TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 1476
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....l Gross Payments made for purchase of crude oil from the Indian PE of the non-resident M/s.Hardy Exploration and Production India Inc (HEPI) and not the profit chargeable to tax? (ii) Whether the Tribunal erred in law in not considering the provisions of Article 7 of the DTAA between India and USA, the ratio of the decision of the Apex Court in the case of G.E.Technology Centre P ltd vs. CIT 327 ITR 456 and the clarification issued by the CBDT vide Instruction No.02/2014 dated 26.02.2014 read with CBDT Circular No.3/2015 dated 12.02.2015 and in not directing the Assessing Officer to first determine the income chargeable to tax under the Indian Income Tax Act, 1961 on which tax has to be deducted and then compute the amount to be disallowed, if any, u/s. 40(a) even though the assessee has not applied u/s.195(2)? (iii) The Tribunal erred in law in not holding that, when the recipient M/s.Hardy Exploration and Production India Inc has paid the requisite tax taking into account the amount received from the appellant, further disallowance of the same amount in the hands of the appellant would amount to double taxation of that amount? (iv) The Tribunal erred in law in not holdin....
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....allowance under Section 40(a)(i) for non-deduction of tax under Section 195 of the Act on the payments made to Hardy Exploration and Production India Inc (HEPI). 5. With regard to the said issue, the assessee in his reply stated that payment was made for purchase of crude oil during the assessment year 2006-07; Section 195 of the Act is applicable in case of payment to non-resident of any interest or any other sum chargeable under the provisions of the Act; the assessee making payment to a non-resident is not obliged to deduct tax at source, if such sum is not chargeable to tax under the Act; the purchases are not the sum chargeable under the Act; and Section 195 contemplates that in the case of composite payments made to non-resident, which have an element of income embedded or incorporated in them, the payer is under no obligation to deduct TDS in respect of such income attributable to the composite payments. Further, the assessee stated that purchases of indigenous crude oil, the price payable is determined based on international markets and hence, it would not be possible to determine the profit element embedded in the total payment made towards the purchase. Apart from the pr....
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....cer, rather than to first clarify the factual position. The Assessing Officer while deciding the issue, framed two questions for consideration, viz., (i) whether the provisions of Section 195 of the Act are attracted in the case of payment made to a non-resident for purchase; (ii) whether a certificate obtained under Section 197(1) of the Act by the non-resident recipient of the sum absolve the payer from the statutory obligation of deduction of tax under Section 195 of the Act. 9. In our view, the first question, which was framed by the Assessing Officer should have been slightly differently worded and had it been done, the result would have been rightly arrived at. The question, which should have been framed for consideration is whether Section 195(1) of the Act requires tax to be deducted at source for payment to non-resident only, if the amount is chargeable to tax. This appears to have been the stand taken by the assessee. Nevertheless, the Assessing Officer proceeded to take note of paragraph 10 of the judgment in Transmission Corporation of AP Ltd. (supra) and paragraph 10 of the decision in G.E.Technology Centre P Ltd. (supra) and proceeded to hold that the assessee has no....
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....ed on the "principle of proportionality". The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such ` sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corporation case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all "chargeable to tax in India", then no TAS is required to be deducted from such payment.....
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....ction 40(a)(i) is applicable only in respect of amounts payable or would also cover amounts, which were paid and concluded that the assessee has made payments to HEPI for purchase of crude oil and it is covered by the provisions of Section 195(1) and Section 195(2) of the Act. 13. In our considered view, the CIT(A) proceeded on a tangent probably due to the contentions, which were advanced by the assessee when the case was heard by the first appellate authority. We say so because in the grounds, which were raised before the CIT(A), this issue was not one of the grounds, which was highlighted. The core issue that should have been decided is whether Section 195 requires that tax is to be deducted at source for the payment made to HEPI, as the assessee contended that such deduction would be required only if the amount is chargeable to tax. 14. The assessee also referred to the decision in G.E.Technology Centre P Ltd. (supra), to support their contention that if there is no income chargeable to tax in India, then there is no requirement for deduction of tax at source under the Act. Though such was the ground raised, the arguments, which were made before the CIT(A) appear to have proc....
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....0-501 of 2005, with a request for clarification as to whether the tax is to be deducted under subsection (1) of section 195 on the whole sum being remitted to a non-resident or only the portion representing the sum chargeable to tax, particularly if no application has been made under subsection 2) of section 195 of the Act to determine the sum. 3. The matter has been examined in the Board and accordingly, in exercise of powers vested under Section 119 of the Act, the Board hereby directs that in a case where the assesse fails to deduct tax under section 195 of the Act, the Assessing Officer shall determine the appropriate proportion of the sum chargeable to tax as mentioned in subsection (1) of section 195 to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201 of the Act, and the appropriate proportion of the sum will depend on the facts and circumstances of each case taking into account nature of remittances, income component therein or any other fact relevant to determine such appropriate proportion." 17. It appears that despite the circulars, still issues were lingering which necessitated a clarification to be iss....