TaxTMI 
TaxTMI 
2009 (12) TMI 677
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.... source on payment made to the non-resident, the assessee stated vide its reply dated 30-1-2006 that it was amount reimbursed to its non-resident associate concern towards bank guarantee commission, social insurance for expatriates who worked for execution of the contract and software charges. It was claimed that since the payment to the non-resident associate concern was towards reimbursement of actual expenses so it was not chargeable to income-tax in the hands of payee and resultantly provisions of section 195(1) were not attracted. The Assessing Officer did not concur with the submissions advanced on behalf of the assessee and came to the conclusion that as the assessee had not applied for any order under section 195(2) for withholding of tax at the time of remittance, it was liable to deduct tax at source and in the absence of having done so the provisions of section 40(a)(i ) were attracted. Resultantly the addition was made for the said sum, which came to be upheld in the first appeal. 3. We have heard the rival submissions and perused the relevant material on record. It is not denied that the said sum of Rs. 2.46 crores represents the reimbursement of expenses made by th....
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....e non-resident that the provisions of section 195(1) are attracted. The amount paid or payable to the non-resident should first be chargeable to tax in his hands. If the view point of the revenue is accepted and this provision is read as referring to any sum paid or payable to the non-resident de hors its chargeability to tax then even the loans advanced or gifts made to the non-residents would also require deduction of tax at source. Obviously it is not and cannot be the intention of the Legislature. As the payment or deduction of pre-and post-assessment taxes contemplates the existence of tax liability, the very concept of deduction of tax at source envisages the chargeability of such sum to tax in the hands of the receiver. It, therefore, boils down that in order to be covered within the ambit of section 195(1) and resultantly caught within the mischief of section 40(a)(i ), it is of paramount importance that the amount paid or payable to the non-resident should, at the first instance, be 'chargeable to tax' in the hands of payee. If the amount is chargeable to tax but the payer fails to deduct tax at source before crediting or making payment to the non-resident or fails to depo....
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....b-section (3) is alternative to sub-section (2) which, in turn provides that any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make the application in the prescribed form to the Assessing Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that sub-section and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1). Whereas sub-section (2) requires application by the payer to the Assessing Officer, sub-section (3) requires application by the payee to the Assessing Officer. It is not as if the non-filing of application under sub-section (2) of section 195 will foreclose other options. The essence of sub-section (1) of section 195 is that the tax should be deducted at source when the amount paid or payable to the non-resident etc. is chargeable to tax. Thus the liability to deduct tax at source springs up und....
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....r consequences which he or it may incur, be deemed to be an assessee in default as referred to in sub-section (1) of section 201 in respect of such tax." [Emphasis supplied] 9. From the above definition of the assessee in default', it can be noticed that the person responsible is considered as assessee in default only when he fails to deduct the whole or any part of tax AND such tax has not been paid by the assessee direct. The use of the conjunction 'and' between 'person.... does not deduct the whole or any part of the tax' and 'such tax has not been paid by the assessee direct' leaves nothing to doubt that both the conditions should be simultaneously satisfied to deem a person as assessee in default viz., firstly the person responsible should have failed in his duty to deduct tax and secondly the payee assessee should have also failed to pay such tax direct. If either of the two stipulations is lacking the person responsible cannot be treated as assessee in default. So if there is failure on the part of the person responsible to deduct tax at source but the payee assessee has made the payment of tax directly, then the payer cannot be deemed to be an assessee in default. If the....
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....led by the assessee, no such relief was available. He, therefore, did not allow the said deduction. When the matter came up before the learned CIT(A), he observed that the assessee had amortized a sum of Rs. 16.54 crores till assessment year 2001-02 out of the total expenditure claimed to have been incurred to the tune of Rs. 20.87 crores towards construction of temporary structures. The remaining amount of Rs. 4.33 crores was written off in the said preceding year. The Assessing Officer on finding that only 95 per cent of the project had been completed, disallowed 5 per cent of the said expenditure from the written off amount. When appeal was preferred before the learned CIT(A), he upheld the assessment order for the preceding year but directed the Assessing Officer to allow "the sum in the subsequent years on the completion of the project". The learned CIT(A), in the impugned order, observed that since the Assessing Officer had found that the project had not even been completed fully during the year under consideration hence the entire balance amount of 5 per cent cannot be allowed in toto. He directed the Assessing Officer to allow deduction from the said balance percentage, a c....
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....he Hon'ble Supreme Court has clarified the position further in para 4 of this judgment which makes it explicitly clear that the mandate of this judgment is limited to the power of the assessing authorities and does not impinge on the power of the Tribunal under section 254 of the Act. In this view of the matter there remains no doubt whatsoever that if the assessee has failed to claim deduction in the return filed by it, which is otherwise available to it as per law, the doors of justice cannot be closed to the assessee simply for the reason that no revised return was filed making such a claim for deduction. It is simple and plain that the purpose of making assessment is to collect the rightful tax due from the assessee. Filing of revised return by the assessee may be a valid mode of claiming deduction which was omitted to be claimed in the original return. But it is not that if revised return is not filed or the time limit for the filing of the revised return has expired but the assessment is still pending, that the assessee should be prohibited from making such a claim. Technicalities cannot be allowed to work as speed breakers in the course of dispensation of justice. If an amou....
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....h amount was liable to be taxed in the instant year. The said amount of Rs. 12.83 crores was, therefore, included in the total income of the assessee. The first appeal did not change the fortune of the assessee on this issue. 15. Before us the ld. AR stated that the DGFT decided to close the case vide its letter dated 30-4-2004 and hence there could not be said to be any accrual of income. It was further explained that the matter was again taken up with the DGFT. Due to certain differences, the learned A.R. explained that the matter was referred for arbitration in the year 2008 and somewhere in 2009 some part of the amount was paid and the remaining claim was yet to be finalized. Reliance was placed by the ld. A.R. on the judgment of the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 and some other High Court judgments along with the orders passed by the Tribunal to bolster his submission that the income could be charged to tax only when right is finally acquired. He further pleaded that the inchoate right did not result into taxable income. As the claim filed before the DGFT did not materialize in the year in quest....
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....in the case of Topman Exports v. ITO (OSD) [2009] 33 SOT 337 (Mum.) has also taken similar view that the income from export incentives accrues to the assessee when application is filed with DGFT. As the assessee filed application for the claim of excise duty refund under duty drawback rules on 28-3-2003, which date falls in the previous year relevant to the assessment year under consideration, the said income accrued to the assessee at that stage itself. Here it will be relevant to mention that once the income has accrued to the assessee, it cannot result into negating such accrual, simply for the reason that there has arisen some dispute later on which is pending settlement. If eventually some part of the income does not materialize, the assessee can claim deduction for such amount in the later year when it is finally rejected. 18. The alternative contention of the ld. AR that if the accrual is held to have taken place notwithstanding its dispute in subsequent years, then the income should be added in the income of the years to which it relates. This contention is again devoid of any force for the reason that the accrual of export incentives takes place when application is file....