TaxTMI 
TaxTMI 
2010 (6) TMI 567
X X X X Extracts X X X X
X X X X Extracts X X X X
....s on facts of the case in deleting the TDS amount alongwith interest u/s.201(1) and 201(1A) of the Income-tax Act of Rs.56,88,910/-, Rs.26,19,492/- and Rs.69,30,792/- respectively. (sic.) [A.Y. 2001-02, 2002-03 & 2003-04]". 2. Facts in brief as emerged from the corresponding assessment order passed u/s. 201(1) and 201(1A) of the I.T. Act, 1961 dated 02/06/2004 were that the assessee was subjected to survey u/s.133A of the I.T. Act, 1961. It was noticed that the assessee has paid "Sales Commission" to the non-residents. The year-wise details of the impugned "Sales Commission" were as under:- S.l. No(s) For Assessment Year(s) Impugned "Sales Commission" (Amount in Rs.) 1. 2001-02 1,13,38,815/- 2. 2002-03 65,58,234/- 3. 2003-04 1,87,25,543/- 3. A question was raised that why TDS was not deducted at the time of payment of commission? In this regard, copies of the agreement and the addresses alongwith names of those parties have been called for. The Assessing Officer has also narrated the provisions of section 195(2) of the I.T. Act, 1961 to affix the liability on the assessee on the ground that in a case where the person responsible for pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1961. Had the assessee followed the correct procedure, the Income-tax Authorities would be in a position to come to know whether the amount remitted was chargeable to tax in India? In the opinion of Assessing Officer, the assessee had failed to discharge its onus completely. Further, according to Assessing Officer, the assessee had also failed to follow the procedure laid down by Circular No.759 and Circular No.10 of 2002. Finally, the Assessing Officer has concluded that as per the provisions of section 201(1) of the I.T. Act, 1961, the appellant has failed to deduct the tax in respect of Rs.1,13,38,815/- for Assessment Year 2001-02, therefore, TDS payable as per the provisions of section 195 of the I.T. Act, 1961 was Rs.38,43,858/-. On the said amount, the Assessing Officer has also affixed the liability of payment of interest u/s.201(1A) of the I.T. Act, 1961 of Rs.18,45,052/-. For rest of the two years, the liability u/s.201(1) and 201(1A) was as under:- Sl. No(s) Assessment Year(s) Liability of Payment u/s.201(1) of the I.T. Act, 1961 Liability of Payment of interest u/s.201(1A) of the I.T. Act, TDS payable 1. 2002-03 Rs.19,76,975/- Rs. 6,42,517/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x, he is under statutory obligation to deduct tax at source computed on the entire payment to the nonresident treating the same as income chargeable to tax, in the light of decision of the Apex Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT (239 ITR 587)?". 7.1. Now the decision of the Respected Special Bench of ITAT Chennai has been pronounced vide an order dated 09/04/2010 reported as (2010) 37 DTR (Chennai)(SB)(Trib) 418, a copy placed on record by the Learned Authorised Representative of the respondent-assessee. Since the matter has now been decided and settled, therefore, the parties appearing before us have urged to proceed with the case in the light of the decision of Hon'ble Respected Special Bench. 7.2. Though from the side of the Revenue Learned Departmental Representative has agreed to proceed with the case, but placed reliance on few decisions, viz. Dr.Hutarew & Partner (India) Pvt.Ltd. vs. ITO (ITA No.2797/Del/2004) order dated 05/09/2008, West Asia Maritime Ltd. (ITA Nos.2376 & 2377/Mds./2005) order dated 19/05/2006, decision of the Hon'ble Supreme Court in the case of Transmission Corporation of A.P.Ltd. vs. CIT reported as 239 ITR 587 (SC) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payments to contractors and subcontractors and the payment of insurance commission. It is true that in some cases, a trading receipt may contain a fraction of sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain large sum as taxable income under the provisions of the Act. Whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. The purpose of sub-s. (10 of s. 195 is to see that the sum which is chargeable under s. 4 for levy and collection of income-tax, the payee should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is for tentative deduction of income-tax thereon subject to regular assessment and by the deduction of income-tax, rights of the parties are not, in any manner, adversely affected. Further, the rights of payee or recipient are fully safeguarded under ss. 195(2), 195(3) and 197. Only thing which is re1uired to be done by them is to file an application for dete....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of tax deducted at source. It was concluded by the Hon'ble Court that the High Court was, therefore, correct in holding that the assessee in that appeal, to make the payments to the nonresidents, was under obligation to deduct tax at source u/s.195 of the I.T. Act, 1961 in respect of the sums paid to them under the contracts entered into and the obligation of the assessee to deduct tax u/s.195 is limited only to appropriate proportion of income chargeable under the Act. Therefore, the last lines also have significant value i.e. the chargeability of the income under the Act has to be determined to inflict the liability of deduction of tax or appropriate proportion of tax. 9.2. This question was even addressed by the Hon'ble Delhi High Court in the case of Van Oord ACZ India (P) Ltd. reported as (2010) 323 ITR 130 (Delhi). It is worth to mention that the Hon'ble Delhi High Court has taken due note of the decision of the Hon'ble Supreme Court as discussed above in the case of Transmission Corporation of A.P. Ltd. & Anr. Vs. CIT(supra). Through this decision, the Hon'ble Delhi High Court has summarized the legal position vide paragraph No.25 as under:- "We hereby summarize ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....no such application is filed before the Assessing Officer for obtaining such certificate or such application is rejected by Assessing Officer and direction is issued by the Assessing Officer to deduct such tax at a particular rate the payer is duty bound to deduct tax as per the directions of the Assessing Officer and in case no such application for obtaining the certificate was filed before the Assessing Officer then the payer is duty bound to deduct tax as per the prescribed rates in force at the relevant time." Unquote. Though the Hon'ble Court has imposed a liability of deduction of tax at source in cases where no such application was submitted, but before that vide clause(c)[supra] it has to be determined that whether the obligation to deduct the tax at source arises on account of the chargeability of income-tax on the said 'sum'. Therefore, as clause(c) of the above paragraph, the Court has made an observation that the obligation to deduct the tax at source arises only when the payment is "chargeable" under the provisions of the I.T. Act, 1961. So, in this manner, the procedure could be that the assessee has to examine the fundamental aspect that whether the sum in question i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iew taken therein; relevant portion is reproduced below:- The Hon'ble ITAT Chennai "B" Special Bench in the case of ITO (International Taxation) vs. Prasad Production Ltd. (2010) 37 DTR (Chennai)(SB)(Trib) 418 held as under (vide paragraph Nos.24 to 26):- "Considering the circumstances in the background of which the procedure of obtaining certificate from a chartered accountant was evolved vide Circular No. 759, dt. 18th Nov., 1997, it is clear indication that as per Board's interpretation also, the payer need not enter into the procedure of s. 195 if no part of the payment was chargeable to tax. Again, it needs to be appreciated that the procedure prescribed is only to comply with the provisions of the RBI Manual and not that of the statute because statutory compliance would be necessary only when the entire payment or a part of it is chargeable to tax under the Act. Therefore, there is no gainsaying that the payer ought to undergo the procedure of s. 195 irrespective of the fact whether the payment is chargeable to tax or not. The fact that the procedure of obtaining chartered accountant's certificate is alternative to 'the procedure under s. 195(2) is clear from what is state....