of income accruing or arising in India under section 9(1)(i). The relevant treaty provisions were also applied, and it was held that the absence of a permanent establishment in India prevented taxation of the relevant receipts in India; in any event, the special treaty provisions prevailed over the general charging provisions. The payments for membership, donation and advertisements were therefore outside the scope of tax deduction at source.

Conclusion: Section 195(1) was held to be inapplicable to the impugned payments, and the assessee succeeded.

Final Conclusion: The revenue's appeal was rejected, and the order relieving the assessee from tax deduction at source was sustained.

Ratio Decidendi: Tax is not deductible under section 195(1) unless the sum paid to a non-resident is chargeable to tax in India, and voluntary payments to a non-resident without a permanent establishment in India do not become taxable merely because they are remitted from India.

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