AI Drafter 
TaxTMI 
TaxTMI 
2016 (2) TMI 308
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.... Tax Reporter Pg. 554. It, therefore, came to the conclusion that judicial discipline demands that instead of taking a contrary view it should request that a larger bench be constituted so as to resolve the disagreement. It, therefore, directed the Registry to place the papers and proceedings of the two Appeals before the Hon'ble The Chief Justice so as to obtain suitable directions for placing the following question of law for opinion of a larger bench. "Q. Whether, while dealing with the allowability of expenditure under section 40(a)(i) of the Income Tax Act, 1961, the status of a person making the expenditure has to be a non-resident before the provision to section 172 of the Act can be invoked ?" 2. The Registry placed the papers before the Hon'ble The Acting Chief Justice on 8th October, 2015, and on 9th October, 2015, the Hon'ble The Acting Chief Justice directed constitution of this larger Bench. Accordingly, the question has been placed before us for our opinion and answer. 3. Before that question is answered it would be necessary to refer to the facts. A reference to the same is made only to appreciate the contentions of both sides. Income Tax A....
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....wed the assessee's appeal. A copy of the order dated 2nd August, 2004, passed by the CIT (Appeals) is annexed as Annexure-B to the appeal paper-book. Being aggrieved by the CIT(A)'s order dated 12th March, 2002, the assessee as well as the Revenue filed appeals before the Income Tax Appellate Tribunal, Panaji. The Tribunal, by an order dated 11th December, 2006, partly allowed both assessee's as well as the Revenue's appeal, directing the Assessing Officer to exclude 90% of the net income eligible for inclusion for the purpose of computing profits of the business for the purpose of determining 80HHC deductions. A copy of the order dated 11th December, 2006, passed by the Income Tax Appellate Tribunal is annexed as Annexure-C to the appeal paperbook. 6. That is how the Revenue requested this Court to admit this appeal as it raises substantial questions of law. The appeal together with other Tax Appeals was placed before a Division Bench of this Court and it came to be admitted on the following substantial questions of law : (I) Whether in facts and circumstances of the case, the ITAT has erred in applying the provision of Section 172 in holding that secti....
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....baa) of Explanation to Section 80HHC, is right in law ?" 7. Out of the above substantial questions, we are concerned with Question No. I. 8. After admission, the present appeal and the other appeals came to be placed for final hearing before a Division Bench of this Court and the Division Bench noted the stand of the assessee in paragraph 4 of its order. In paragraph 5, the Division Bench noted the reference by the Tribunal to its decision in Deputy Commissioner of Income Tax vs. Orient (Goa) and following it, the Tribunal allowed the assessee's appeal. The order passed by the Tribunal holds that section 40(a)(i) of the Income Tax Act, 1961 (for short "IT Act") would apply only when there is an obligation to deduct tax at source. Reliance was placed upon the Circular No.723 issued by the Central Board of Direct Taxes to support the conclusion that there was no obligation to deduct tax at source in respect of payment made towards demurrage charges in cases where section 172 of the IT Act applies. The Revenue did not dispute in the present case that section 172 applied. The Tribunal held that section 172 is a charging as well as machinery provision in respect of non-residen....
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....see i.e. Orient (Goa) (P) Ltd. is admittedly a resident and therefore Section 172 of the Act cannot be applied. Thus the expenditure of demurrage charges cannot be allowed in the absence of tax being deducted at source. The relevant observations of this Court is found in paragraph 8 as under : "8. Sec. 172 of the Act 1961 is carefully considered by us. Chapter XV titles as "Liability in special cases". We have no concern with sections, starting from s. 159, till s. 171 from this Chapter XV. Sec. 172 comes under sub-title "H.-Profits of non-residents from occasional shipping business". Title of s. 172 is "Shipping business of non-residents". For bringing a case under Chapter XV-H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. "Non-resident" is defined u/s. 2(30), as a person who is not a "resident" and for the purpose of ss. 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of cl. (6) of s. 6. The respondent assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be non-resident. We have....
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....allowed as an expenditure in the absence of deduction of tax at source in view of Section 40(a)(i) of the Act. Although the Court was concerned with the issue in an appeal concerning a resident company. The introduction of section 172 of the Act by the assessee was to determine whether in view thereof, was there any obligation to deduct tax at source by the payee-assessee. Section 172 of the Act has to be examined through the prism of the nonresident shipping company in respect of it's income. It is in the above view that Section 172 of the Act and Circular No.723 issued by the CBDT was relied upon by the respondent-assessee to point out that as Section 172 of the Act provides a complete code in itself for levy and recovery of tax ship wise and journey wise. Thus there is no occasion to deduct tax under Chapter XVII of the Act. 12. It is a settled position under the law of precedence that it is not open to us (Division Bench) to take a view contrary to the view taken by another Division Bench of this Court. In case, we are unable to agree with the view of the earlier Division Bench and it does not fall within the exclusionary categories of binding precedent by....
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....lso invited to the non obstante clause as emerging from sub-section (1) of section 172. Mr. Mistri has also taken us through Chapter XVI of the IT Act to submit that section 195 is part of recovery provisions. Even with regard to Chapter XVI of the IT Act, its title, according to Mr. Mistri, must be noticed as it is extremely relevant. The title is "Collection and Recovery of Tax". Our attention is invited to sections 190, 192, 195 and 199 (1). Mr. Mistri would submit that deduction of tax at source would arise in cases where employees receive salary. To meet the tax liability of the employee the deductions of tax is made. That is at source, meaning while payment. Inviting our attention to sections 202 and 205 of the IT Act it is submitted that such deduction is clearly a recovery. If tax to be deducted at source is a recovery, then, section 172(1) would prevail over other provisions of the Act. Mr. Mistri would submit that the Revenue's stand, if accepted, would render section 172 otiose and redundant. There is no double payment contemplated. The provisions of the Act, therefore, ought to be construed in such a way as not rendering any part of it otiose or any provision meanin....
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....al income tax in respect of the total income of the previous year of every person. The proviso thereto is not relevant for our purpose, but subsection (2) of section 4 states that in respect of income chargeable under sub-section (1), income tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. The source of the total income is set out in section 6 and we are not concerned with the apportionment of income contemplated by section 5-A. Residents in India is a matter dealt with by section 6 and that reads as under : "6. For the purposes of this Act, - (1) An individual is said to be resident in India in any previous year, if he (a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or (b) [****] (c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty five days or more, is in India for a period or periods amounting in all to sixty days or more in that year. [Explanation. I]. - In the case of an individual - (a) being ....
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....arily resident" in India in any previous year if such person is - (a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of or periods amounting in all to, seven hundred and twenty nine days or less; or (b) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years preceding that year or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twentynine days or less." 18. A perusal of this section would indicate as to how an individual can be said to be a resident of India, a Hindu undivided family, firm or association of persons can also be said to be a resident in India, a company also can be a resident of India and equally other persons. The term "not ordinarily resident" in India is also contemplated by section 6(6). By section 7, income stipulated therein is deemed to be received in the previous year. Section 8 deals with dividend income and section 9 deems certain income to accrue or arise in....
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....External) account in any bank in India. Then, we have several clauses in section 10, but we are not concerned with all of them, save and except section 10(6A),(6B), (6BB) and (6C) thereof. After this somewhat longish provision, we have section 10AA which enacts special provision in respect of newly established undertaking in free trade zone etc. By section 10B, there are special provision in respect of newly established 100% export oriented undertakings. Section 10B sets out the meaning of computer programmes in certain cases. Section 10C contains special provision in respect of certain industrial undertakings in North Eastern region. Section 11 deals with income from property held for religious or charitable purposes. Section 12 deals with income of trust or institutions from contributions. By section 12A conditions for applicability of sections 11 and 12 are set out. Section 12AA sets out the procedure for registration. Section 13 states that section 11 will not apply in certain cases. By section 13A, special provision is made relating to incomes of political parties. Section 13B contains special provision relating to voluntary contributions received by electoral trust. After all....
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....n certain States, development rebate, development allowance, reserves for shipping business, rehabilitation allowance. The conditions for depreciation allowance and development rebate are set out in section 34 and by section 34A, there is a restriction on unabsorbed depreciation and unabsorbed investment allowance for limited period in case of certain domestic companies. Section 35 deals with expenditure on scientific research, section 35AB deals with expenditure on know-how and section 35ABB deals with expenditure for obtaining licence to operate telecommunication services. Section 35AC deals with expenditure on eligible projects or schemes and section 35AD deals with deduction in respect of expenditure on specified business. We have several expenditures and provided in sections 35CCA, 35CCB, 35CCC and 35CCD. Section 35D deals with amortization of certain preliminary expenses and amortization of expenditure in other cases is dealt with by section 35DD and 35DDA. Section 35E deals with deduction for expenditure on prospecting etc. for certain minerals. Section 36 deals with other deductions. Section 37 deals with general expenditure and not being expenditure of the nature described....
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....ng as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of subsection (1) of section 9; (ia)[any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, [thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordanc....
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....e assets of, or the capital employed in, a business or profession carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax chargeable with reference to the value of any particular asset of the business or profession;] [(iib) any amount- (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or (B) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government. Explanation.-For the purposes of this sub-clause, a State Government undertaking includes- (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken togeth....
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....e date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of [twelve] per cent simple interest per annum; or (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :- (a) on the first Rs. 3,00,000 of the bookprofit or in case of a loss Rs. 1,50,000 or at the rate of 90 per cent of the bookprofit, whichever is more; (b) on the balance of the book-profit at the rate of 60 per cent :] Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April, 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment. Explanation 1.-Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and....
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.... of any other person (such member and the other person being hereinafter referred to as "member in a representative capacity" and "person so represented", respectively),- (i) interest paid by the association or body to such individual or by such individual to the association or body otherwise than as member in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the association or body to such individual or by such individual to the association or body as member in a representative capacity and interest paid by the association or body to the person so represented or by the person so represented to the association or body, shall be taken into account for the purposes of this clause. Explanation 3.-Where an individual is a member of an association or body otherwise than as member in a representative capacity, interest paid by the association or body to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.] (c) Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1....
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....ax has not been deducted or after deduction has not been paid, then, the deduction shall not be made in computing the total income chargeable. 26. It is for this reason that we have to refer to Chapter XVII- B. Chapter XVII deals with Collection And Recovery of Tax. It contains general provisions with regard to deduction at source and advance payment in section 190 and in section 191 it makes provisions regarding direct payment. It has a separate Chapter under sub-heading "B - Deduction at Source." In the instant case, it is common ground that reference is made to sections 192 to 195. They pertain to salary and, therefore, any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. If payment of accumulated balance to an employee is made, then also this obligation comes in vide section 192A. If the Interest on Securities is the income head involved, then, the person responsible for p....
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.... 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 clause (23D) of section 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 dividends referred to in section 115-O. Explanation 1.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereund....
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....tion relating to payment of such sum, in such form and manner, as may be prescribed. (7) Notwithstanding anything contained in subsection (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable." 28. The Explanation thereto would indicate as to how the term or expression "non-resident" is understood. We are not referring to other sections simply because we have to appreciate the argument that tax deducted at source is a recovery and section 172(1) will prevail over other provisions of the Act. 29. In the present case, we are concerned with shipping business of non-residents and, therefore, section 172 would have to be referred in extenso. That provision reads as under : ....
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.... furnished before the 1st day of April, 2007, such order shall be made on or before the 31st day of December, 2008.] (5) For the purpose of determining the tax payable under sub-section (4), the [Assessing] Officer may call for such accounts or documents as he may require. (6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment ....
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....s for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident which carries passengers etc. shipping at a port in India, then, is there any obligation to deduct the tax at source in terms of section 195. 35. It is stated on behalf of the assessee that tax deducted at source is a recovery and, therefore, section 172(1) will prevail over the provisions of the Act. Reliance is also placed upon the Circular in that behalf. That Circular reads as under : "916. Clarification regarding treatment of tax paid under section 172(3)(4) by a nonresident engaged in shipping business 1. The Board had earlier issued Circular No. 730 regarding treatment of tax paid under section 172(3) by a non-resident engaged in the shipping business. Under the provisions of section 172, every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, livestock, mail or goods shipped at a port in India, 7.5 per cent of the amount paid or payable on account of the carriage of the passengers etc. is deemed as the income and tax is levied on such income at a rate applicable to a foreig....
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....4A of the Income-tax Act, 1961 as the case may be. Circular No. 9/2001, dated 9-7-2001." 36. It is vehemently contended that the Revenue cannot argue anything contrary to this Circular. This Circular even otherwise states the position in law correctly. It is then urged that the judgment in the case of Orient (Goa) (supra) does not lay down the correct law. 37. A closer look at the judgment is, therefore, necessary. 38. The appeal before this Court raised four questions which are reproduced hereinbelow : (A) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that in view of circular issued by the Central Board of Direct Taxes, disallowance under section 40(a)(i) of the Act was not warranted? (B) Whether on the facts and in the circumstances, the assessee was entitled to claim deduction of the demurrage charges of Rs. 1,08,53,980 paid to foreign company, without deducting tax on it, under section 40(a)(i) of the Income-tax Act, in view of Circular No. 723 dated September 19, 1995 ([1995] 215 ITR (St) 116), issued by the Central Board of Direct Taxes ? (C) Whether on the ....
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.... in Japan. It was not disputed that no tax had been deducted on the amount of demurrage. When the assessee was called upon to explain why no tax had been deducted and, therefore, the claim as a whole should be treated as non deductible and the sum added back, it was urged that tax was not deducted in view of section 40(a)(i) of the Act. A contention was raised that the assessee being allowed such deduction as and when payment was made. The Assessing Officer recorded his agreement in the order that deduction would be admissible on the basis of actual payment of tax on the above demurrage. The First Appellate Authority referred to the relevant provisions and observed that the demurrage debited by the assessee in the hands of the recipient are in the nature of profits of the non-resident from the occasional shipping business under section 44B read with section 172 of the Income-tax Act. The First Appellate Authority referred to sub-section (8) of section 172 and the Circular reproduced above by us. That is how the appeal came to be allowed. 42. The Division Bench referred to a judgment of a learned single Judge of the Karnataka High Court and in paragraphs 8, 9, 10, 11 and 12 held ....
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....tion 6 i.e. "Residence in India". In short, respondent assessee cannot be said to be non-resident. The present appeal pertains to the respondent assessee. In our view, in the facts of the present case, the respondent assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of non-residents should be from occasional shipping business. It is not the case that the respondent assessee has earned some profit from occasional shipping and is a non-resident. In our view, Section 172 does not have application in relation to the respondent assessee and in the facts and circumstances of the present case. The company from Japan viz. Mitsui & Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company i.e. Mitsui & Co. Ltd., Japan. On our query to the learned Senior Advocate Shri Usgaonkar as to material on record for occasional shipping, part of para 3 from the Judgment of the learned Commissioner of Income-tax has been pointed out to us. His observations are in very few lines. We may reproduce the said portion herein below. " 3. We....
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....e area of computation of profits from shipping business of non-residents and there is no overlapping in the areas of operation of these sections. Learned Senior Advocate Shri Usgaonkar, appearing on behalf of the respondent assessee, also drew our attention to the Judgment of the Hon'ble Supreme Court in the matter of Commissioner of Sales Tax vs. Indra Industries, reported in (2001) 248 ITR 338 (SC). It is a three Bench Judgment of the Honourable Supreme Court. It has been held by the Honourable Supreme Court that the circulars issued by Commissioner of Sale Tax not binding on assessee or Court, however, binding on the Department. In the case on hand, in our view, learned Commissioner of Income-tax (Appeals) and the learned appellate Tribunal have wrongly interpreted the Circular dated September 19, 1995, issued by the CBDT. This circular, in our opinion, cannot be considered in the facts and circumstances of the present case, in aid to the respondent assessee. The learned Assessing Officer, in fact, has passed a legal, proper and reasoned order, holding that the provisions laid down under Section 40(a)(i) of the Act 1961 apply to the case on hand." 43. The sub-headings of ....
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....ed or after deduction has not been paid. Section 172 has application to shipping business of non-residents and the provisions of that section have application notwithstanding anything contained in the other provisions of the Act for the purpose of levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. Section 195 falling under Chapter XVII-B Collection and Recovery - Deduction at Source by sub-section (1) deals with 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" and obliges him to deduct income tax thereon at the rates in force. It is evident, therefore, that the responsibility is on any person making payment to a non-resident. It is that person's obligation to deduct the tax at source. If the tax is deductible at source and any assessee declares his income chargeable under the head "Profits and Gains of Business or Profession", while computing the income chargeable under this head, t....
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....riage of passengers, livestock, mail or goods shipped at any port in India; and (ii) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India. Explanation.-For the purposes of this sub-section, the amount referred to in clause (i) or clause (ii) shall include the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature." 46. A bare perusal thereof would indicate as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7 % of the aggregate ½ of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head "Profits and Gains of Business or Profession". It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as th....
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....er pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business. 48. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income Tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian / foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a position to rely upon sect....
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....r payable to the owner or charter on account of the carriage of passengers, goods etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income-tax Officer, the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof. 4. The assessee in this case is the Aluminium Company of Canada which had time- chartered the ship and on whose behalf its shipping agent, the respondent, had executed the guarantee bond. Since the Company is a non-resident and the ship carried goods which were shipped at a port in India, the conditions specified in sub-section (1) are satisfied and the provisions of Section 172 will apply for the purpose of levy of tax, notwithstanding anything contained in the other provisions of the Income-tax Act. 5. The charging provision is contained in sub-section (2) of Section 172, the relevant part of which provides tha....
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....previous year of the assessee and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act" and any payment made under the section (earlier) "shall be treated as a payment in advance of the tax" leviable for that assessment year and the difference between the sum so paid and the amount of tax found payable by him on such assessment, shall be paid to the assessee or refunded to him. The "ad hoc" assessment made under Section 172(4) of the Act is superseded and a "regular assessment" is made as per the provisions of the Act. In such a case, it is only proper and appropriate to hold that all "the provisions" of the Act in the determination of the tax liability including the ancillary or incidental or consequential matters pertaining to it are necessarily attracted. 8. Section 172(7) of the Act provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would be treated as advance of the tax leviable. Such payments are treated on a par with advance income tax payments. It is implicit from the tenor and phraseology employed....
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....y the title used in the corresponding provision of the predecessor Act (Income Tax Act, 1922 - Section 44-C), wherein there was a heading to the section - "Adjustment". Section 172 of the Act contains no such heading. We hold that the Income Tax Appellate Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is, by fiction, treated as advance tax, all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act. We answer the question referred to the High Court in the affirmative, in favour of the assessees and against the Revenue. ....." 52. Lastly, in the case of GE India Technology Centre Private Limited vs. Commissioner of Income Tax and Anr. reported in (2010) 10 SCC 29 the Hon'ble Supreme Court of India had an occasion to consider the ambit and scope of section 195 of the IT Act. After reproduction of the section, as it stood at the relevant time, the Hon'ble Supreme Court of India held as under:- "6. Under Sect....
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....tion to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated October 30, 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3B) of the 1922 Act. ..... 11. 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. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. 12. Reference to ITO(TDS) under Sec....
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....ovision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, Section 195 has to be read in conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1). 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from Section 195(1). While interpreting a Section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read t....
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....ent would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. 19. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge seepage of revenue can take place if persons making payments to non-residents are free to deduct TAS or not to deduct TAS. It is the case of the Department that Section 195(2), as interpreted by the High Court, would plug the loophole as the said interpretation requires the payer to make a declaration before the ITO(TDS) of payments made to non-residents. In other words, according to the Department Section 195(2) is a provision by which payer is required to inform the Department of the remittances he makes to the nonresidents by which the Department is able to keep track of the remittances being made to non-residents outside India. ....