TaxTMI 
TaxTMI 
2016 (2) TMI 308
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....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 Appeal No.989 of 2005 was filed by Commissioner of Inc....
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....d 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 section 40(a)(i) is not applicable, particularly when section 172 concern....
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.... 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-resident shipping companies. It provides for determination and collection of tax. Thus, Chapter XVI of the Act in respect of ded....
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....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 also taken notice of s. 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 ....
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.... 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 being contrary to and/or in conflict with a decision of the Apex Court or rendered per-incuriam. In such a case it is best that the issue is resolved at the hands of a Larger Bench of this Court.....
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....sions. 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 meaningless. It is in these circumstances that Mr. Mistri would submit that even the Circulars referred to in the Division Bench judgment though not binding on the Court, can be given effect to as they bind th....
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.... 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 a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or for the purposes of employment outside India, the provisions of....
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....d 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 India. Explanation-I which is an explanation for clause (1) sub-clause (b) states that in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. Then, case of a non-resident engaged in ....
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....ee 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 this comes Chapter IV which is titled as Computation of Total Income. The heads of income classified by section 14 are salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. By section 14A expenditure incurred in relation to income not includible in total....
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....iod 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 in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purposes of the business or profession. That shall be allowed in computing the income chargeable under the head Profits or Gains of Business or Profession. Section 38 de....
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....tractor, 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 accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.] Explanation.-For the purposes of t....
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....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 together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government; [(iii) any payment which is chargeable ....
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....he 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 the other person being hereinafter referred to as "partner in a representative capacity" and "person so represented", respectively),- (i) interest paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause. Explanation 2.-Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest pa....
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....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. 1-4-1989. Earlier, it was amended by the Finance Act, 1963, w.e.f. 1-4-1963, Finance Act, 1964, w.e.f. 1-4-1964, Finance Act, 1965, w.e.f. 1-4- 1965, Finance Act, 1968, w.e.f. 1-4-1969, Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, Finance Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. (d) Omitted by the Finance Act, 1988, w.e.f. 1-4- 1989." 21. A perusal of section 40 reveals that firstly it starts with a non obstante clause. Secondly, it states that notwithstanding anything to the contrary in sections 30 to 38, the amounts as specified in the clauses to section 40 shall not be deducted in computing the income chargeable under the head "Profits or Gains of Business or Profe....
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....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 paying to a resident any income of this nature shall make the deduction. The same obligation would arise in the case of dividend vide section 194. Interest other than interest on securities with regard to which any payment is made then that aspect is covered by section 194A. Winnings from lottery or cross-word puzzle and winning from horse races are covered by section 194B and 194BB. 27. Payments to contractors, if made, particularly resident contractors, then the obligation to deduct the income-tax at source flows from section 194C. Similarly, insurance commission, payment in respect of life insurance policy, payments to nonresident sportsmen or sports association, payments in respect of deposits under the National Savings Sche....
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....ed "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 thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. (2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub....
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..... 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 : "172. (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply 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, livestock, mail or goods shipped at a port in India. (2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, [seven and a half] per cent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. (3) Before the departure from any port in India of any such ship, the master of the s....
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....e 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 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 by him or refunded to him, as the case may be. (8) For the purposes of this section, the amount referred to in sub-section (2) shall include the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature." 30. A perusal thereof would reveal as to how the provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply 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. shipped at a port in India. Thus, the provisions are made to take care of the income of shipping business of non-residents and for pur....
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....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 foreign company. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that, in suitable cases the ship may be allowed to leave provided satisfactory arrangements are made to ensure that the return of income if filed and payment of tax is made within 30 days of the departure of the ship. 2. Under the provisions of section 172(7), the non resident owner or charterer is allowed an option to be assessed on his total income of the previous year in accordance with other provisions of the Act. When such option is exercised and an assessment is made accurately, the tax already paid under the provisions of section 172(4) by the non-resident owner or charterer would be treated as tax paid in advance for that assessment year before determining the amount of tax finally due. 3. The question that arose for consideration of the Board at the time of issu....
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....reign 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 facts and in the circumstances of the case, the assessee was entitled to claim deduction of the demurrage charges of Rs. 1,08,53,980 payable to foreign shipping company on which tax has not been deducted, in view of the provisions of section 172(8) introduced by the Finance Act, 1997 with retrospective effect from April 1, 1976 ? (D) Whether the circular issued by the Central Board of Direct Taxes dated September 19, 1995, has any relevance in apply the provisions of section 40(a)(i) for the purpose of computation of income ?" 39. The respondent-assessee Orient (Goa) in that appeal had filed its return of income on December 1, 1997. It declared a taxable income at a certain figure and after claiming deduction. That deduction was once again of a certain sum on account of Section 80HHC of the Income-tax Act. This return of income was processed and the assessment was completed. Certain additions were made on account of foreign tour expenses of partn....
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....e 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 as under : "8. We have given anxious consideration to the submission of the learned Senior Counsel. On reading of the entire judgment of the learned Single Bench, it is not possible for us to countenance the submission of the learned Senior Advocate that the ratio of the Judgment is applicable to the facts of the case on hand. In our view, this Judgment does not help the present respondent i.e. the assessee. 9. Another Judgment relied on by the learned Senior Advocate Mr. Usgaonkar for the respondent assessee is in the matter of CBDT vs. Chowgule and Co. Ltd. and others, reported in (1991) 192 ITR 40 (Karn). There the learned Division Bench observed that "The question for consideration is whether demurrage payable to a non-resident owner or charterer of a ship for the delay in loading the ore sold to the foreigner is liable to be taxed under the provisions of the Income-tax Act." We have seen the facts obtaining in that case. In our view, the facts are distin....
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....ing, 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 have heard the rival submissions in the light of material placed before us. Assessee claimed deduction of Rs. 1,08,53,980/- being the amount of demurrage payable to Mitsui Co. Ltd., Japan. The Assessing Officer opined that since the assessee did not deduct tax at source, as such the case of the assessee falls within the mischief of section 40(a)(i) of the Income Tax Act, 1961." Provisions of Section 172 are to apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of Section 194C and 195 relating to tax deduction at source, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of Section 172. In this view, these observations of the learned Vice President of Income Tax Appellate Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation o....
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....r, 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 Chapter XV which is titled as Liability in Special Cases - Profits Of Non-residents are referred by the Division Bench. In sub-heading "H - Profits of Non-residents From Occasional Shipping Business" appears section 172. The Division Bench understood the matter and as reflected from the above reproduced paragraphs by identifying the assessee before it whose income was being assessed. The Division Bench held that the respondent-assessee, a company incorporated under the provisions of the Indian Companies Act, 1956, cannot be said to be a non-resident. The appeals pertained to the respondent assessee. It, therefore, could not rely on section 172 since the Court was not dealing with profits of non-residents. The other aspect is that such profits of non-residents should be from occasional shipping business. The respondent-assessee before the Division Bench, as admitted, did not earn some profits from occasional shipping business nor is it a non-resident. Therefore, section 172 did not have any appli....
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.... 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, the amounts mentioned in section 40(a)(i) should not be deducted in the event there is a failure to deduct the tax at source in terms of Chapter XVII-B. Therefore, a sum ought to be of the nature payable under subclause (i) outside India or in India to a non-resident, not being a company, or to a foreign company, but which invites the obligation to deduct the tax at source on the payment thereof. The assessee may be a resident in India. The assessee in our case also, as before the Division Bench, is a company registered under the Indian Companies Act, 1956, in India. It is a resident. It is the assessee's income under the above heads from which certain deduction has been disallowed. That is for failure to discharge the obligation to deduct the tax at source. The assessee contends that the payment is made to a non-resident / foreign company and, therefore, there maybe an obligation to deduct the tax at source in terms of sub-section (1) of section 195 but the overriding provision in section 172 ....
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.... 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 the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The amounts which are paid or payable whether in or out of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at a port in India and the amount received was 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 shall be deemed to be the profits and gains. On that the tax is payable by virtue of subsection (1) of section 172. That has to be levied and recovered in terms of the sub-sections of section 172 of the Income Tax Act. Once section 172 falls in Chapter XV titled as Liability in Special Cases - Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a n....
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....y, 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 section 172 but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot be avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else. 49. The term "non-resident" means a person who is not a resident as per section 2(30) of the Income Tax Act and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily a resident within the meaning of clause (6)of section 6. The term "person" includes an individual, a HUF, a company, firm and every artificial juridical person not falling within any of the preceding sub-clauses of clause (31) of section 2. By section 2(23A), a foreign company is defined to mean a company which is not a domestic company. Hence, 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", would have to ....
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....Act. 5. The charging provision is contained in sub-section (2) of Section 172, the relevant part of which provides that where a ship belonging to or chartered by a non-resident carries goods shipped at a port in India, one-sixth of the amount paid or payable "on account of such carriage" to the owner or the charterer or to any person on his behalf shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. The ship was delivered to the time-charterers at Betul, Goa, whereupon they loaded it with their own goods to the fullest capacity of the ship. Under the charter-party, the charterers had agreed to pay to the owners of the ship a sum of 4.50 U. S. dollars per ton on the total dead weight carrying capacity, per calendar month, commencing on and from the date of the delivery of the ship. The short question for consideration is whether the amount which the time-charterers had agreed to pay to the owners of the ship was payable "on account of" the carriage of goods. ....." 51. Similarly, in the case of A. S. CLITTRES D/5 I/S GARONNE AND OTHERS vs. COMMISSIONER OF INCOME TAX, KERALA-II reported in (1997) 9 SCC 546, once again, after repro....
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....e treated on a par with advance income tax payments. It is implicit from the tenor and phraseology employed in Section 172(7) of the Act to the effect, "payment made under the section .... shall be treated as a payment in advance of the tax leviable for that assessment year" that in substance, a legal fiction is created by which the payments have been treated as advance tax. That is the purpose for which the legal fiction is created. In construing the said legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate. The law on the point has been stated in innumerable decisions of this Court. In Mond. Iqbal Madar Sheikh v. State of Maharashtra (1996) 1 SCC 722 a three-number Bench of this Court stated the law thus: "..... The effect of a legal fiction by deeming clause is well known. Legislature can introduce a statutory fiction and courts have to proceed on the assumption that such state of affairs exists on the relevant date, because when one is bidden to treat an imaginary state of affairs as real he has to also imagine as real the consequence which shall flow from it unless prohibited by some other statutory provision." (....
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....elevant time, the Hon'ble Supreme Court of India held as under:- "6. Under Section 195(1), the tax has to be deducted at source from interest (other than interest on securities) or any other sum (not being salaries) chargeable under the I.T. Act in the case of non-residents only and not in the case of residents. Failure to deduct the tax under this Section may disentitle the payer to any allowance apart from prosecution under Section 276B. Thus, Section 195 imposes a statutory obligation on any person responsible for paying to a non- resident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the I.T. Act, to deduct income tax at the rates in force unless he is liable to pay income tax thereon as an agent. Payment to non-residents by way of royalty and payment for technical services rendered in India are common examples of sums chargeable under the provisions of the I.T. Act to which the aforestated requirement of tax deduction at source applies. 7. The tax so collected and deducted is required to be paid to the credit of Central Government in terms of Section 200 of the I.T. Act read with Rule 30 of th....
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....rovisions. 12. Reference to ITO(TDS) under Section 195(2) or 195(3) either by the non-resident or by the resident payer is to avoid any future hassles for both resident as well as non-resident. In our view, Sections 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this Court in Transmission Corporation (supra) in which this Court has observed that the provision of Section 195(2) is a safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof. Submissions and findings thereon 13. If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words "chargeable under the provisions of the Act" in Section 195(1). The said expression in Section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If t....
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....Tax Act one cannot read the charging Sections of that Act de hors the machinery Sections. The Act is to be read as an integrated Code. 17. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of C.I.T. Vs. Eli Lilly & Co. (India) (P.) Ltd. [312 ITR 225] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the I.T. Act form one single integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are "chargeable to tax" under the I.T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I.T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum "chargeable under the provisions of the Act", which expression, as stated above, do not find place in other Sections of Chapter XVII. It is in this sense that we hold....
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.... 20. We find no merit in these contentions. As stated hereinabove, Section 195(1) uses the expression "sum chargeable under the provisions of the Act." We need to give weightage to those words. Further, Section 195 uses the word `payer' and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfill the statutory obligation under Section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. 21. The abovementioned contention of the Department is based on an apprehension which is ill founded. The payer is also an assessee under the ordinary provisions of the I.T. Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an "expenditure". Under Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89, payment in respect of royalty, fees for technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which ar....