AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (4) TMI 1009
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.... Tribunal in order to show that the goods exported by the assessee were carried by Lufthansa Airlines. For the purpose of availing the service of the aforesaid carrier assistance of four several agents of the aforesaid carrier was taken, particulars whereof and the amount paid to them are as follows ;- (i) Bag Global (I) Ltd. : Rs. 33,61,081/- (ii) H.T.L. Logistics (I) Pvt. Ltd. : Rs. 2,46,426/- (iii) The Express Pvt. Ltd. : Rs. 67,275/- (iv) Green Ways Shipping Corporation : Rs. 58,745/- Rs. 37,33,527/- Mr. Shome submitted that the appellant was under no obligation to deduct tax at source in respect freight paid to a foreign carrier. He drew our attention in support of his contention to the judgment in the case of GE India Technology Centre P. Ltd. v. Commissioner of Income-Tax and Another reported in [2010] 327 ITR 456 (SC) wherein the Apex Court opined as follows ;- ".... The most important expression in section 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is....
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....l arise. In fact, at one point of time, there was a provision in the Income-tax Act to obtain a NOC from the Department that no tax was due. That certificate was required to be given to the RBI for making remittance. It was held in the case of Czechoslovak Ocean Shipping International Joint Stock Company v. ITO [1971] 81 ITR 162 (Cal) that an application for NOC cannot be said to be an application under section 195(2) of the Act. While deciding the scope of section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of section 195." Mr. Shome also drew our attention to a judgement of the Income Tax Appellate Tribunal, Kolkata 'B' Bench, Kolkata in I.T.A. Nos. 1686 and 1687/Kol/2011 in the case of Taj Leather Works v. Assistant Commissioner of Income Tax wherein the learned Tribunal opined that payment made to the issuing carrier agent on account of airfreight payable to the foreign carrier was not deductible at source under section 194 (C). To be precise the view expressed by the learned Tribunal are as follows ;- &nbs....
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....e, the meaning of this section is that such interest must be chargeable under the provisions of this Act. To simplify the matter, this interest must be accounted for or credited in the account of some person who is chargeable under the Act. In other words, this remittance of interest must result in an income which is chargeable under the Act. In those circumstances tax may be deducted at source. But where this interest is not so chargeable, no tax is deducted. In this case, by virtue of the above convention, the head office of the appellant is not liable to pay any tax under the Act. Therefore, in our opinion, there was and still is no obligation on the part of the appellant's said branch to deduct tax while making interest remittance to its head office or any other foreign branch. Therefore, in the circumstances there is no scope for any argument that for the purpose of computation of expenditure the branch and the head office are to be taken as separate entities but for the purpose of payment of tax to be deducted at source on interest payment, it is to be taken as one bank and no deduction is to be made as sought to be made by the learned counsel for the appellant. Such con....
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....e, like in the case before us, he submitted, the Supreme Court in the case of Associated Cement Co. Ltd. v. Commissioner of Income-Tax and Another reported in 201 I.T.R. 435 (SC) took the following views;- "The above decision cannot be of any help to the appellant for it does not lay down that the percentage amount deductible under section 194C(1) should be out of the income of the contractor from the sum or sums credited to the account of or paid to him. The words in the sub-section "on income comprised therein" appearing immediately after the words "deduct an amount equal to two per cent of such sum as income-tax" from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract. Moreover, the concluding part of the sub-section requiring deduction of an amount equal to two percent of such sum as income-tax, by use of the words "on income comprised therein" makes it obvious that the amount equal to two percent of the sum required to be deducted is a deduction at source. Indeed, it is neit....
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....e, the first question in answered in the affirmative. The views expressed by the Apex Court in the case of GE India Technology Centre P. Ltd. (supra)have already been quoted above from which it will appear that the payer is obliged to deduct tax at source only if tax upon such payment is assessable in this country. The Apex Court has also referred to the double taxation avoidance agreement. Section 195 of the Income Tax Act specifically excludes the liability to deduct tax at source when payment is made to a foreign company which is not chargeable to tax in this country. Evidently, major part of the aforesaid sum of Rs. 37,33,527/- was paid to the foreign company namely Lufthansa. There exists agreement between the Govt. of the Republic of India and the Govt. of the Federal Republic of Germany for the avoidance of double taxation. Article 8 of the aforesaid agreement provides as follows :- "(1) Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. &nbs....