TaxTMI 
TaxTMI 
2014 (3) TMI 106
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.... in upholding the action of the Assessing Officer in treating the appellant company as an 'assessee in default' u/s 201(1) of the IT Act, 1961 in relation to consideration paid to foreign nationals for purchase of shares of an Indian company, namely, Shantha Biotechnics Ltd. 2. The learned CIT(A) erred in upholding the action of the Assessing Officer in applying the provisions of section 195 of the Act to the non-resident appellant company even though consideration was paid to another non-resident outside India without appreciating the fact that the said provisions do not have extra territorial jurisdiction. 3. The learned CIT(A) erred in upholding that the appellant company is liable to withhold tax at source u/s 195 of the Act on the gross sale consideration paid to foreign nationals without appreciating the fact that under the said section the liability to withhold tax is on the income component embedded in the consideration and not on the whole amount. The learned CIT(A) erred in not considering the rationale of the decision of the Supreme Court in the case of GE India Technology Centre P. Ltd. (Civil Appeal Nos. 7541-7542 of 2010 and the decision of the Special Bench ....
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....at the assessee had entered into an agreement with one of its parent companies M/s Merieux alliance (MA) for the acquisition of majority stake in the Hyderabad based company SBL. The assessee had acquired 80% shares of SBL in November, 2006. These shares were purchased from different non-residents (NRIs). On verification of the 'Memorandum of Share Transfer' obtained from SBL during the course of survey, it was found that the assessee had made payments totalling to Rs. 359.87 crores, Rs. 20.6 cores and Rs. 82.12 cores respectively during FYs 2006-07, 2007-08 and 2008-09 to various NRIs for purchase of shares of the Indian company SBL. 3.2 On the basis of the above information, the Assessing Officer issued a letter to the assessee on 06/08/2009 asking for the terms and conditions under which shares were acquired, whether tax was deducted u/s 195 of the Act on the sale consideration paid to the NRIs and so on. The explanation of the assessee was that it had acquired shares from NRIs, foreign nationals and a Mauritius resident company namely United Overseas Investments Ltd. (UOIL). The assessee raised three contentions i.e. that withholding tax obligation does not have extra territ....
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.... of the appellant, as the original default of non-deduction of taxes cannot be cancelled or washed away. The Assessing Officer is meanwhile directed to complete the assessments in the case of all the non-residents concerned on priority." 4.2 Thereafter, the Assessing Officer passed consequential order to the said order of the CIT(A). Hence, the assessee's liability u/s 201(1) was worked out to Rs. 2,66,03,746/- and interest u/s 201(1A) was worked out to Rs. 1,52,43,048/- for AY 2008-09. 5. Aggrieved, the assessee is in appeal before us. 6. Before us, the learned AR submitted that the liability sought to be cast on the assessee us under the provisions of section 195 of the IT Act and this section applies to 'any person responsible for paying to a non-resident. The duty cast is on 'any person' and it would follow that the said person should come within the ambit of the India Tax provisions or specifically under the IT Act, 1961. Further, the AR submitted that the assessee is a company incorporated in France and at the time of acquisition of shares it neither had any presence in India nor was it in receipt of any income directly or indirectly from India, consequently, the ass....
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.... 11 SOT 221 (Hyd.) 3. Golkonda Engineering Enterprises Ltd. Vs. ITO, [2008] TIOL 169 ITA Hyd. 6.4 The AR submitted that sale of shares by UOIL not liable to tax in India and withholding tax provisions will not apply. In this connection, it is submitted that in case of purchase of shares from UOIL, the company was under no obligation to withhold tax at source as the capital gains were not liable to tax in India. It is submitted that the foreign nationals listed at Annexure A have suffered capital loss and therefore the provisions of withholding tax will not apply. The AR contended that the primary obligation of paying taxes on capital gains is that of the seller and that the withholding tax provisions u/s 195 of the Act do not have extra territorial jurisdiction. The AR therefore pleaded that the additions made u/s 201(1) and 201(1A) may be deleted. The AR relied on the following decisions in support of assessee's case: 1. Infotech Enterprises Ltd. Vs. Addl. CIT, ITA Nos. 115 and 2184/Hyd/2011, dated 16/01/2014 wherein it has been held as follows: "42. Thus, it is seen clearly that at the time of the payment in the instant case Ishikawajima-Harima (supra) was the law of ....
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.... 195(2) pre-supposes that person responsible for making payment to the non-resident is to comply u/s 195(2) only when there is some portion of income is embedded with the payment made to the nonresident. According to him, in the present case there is no element of income, which chargeable to tax so as to deduct TDS, being so, the assessee is not liable to deduct TDS as the same is not chargeable to tax in India and the provisions of section 195(2) is also not applicable and, therefore, the assessee cannot be held as the assessee is in default u/s 201(1) and also the assessee cannot be fastened with interest liability u/s 201(1A) of the IT Act. It was argued that in the case under consideration payment to the nonresident is relating to the purchase price of the shares and if we consider the cost price incurred by the non-resident, there is capital loss rather than capital gain and there is no question of any amount to chargeable to tax in India, being so, there is no necessity to deduct TDS as the entire payment made to non-resident attributable to the payments not chargeable to tax in India and, therefore, provisions of section 195 are not applicable to the case of the assessee. Fo....
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....rovisions of section. 8.2 According to the learned DR, what was contemplated was not merely amount, the whole of which were taxable without deduction, but, amount of mixed composition, a part of which only might turn out to be taxable income as well. The disbursements which are of nature of gross revenue receipts, where yet sums chargeable under the provisions of Income-tax Act, came with the ambit of section. For this proposition, the learned DR relied on the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd., [1999] 239 ITR 587. 8.3 Contrary to this, the learned AR contended that obligation to deduct tax at source u/s 195 was predicated on the condition that tax was payable by non-resident on the payments received by it and once it was established that no such tax was payable by the nonresident, the assessee could not be treated to be breached of its obligation. 8.4 In our opinion, the reason for fastening the obligation to deduct tax at source of the payment to non-resident is only in a situation where such payment was chargeable to tax in India was that it was not the intention of law to fasten an absolute liability on the remitter....