TaxTMI 
TaxTMI 
2010 (4) TMI 784
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtmental appeal, which is against the order of the learned CIT(A) dt. 8th Jan., 2003, are connected with the above question and accordingly, the same are reproduced below: "1. The order of the CIT(A) is contrary to the law, facts and circumstances of the case. 2. The CIT(A) has erred in holding that the assessee is not liable to deduct tax at source on the remittance of US $ 9,02,500 (rupees equivalent 4,31,75,600 at the exchange rate of Rs. 47.84) made to IMAX Ltd., Canada a company registered in Canada and cancelling the demand raised under s. 201(1) and 201(1A). 3. The assessee has made payment for the provision of the variety of services by M/s IMAX, Canada. Since the remittance of US $ 9,02,500 was for the provision of technical services by IMAX which falls under s. 9(1)(vii) of the IT Act, wherein it is stated in Expln. 2 to s. 9(1)(vii) that fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel), it would be chargeable to tax under s. 44D r/w s. 115A. 4. The CIT(A) has not considered the submissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by the assessee is for provision of a variety of services to be provided by the personnel of IMAX in India. He also observed that the services to be provided included installation charges, testing and training for projectionists. The training was to be provided with regular service visits. It was also stated in the agreement that IMAX personnel will be present for supervision in India. Therefore, the AO was of the view that the amount remitted by the assessee was for provision of technical services by IMAX which falls under s. 9(1)(vii). The AO also relied on the judgment of the Supreme Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC) and concluded that since the assessee has not obtained any order under s. 195(2), 195(3) or s. 197, the gross sum remitted by the assessee was liable to tax under s. 195 of the Act. Accordingly, he raised a demand of tax amounting to Rs. 64,76,340 and also levied interest under s. 201(1A) amounting to Rs. 6,47,634. 4. Detailed submissions were made by the assessee before the CIT(A). It was pointed out that where DTAA was entered into by India, the provisions of DTAA would prevail o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orporation and in the case of CIT vs. Eli Lilly & Company (India) (P) Ltd. (2009) 223 CTR (SC) 20 : (2009) 21 DTR (SC) 74 : (2009) 312 ITR 225 (SC) to contend that the deduction to be made is tentative only and is subject to the assessment in the case of the deductee. It was further submitted that the various circulars issued by the Board were on specific issues and though they were beneficial in nature, they could not negate the main provisions of the Act. The learned Departmental Representative also relied on the decision of the Chennai Bench of the Tribunal in the case of Poompuhar Shipping Corpn. Ltd. vs. ITO in ITA Nos. 2841 & 2842/Mad/2005, dt. 23rd June, 2006 [reported at (2007) 108 TTJ (Chennai) 97D-Ed.] and also in the case of Frontier Offshore Exploration (India) Ltd. vs. Dy. CIT in ITA No. 2037/Mad/2006, dt. 28th Feb., 2007. It was contended that if the assessee is given the discretion to decide whether to deduct tax or not, he will sit in the chair of the AO and in that case s. 195 will become totally inoperative. 6. Shri R. Vijayaraghavan, learned counsel for the assessee, at the outset agreed that deduction under s. 195 was tentative but still the assessee could cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... tax may not be deducted or be deducted at lower rate. In fact, it was meant for procedural relief only. But the assessee was not precluded from saying that the amount determined under s. 201(1) is not correct. Finally, Shri Vijayaraghavan referred to various circulars of the Board and judgments to which we shall advert to later. 7. Shri Rajan Vora, chartered accountant also appeared for the assessee. He drew our attention to Circular No. 759, dt. 18th Nov., 1997 [(1997) 143 CTR (St) 290] which gives an option to the deductor to furnish an undertaking to the RBI to make remittance without obtaining a no objection certificate from the AO. In the light of this circular, it was contended that the whole question referred to the Special Bench becomes irrelevant when the Department itself has dispensed with the requirement of s. 195(2) by way of the above-mentioned undertaking. It was contended that in case an income which is obviously not chargeable to tax, the deductor need not undergo the procedure prescribed in s. 195(2) of the Act. This is the first option available to the assessee. The second option is that if there is a doubt about the chargeability of the amount to be remitted o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the judgment of the Supreme Court which is divorced from the context of the question under consideration. About the status of the circulars issued by the Board, reliance was placed on the judgment of the Supreme Court in the case of UCO Dank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC) (b) The next submission of Mr. Srinivasan was as to how s. 195 has evolved over a period of time and how the Board itself has been keeping pace with the development. In this connection reference was made to the Board Circular No. 695, dt. 29th Nov., 1994 [(1994) 122 CTR (St) 21] and Circular No. 10, dt. 9th Oct., 2002 [(2002) 177 CTR (St) 41] respectively to show the additions made by the Board in the information sought for in the certificate issued by a chartered accountant. (c) The argument was that if s. 195(2) was mandatory, does it mean that all the circulars issued by the Board are redundant? In this connection reference was made to the Board Circular No. 4, dt. 29th June, 2009. It was emphatically submitted that there was a clear alternative between the circular and s. 195(2) of the Act. 9. Shri T. Banusekar, chartered accountant appeared as intervener on behalf of Asiatic ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....principle enunciated therein is not withdrawn. Reference was made to the judgment of the Delhi (sic-Bombay) High Court in the case of BASF (India) Ltd. vs. W. Hasan, CIT (2006) 201 CTR (Bom) 198 : (2006) 280 ITR 136 (Bom) to contend that retrospective withdrawal of circular is not permissible. 11. In his counter-reply the learned Departmental Representative submitted that circulars cannot substitute a provision and cannot reduce the rigours of any provision. According to him, s. 195 was very clear in so far as that its heading was "other sums" and the provision talked about payment of a "sum". On the other hand, s. 190 and all other provisions following thereafter use the word "income" and not "sum". Therefore, the contention was that while making any remittance to a non-resident, tax had to be deducted under s. 195 of the Act. The question he posed was as to who decides the taxability of the sum remitted. In this connection, he referred to the decision of the Delhi Bench of the Tribunal in the case of Millennium Infocom Technologies Ltd. vs. Asstt. CIT (2008) 117 TTJ (Del) 456 : (2008) 9 DTR (Del)(Trib) 538 : (2009) 117 ITD 114 (Del). This decision was referred to by Shri Rajan V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cs Ltd., in particular, the observations made at placitum 38 onwards. In his written submissions, the learned Departmental Representative has submitted that the facts in the present case are exactly identical to the facts in the case before the Karnataka High Court and hence the said judgment be followed. It is also contended that the interpretation of the Supreme Court of s. 195 in the case of Transmission Corporation has been followed by the Karnataka High Court and since the law declared by the Supreme Court has to be followed under Art. 141 of the Constitution, it becomes all the more incumbent for the Tribunal to follow the judgment of the Karnataka High Court. 14. Shri Vijayaraghavan, advocate, argued on behalf of the assessee. Firstly, he referred to the judgment in the case of Transmission Corporation and submitted that the issue before the High Court was only whether TDS was to be made on net amount or on gross amount. If at all there was a default, it was held to be only in respect of income which was chargeable to Lax out of the total amount remitted. Thus, the underlying ratio was that TDS has to be made only in respect of income which is chargeable to tax. The High Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ucted from out of the payment made by the resident payer either by employing a wrong percentage for deduction, at variance with the rate as indicated in the Finance Act or such arithmetical or factual errors committed by the AO, without involving the question of actual determination of the tax liability of the non-resident, etc., alone can constitute the subject-matter for appeal under s. 246A of the Act [cl. (ha) of sub-s. (1) of s. 246A of the Act]." By drawing our attention to the above observations, it was sought to be impressed upon us that the Karnataka High Court has misinterpreted the judgment in the case of Transmission Corporation and has ignored the ultimate conclusion. It was submitted that the High Court has extended the applicability of the decision in Transmission Corporation to cases where the entire income may not be taxable. It was reiterated that it is clearly held in Transmission Corporation that tax is deductible only on that portion of remittance which forms part of taxable income. It was further submitted that the Karnataka High Court has not considered the judgment of the Supreme Court in the case of Eli Lilly & Company (India) (P) Ltd. and has not applied ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the jurisdictional High Court in the case of Visvas Promoters (P) Ltd. vs. ITAT (2009) 30 DTR (Mad) 65, it was contended that decisions of non-jurisdictional High Courts were not binding on the Tribunal and hence in this case, the judgment in the case of Samsung Electronics Ltd. need not be followed. 16. Shri L.V. Srinivasan, India Tax Director of Areva T & D India Ltd. appeared as intervener for the said company. His only contention was that in the case of Samsung Electronics Ltd. there is no discussion at all about the alternate procedure of obtaining the chartered accountant's certificate. It was contended that by prescribing the alternate procedure it clearly follows that undergoing the procedure under s. 195(2) is not mandatory. With regard to the judgment of the Madras High Court in its own case dt. 11th Feb., 2008 (Tax Case Appeal No. 1502 of 2007) [reported as Areva T & D India Ltd. vs. ITO (2008) 218 CTR (Mad) 128 : (2008) 10 DTR (Mad) 82-Ed.], it was submitted that there was no question before the High Court about the mandatory application of s. 195(2). 17. Shri T. Banusekar, chartered accountant appeared as intervener for Asiatic Colourchem Industries Ltd. He drew our....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Supreme Court in the case of Sri Venkateswara Rice, Ginning & Groundnut Oil Mal Contractors Company vs. State of Andhra Pradesh 2 SCC 650. Our attention was drawn to the observations of the Court at para 9 which are reproduced below: "9. Our approach to the question before us is similar to that adopted by the High Court in the decision under appeal. We are in entire agreement with the reasoning of the High Court. But our attention was invited to a later decision of the same High Court in M. Nadar Khan & Co. vs. Asstt. Commr. of Commercial Taxes & Ors. (27 STC 18) which took a view contrary to that taken in the decision under appeal. It is strange that a Co-ordinate Bench of the same High Court should have tried to sit on judgment over a decision of another Bench of that Court. It is regrettable that the learned Judge who decided the later case overlooked the fact that they were bound by the earlier decision. If they wanted that the earlier decision should be reconsidered, they should have referred the question in issue to a Larger Bench and not to ignore the earlier decision." Shri Banusekar also placed before us certain extracts of Salmond on Jurisprudence, 12th Edn. The follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 596 of 239 ITR, the Karnataka High Court observed as follows: Placitum 54: "In this background, the picture that emerges is that while under s. 195(1) of the Act, there is an obligation on the part of the person responsible for paying to a non-resident does arise if and only if the payment partakes of the character of income payment, in the sense that, if an amount is not in the nature of income payment at all, then s. 195(1) of the Act does not operate.........." Placitum 62: "However, s. 195(2) of the Act provides for a limited extent of a possible reduction in the actual amount to be deducted at source by the resident payer if the resident payer is able to demonstrate before the AO that the entire payment does not bear the character of income; but only a part of the payment bears the character of income.........." Placitum 68: "The only limited way of either avoiding or warding off the guided missile is by the resident payer invoking the provisions of s. 195(2) of the Act and even here to the very limited extent of correcting an incorrect identification, and incorrect computation or to call in aid the actual resident which in fact had been determined as part of the proce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(i) Circular No. 43, dt. 20th June, 1970; (ii) Circular No. 588, dt. 2nd Jan., 1991 [(1991) 91 CTR (St) 46]; (iii) Circular No. 759, dt. 18th Nov., 1997; (iv) Circular No. 767, dt. 22nd May, 1998; (v) Circular No. 786, dt. 7th Feb., 2000; (vi) Circular No. 790, dt. 20th April, 2000; (vii) Circular No. 10, dt. 9th Oct., 2002; (viii) Circular No. 7, dt. 23rd Oct., 2007 [(2007) 212 CTR (St) 137]; (ix) Circular No. 4, dt. 29th June, 2009. The argument of Shri Sonde was that the decision in Samsung is not binding because: (i) It is inconsistent with the earlier decisions of the Courts of the same or higher rank; (ii) It is rendered sub silentio in so far as that it does not refer to the circulars of the Board and does not deal with the decisions of the Supreme Court, Karnataka High Court and other High Courts of the same rank; and (iii) It is rendered per incuriam because it is contrary to the Supreme Court decisions and other High Court decisions including the decisions of the Division Bench of the Karnataka High Court itself. He referred to the judgment of the Full Bench of the Andhra Pradesh High Court in the case of CIT vs. B.R. Constructions (1993) 113 CTR (AP) 1 : (19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case of Mahindra & Mahindra Ltd. vs. Dy. CIT. In this decision, it was submitted that the Special Bench has conclusively dealt with the subject of obligation to deduct tax at source from payments to non-residents. It has been laid down that the prerequisite of applicability of s. 195(2), s. 197 and s. 201 of the Act is that the amount paid to the non-resident is otherwise chargeable to tax under the provisions of the Act Thus, if the amount paid or payable to the non-resident is not chargeable to tax under the regular provisions of the Act or the applicable DTAA then the provisions of Chapter XVII about the collection and recovery of tax are ruled out. In these cases, the person responsible for paying such non-taxable sum cannot be fastened with any liability for deduction of tax at source and cannot under any circumstance be treated as an assessee in default. 20. Shri Devnathan, advocate appeared on behalf of Eagle Press Pvt. Ltd. as an intervener. His submissions were more or less the same as those of the counsel who argued earlier. His emphasis was that the judgments in the cases of Eli Lilly, Vijay Ship Breaking Corpn., Jindal Thermal Power and others should have been follow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ission Corporation and hence, our effort will be to concentrate on this judgment in spite of the fact that several authorities have been cited before us. However, wherever necessary, we shall advert to other authorities as well. 23. To begin with, we reproduce the entire s. 195 for immediate reference: "195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries' shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of cl. (23D) of s. 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode: Provided further that no such deduction shall be made in respect of any divide....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... together first. In this sub-section, the crucial expression is "any other sum chargeable under the provisions of this Act". This expression has been explained by the Supreme Court in the case of Transmission Corporation in the following words: "Consideration would be-whether payment of sum to non-resident is chargeable to tax under the provisions of the Act or not? That sum may be income or income hidden or otherwise embedded therein. If so, tax is required to be deducted on the said sum what would be the income is to be computed on the basis of various provisions of the Act including provisions for computation of the business income, if the payment is trade receipt. However, what is to be deducted is income-tax payable thereon at the rates in force. Under the Act, total income for the previous year would become chargeable to tax under s. 4. Sub-s. (2) of s. 4 inter alia, provides that in respect of income chargeable under sub-s. (1), income-tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that is to be paid to the non-resident is chargeable to tax, tax is required to be deducted." If the above analysis by the Supreme Court is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r such as salaries, dividends, interest on securities, etc., but also to gross sums, the whole of which may not be income or profits of the recipient, such as payments to contractors and sub-contractors and the payment of insurance commission. It further observed that a receipt may contain a fraction of the 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 a 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. (1) of s. 195 is to see that the sum which is chargeable under s. 4 of the Act for levy and collection of income-tax, the payer should deduct income-tax thereon at the rates in force, if the amount is to be paid to a non-resident. Thus, the reply of the Supreme Court has to be considered in the light of the assessee's contention that s. 195 is applicable only when whole of the payment is income chargeable to tax. According to our understanding, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen the payer has a bona fide belief that no part of the payment bears income character, s. 195(1) itself would be inapplicable and hence no question of going into the procedure prescribed in s. 195(2) of the Act. Sub-s. (3) is enacted to deal with a situation where the payer wants to deduct tax from the payment but the payee believes that he is not chargeable to tax in respect of that payment and hence, sub-s. (3) provides an opportunity to the payee to seek approval to receive the payment without deduction of tax. 26. A pertinent question was raised by the learned Departmental Representative as to who decides whether the payment bears any income character or not. In his view, it could be either the AO or a chartered accountant as prescribed by the Board, but certainly not the assessee (the payer). The role of the chartered accountant comes into play in the alternative procedure prescribed by the Board and to which we shall advert to it a little later. However, we are not in agreement with the learned Departmental Representative that the assessee (i.e., the payer) has no role to play. The IT Act is enacted to levy taxes on income earned by a person. It is the statutory obligation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te under s. 195(3), the payer, based on his belief will certainly withhold the tax. Thus, in our opinion, these are the various situations which one can visualise for the application of the entire provision of s. 195. The above discussion goes to show that in case of a bona fide belief by the payer that no part of the payment bears income character, it is not mandatory for him to undergo the procedure of s. 195(2) before making any payment to a non-resident. 27. Having visualised the various situations, let us consider the fallout of each situation and how the interests of both, the taxpayer as well as the tax collector are safeguarded under the Act. (a) If the bona fide belief of the payer is that no part of the payment has any portion chargeable to tax, he will not enter into any procedure under s. 195. However, if the Department is of the view that the payer ought to have deducted tax at source, it will have recourse under s. 201 of the Act. Thus, here the interest of the Revenue is protected. In the proceedings under s. 201, the AO will determine the portion chargeable to tax according to the provisions of the Act and determine the tax payable by the payer. The AO is bound t....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., one important point we are trying to drive home is that if the payer is under a bona fide belief that no part of the payment is chargeable to tax, he will have the right to defend that belief in the proceedings under s. 201 of the Act. Number of such proceedings have taken place and have been adjudicated upon by various High Courts as well as by the Supreme Court. To repeat, the payer is an assessee under the Act and the order under s. 201 is an assessment order. Therefore, the payer has the right to get his liability determined as per the provisions of the Act despite the entire exercise being tentative in nature. The ultimate result would depend on what is determined in the assessment of the recipient. The ultimate result in the case of the recipient will determine whether the payer can be treated as an assessee in default or not. Yet, the entire tentative exercise described above may have to be undergone. This has been held in a recent decision (so far unreported) of the Delhi High Court in the case of Van Oord ACZ India (P) Ltd. vs. CIT (IT Appeal No. 439 of 2008) decided on 15th March, 2010 [since reported at (2010) 230 CTR (Del) 365 : (2010) 36 DTR (Del) 425-Ed.]. 28. We n....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 certificate is alternative to the procedure under s. 195(2) is clear from what is stated in para 4 of Circular 767, dt. 22nd May, 1998 which is reproduced below: "4. It is also clarified that Circular No. 759 will cover those remittances for which the RBI has prescribed the production of a no objection certificate from the IT authorities under its exchange control manual. Further, if an order under s. 195(2) has been obtained by a person responsible for reducing tax, the new procedure of filing an undertaking along with a certificate prescribed in Circular No. 759 would not be applicable." 29. The undertaking to be furnished by the payer and the format of the chartered accountant cert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) he may not undergo the procedure under s. 195 at all and, (b) he may not furnish the chartered accountant certificate also except for complying with the RBI Manual for the purpose of making remittance. This is so because, as mentioned earlier, the undertaking and the chartered accountant certificate are not the conditions of the statute but are only for the purpose of complying with the RBI Manual. It may be noted that even in the absence of an undertaking by the payer, the Department will have the power under the Act to proceed against the payer if later it is found that the payment made was chargeable to tax. The payer in that event will face all the consequences under the Act depending on the fact whether entire payment was chargeable or only a part of it was chargeable. 30. From the details to be furnished in the chartered accountant certificate, it is evident that the payer, through his chartered accountant, would be almost determining whether the payment is chargeable to tax or not. Since the undertaking is to be furnished to the AO having jurisdiction over the remitter, he too would be making almost an assessment about the chargeability of the payment made by the payer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax. In the case of CIT vs. Manager, State Bank of India (200B) 13 DTR (Raj) 294, the Rajasthan High Court held that when interest income received by the depositors under TDR/STDR are not subject to tax as per s. 10(15)(iv)(fa), the question of deduction of tax at source does not arise. Bombay High Court has held in the case of CIT vs. Cooper Engineering Ltd. that unless any payment of interest is such that interest is chargeable under the Act, the liability upon the person responsible for paying it to deduct the tax at source is not there. In the case of CIT vs. Wesman Engg. Co. (P) Ltd., it was argued on behalf of the Department that under s. 248, a person could deny his liability to make deduction of tax at source but there was no power to determine the quantum and to say as to what extent the said remittance will be taxed. The Supreme Court negatived this argument and held that once an appeal has been preferred to the AAC on the matter of liability of the company to deduct taxes, the AAC is well within his competence to pass an order on the quantum also. This judg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing payments to a non-resident to take unilateral decision that the payments made by him are the sum "not chargeable to tax". It also observed that it was sine qua non to have the concurrence of the AO as provided in s. 195(2) of the Act. On the submission of the assessee, the High Court observed that though the terms of contract between the assessee and the non-resident payee were placed on record, Tribunal failed to consider the same and accordingly remanded the matter to the Tribunal for fresh decision. Thus, it can be seen that there is no direct decision of the jurisdictional High Court on the issue which is before the Special Bench in this case. The scene, therefore, before us is that there are certain Supreme Court judgments on the issue and quite a number of non-jurisdictional High Court decisions. The unequivocal view of the Supreme Court in all its judgments is that s. 4 cannot be delinked from s. 195 and that the latter provision will apply only if the payment made to the non-resident bears income character, either wholly or in part. This is also the view of several High Courts including that of the Karnataka High Court in its decisions prior to the judgment in the case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discipline and propriety. But the problem gets compounded because any attempt at a solution to the questions posed before the Special Bench, which are concluded one way or the other by judgments of High Courts of other States (States other than the State where the Special Bench is sitting), would necessarily involve the making of a conscious choice to follow one view or the other which in turn involves the giving of reasons for the choice. The Special Bench is thus placed in a somewhat tricky position where it must act with great circumspection and responsibility. The reasons given for making the choice and the language used should not be adventuristic or attempt to cross the frontiers that are never to be crossed. The Special Bench has to guard against any such tendency. However, having been constituted it has to decide the issue, taking guidance from the judgments and giving cogent and acceptable reasons, tempered with judicial dignity, discipline and decorum and without crossing the well-demarcated frontiers, if it feels judicially inclined to prefer one decision over the other. For instance, if the provisions of law considered in those judgments were different, or if there has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he basis of the alternative procedure (explained by us in para 29) and on the basis of various judgments, we have come to the conclusion that the assessee and the AO both may enter into such an exercise. 34. While we are almost approaching the end of this order, we cannot lose sight of another order on the issue by an earlier Special Bench in the case of Mahindra & Mahindra Ltd. vs. Dy. CIT. As a matter of fact, we have largely followed the findings given therein. We have not in any manner deviated from the principles laid down therein. At the most, as mentioned earlier we may have only explained them as to how the provisions would operate practically. The findings which we have followed are, firstly, that the order under s. 201 (1) is to be treated as an order of assessment or at least akin to the assessment order. In the case of Mahindra & Mahindra, this finding is given at para 16.5 of the order. At para 18.4 the Special Bench has held that if the amount paid or payable to the non-resident is not chargeable to tax under the regular provisions of this Act or such amount is not taxable by virtue of the provisions of DTAA, then the provisions of Chapter XVII about the collection a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... out if the payment is not chargeable to tax, is in consonance with the alternative procedure, we have held that the assessee and the AO may have to enter into the exercise of determining the tax liability of the non-resident to a limited extent. We need not reiterate that this entire exercise is tentative and the ultimate liability of the payer will depend on as to what happens in the assessment of the payee. We also need to state very emphatically that when the payer is of the view that no part of the payment bears income character, such a view has to be bona fide. If the bona fides are doubtful, the payer will have to face all the consequences under the Act. 35. In the final analysis, our answer to the question placed before us is that if the assessee has not applied to the AO under s. 195(2) for deduction of tax at a lower or nil rate of tax under a bona fide belief that no part of the payment made to the non-resident is chargeable to tax, then he is not under any statutory obligation to deduct tax at source on any part of the payment. 36. We may now deal with the issue on merits in the appeal before us. Of course, the question referred to the Special Bench is worded in gener....