TaxTMI 
TaxTMI 
2011 (9) TMI 280
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....(A) erred in not appreciating the facts that the assessee's case is covered by the decision of Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd v. CIT (239 ITR 587). 3. The relevant material facts are like this. The assessee is engaged in the internet related services and is one of the prominent online provider of news, information, communication, entertainment and shopping services. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction, in respect of legal and professional fees, photography charges and bandwidth charges, aggregating to Rs. 3,04,03,553, payable to the persons resident outside India, but has not deducted any tax at source from the same. The Assessing Officer was of the view as per section 195 of the Income-tax Act, 1961, tax has to be deducted at source while remitting the monies outside India, and since assessee has not deducted tax at source , the amount so paid to the non-residents is not deductible in view of the provisions of section 40(a)(i) of the Income-tax Act. The Assessing Officer was of the view that even if there were any doubts about taxability of payment....
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....t, as held by Hon'ble Supreme Court in the case of GE India Technology Centre Pvt Ltd. v. CIT (327 ITR 456), tax deduction at source obligations under section 195(1) arise only if the payment is chargeable to tax in the hands of non-resident recipient. Therefore, merely because a person has not deducted tax at source from a remittance abroad, it cannot be inferred that the person making the remittance has committed a failure in discharging his tax withholding obligations because such obligations come into existence only when recipient has a tax liability in India. The underlying principle is this. Tax withholding liability of the payee is inherently a vicarious liability, on behalf of the recipient, and, therefore, when recipient does not have the primary liability to be taxable in respect of income embedded in the receipt, the vicarious liability of the payer cannot but be ineffectual. This vicarious tax withholding liability cannot be invoked unless primary tax liability of the recipient is established Just because the payer has not obtained a specific declaration from the revenue authorities to the effect that the recipient is not liable to be taxed in India in respect of in....
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....y occasions the process of determining tax deductions by the AO took long time. It was in this backdrop and in the light of, to our mind commercial realities, as also increased measure of faith in taxpayers and professionals, that the system was simplified in 1997. The CBDT has, vide Circular No. 759, dated 18th Nov., 1997 [(1997) 143 CTR (St) 290], dispensed with the requirement of obtaining a no objection certificate from the AO before making a foreign remittance. Under the new scheme set out in the aforesaid circular, which has been subsequently modified by the CBDT Circular No. 10 of 2002, dated 9th Oct., 2002 [(2002) 177 CTR (St) 41], it is not necessary for an assessee to obtain prior determination of tax withholding liability. The assessee could, under the new scheme, approach any independent chartered accountant for determining his withholding tax liability from a remittance, and make a remittance on the basis of this certification, as long as the assessee tax deductor gave an undertaking to the AO on the following lines: I/We...................... (Name, address and PAN Number) propose to make a remittance of...................... being (nature of payment) ...........
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....er, first make the remittance and the finalization of withholding tax liability follows. All it does is that the real time control mechanism to ensure revenue collections from foreign remittance at the point of remittance, which was in the nature of steering control, is given up, though naturally with the right to take suitable remedial measures when any loss of revenue is caused by the tax-deductors. Nothing more than this paradigm shift in approach needs to be read into this scheme of things. It is not abandonment of the institution of AO (TDS) in favour of the professionals in accountancy practice. It is also important to take note of a clarification issued by the CBDT. As clarified by the CBDT, vide Circular No. 767, dated 22nd May, 1998 [(1998) 147 CTR (St) 1] to the effect that "if an order under section 195(2) has been obtained by the person responsible for deducting tax, the new procedure of filing an undertaking along with the certificate prescribed in Circular No. 759 would not be applicable." It is thus clear that the new scheme of remittances being allowed on the basis of chartered accountant's certificate is not in substitution of the scheme of things envisaged und....
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.... now filed some of these details before us, and urged us to adjudicate the issue of taxability of these payments on merits. Some of these details, on sample basis, are as follows: Sl No. Name and address of the non-resident Amount The basis on which amounts the non-resident payee are said to be not taxable in the hands of the recipient 1. Russel Nelson Crynwer Software 521, Pleasant Valley Road Potsdam NY 13676 $ 17,753 Professional fee payment as Russel Nelson did not have a fixed base in India, the income was not taxable in India under Article 15 of the India US DTAA. 2. Sasam & F LLP POBox 1764 White Plains, NY 10602 $ 3,82,952 Professional fee payment- as this concern did not have fixed base in India, the income was not taxable in India under Article 15 of the India US DTAA. 3. Orrick, Herrington & Sutcliffe LLP 666, Fifth Avenue New York NY 10103 $ 232 Professional fee paymet- as this concern did not have a fixed base in India, the income was not taxable in India under Article 15 of the India US DTAA. Professional fee paymet- as this concern did not have a fixed base in India, the income was not taxable in India under Article ....