Section 195(7)
Transcript of Section 195(7)
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SECTION 195(7) ANDC HARGEABILITY TO I NCOME T AX
R ESEARCH P APER IN INTERNATIONAL T AX
Seminar Professor R. B. Krishna
Trimester XIV
SURBHI K UWELKER
ID. N O . 1686
V TH Y EAR , B.A., LL.B. (HONS .)
D ATE OF SUBMISSION : 28 TH D ECEMBER , 2012
National Law School of India University
NAGARBHAVI, BANGALORE - 560 242.
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Table of Contents
Table of Cases _____________________________________________________________ 2
Table of Statutes ___________________________________________________________ 3 INTRODUCTION - T HE A MENDMENT ________________________________________ 2
'CHARGEABLE ' TO T AX _________ _________________________________________________
D EDUCTION IF CHARGEABLE OR ONLY R EMITTED ? _____________________________
Conclusion & Recommendations ______________________________________________
Bibliography _______________________________________________________________
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Table of Cases
A. I ndia
Universal Radiators Coimbatore v. Commissioner of Income Tax , 201 ITR 800 (SC). Ishwarlal v. State of Maharashtra , [1968]70 ITR 95 (SC). Chatturam v. Commissioner of Income Tax , 1955 SCR (2) 290. Kalwa v. Union of India , 49 ITR 165 (SC). Kesoram Industries and Cotton Mills v. CWT , 59 ITR 767. Wallace Bros . v. Commissioner of Income Tax , 16 ITR 240. Electronic Corporation of India v. Commissioner of Income Tax , (1989) 183 ITR 43 (SC). Tata Consultancy Services v. State of Andhra Pradesh (2004) 271 ITR 401 (SC). Commissioner of Income Tax and Ors.v. Samsung Electronics Co. Ltd. (India Software Operations),
(2010) 320 ITR 210 (Kar).
G.E. India Technology Private Limited v. Commissioner of Income Tax and Anr ., (2010)10 SCC
29.
G.E. India Technology Private Limited v. Commissioner of Income Tax and Anr ., (2010) 320 ITR
209 (Kar).
Bharat Hari Singhania and Ors.v. Commissioner of Wealth Tax and Ors., (1994) 207 ITR 1
(SC).
Commissioner of Income Tax v. Nippon Yusen Kaisha , (1983) 233 ITR 158 (Cal)
B. United Kingdom
Whitney v. Inland Revenue , 10 TC 88.
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Table of Statutes and Agreements
1.
The Income Tax Act, 1962.2. Finance Act, 2012.
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I NTRODUCTION - THE A MENDMENT
The legislature via the Finance Act, 2012 introduced into the Income Tax Act, 1962
(ITA) the last clause as it currently exists into section 195, sub clause 7. Section 195,
part of Chapter XVII containing provisions on collection and recovery, in brief
imposes an obligation on residents, not being agents, who make a payment to a non-
resident which amounts to income chargeable to tax in India to withhold tax, pre-
assessment, at the prescribed rate. 1 This section uses categorically the term
chargeable, which is akin to what is mentioned in section 4, which mandates
taxation of income chargeable under any head in the act and collection of tax on such
determined types of income. 2 The introduction of section 195(7) hence creates an
ambiguity whereby sums not chargeable to income tax as well, by express mention,
have been included among those amounts remitted by certain classes of person
whom the Board may, by circular, mandate the need to undergo the process of
determination of proportion of such remittance forming chargeable income. 3
The amendment in consideration in this paper is a new subsection added to section
195 which reads as follows (7) Notwithstanding anything contained in sub-section (1) and sub-section (2),the Board may, by notification in the Official Gazette, specify a class of personsor cases, where the person responsible for paying to a non-resident, not being acompany, or to a foreign company, any sum, whether or not chargeable underthe provisions of this Act, shall make an application to the Assessing Officer todetermine, by general or special order, the appropriate proportion of sumchargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable. 4 (emphasissupplied)
1 Section 195(1), ITA.2 Section 4(1) and 4(2), ITA respectively. Section 4(1) states that, Where any Central Act enacts that income-tax shall be charged for any assessment yearincome taxshall be charged for that year inaccordance with and subject to the provisions of this Act.. Section 4(2) following from the stress onchargeability mentioned therein expressly states that only In respect of income chargeable undersub-section(1), income-tax shall be deducted at the source or paid in advance, where it is sodeductible or payable under any provisions of this Act. 3 Section 195(7), ITA is exactly worded as follows Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the official Gazette, specify a classof persons or cases, where the person responsible for paying to a non-resident, not being acompany, 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 the sub-section (1) on that proportion of the sum which is so chargeable. (emphasis supplied) 4 Inserted by Clause 75(b), the Finance Act, 2012.
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There is need to analyse the significance of the usage of the phrase whether or not
chargeable under the provisions of this Act to tax. The language as it stood prior to
this section seemed to indicate that should incomes that were chargeable as India
source income for non-residents be paid, 5 the payer was to withhold tax on the same.Should he have been unsure of the nature proportion of the income constituting the
taxable component of the gross amount, section 195(2)s determination procedure
could be resorted to. 6
This section seemingly mandates the usage of a 195(2) procedure for certain classes
of assessees ignoring the chargeability of income to tax. So should income not be
chargeable to tax, the Board may mandate what is essentially a procedure for
quantification of the chargeable proportion which is incongruous if the income is
not chargeable to begin with, on which per section 4, tax cannot be levied at all.
Further, the Notes on the Finance Bill, 2012 read as follows
Section 195 of the Income-tax Act requires any person to deduct tax at sourcebefore making payments to a non-resident if the income of such non-resident ischargeable to tax in India. Person, here, will take its meaning from section 2and would include all persons, whether resident or non-resident. Therefore, anon-resident person is also required to deduct tax at source before making payments to another non-resident, if the payment represents income of the payee non-resident, chargeable to tax in India. There are no other conditionsspecified in the Act and if the income of the payee non-resident is chargeable totax, then tax has to be deducted at source, whether the payment is made by aresident or a non-resident .7 (emphasis supplied)
The stress here on chargeability is evident, especially in light of the obligation being
placed not only on residents but also on non-resident payers to deduct tax from non-
resident payee income. This is ostensibly to avoid this statement being taken to its
absurd logic of a situation wherein any transaction of payment from one person to
another abroad could potentially be subject to tax 8 within that said class of assessees,among other issues as are discussed further in this paper.
The Legislature seemingly has attempted to avoid an issue of an anomaly between
provisions by inserting first, a non-obstante clause at the opening of the subsection.
5 Under section 6 and section 9, ITA.6 Section 195(2), ITA.7 Notes on Clauses, the Finance Bill, 2012.8 There remain s no distinction between who can be taxed and who doesnt other than tests such asthose of nexus and so forth discussed further in the paper. However these highlight tests todetermine chargeability and hence is the same is removed from the equation the same doesnt arise.
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Second by stating that this is applicable to only certain classes of assesses and giving
the Board the right to determine the same, there is an implication that the same is
being done with a certain rational classification of assesses in mind to whom via a
circular the same will be made applicable. 9 Yet with no stated classes of assesses andno explanation of the context in which these circulars function the provision seems to
leave it to the Boards discretion to specify any class of assesses to withhold tax on
any remittance to any non-resident the only basis of nexus to India i.e.
chargeability being removed from the equation.
This paper accordingly argues that the introduction of this section creates an
incongruous situation wherein section 195(7), despite its non-obstante clause
directly contradicts the scheme and manner in which the section of the ITA are
structured. Further it undermines the logic of judicial decisions 10 wherein the
Supreme Court has conclusively held that chargeability is mandatory for imposition
of a withholding obligation under the Act. This paper hence seeks to clarify what the
scope of sub-section (7) is, what interpretation of its wording would make it workable
within the scheme of that Act, the reasons as to why such a harmonious reading
might not be possible including commercial realities and viability and hence seeks to
examine ultimately its validity. 11 It is ultimately argued that there exists a new anomaly with the introduction of the amendment in the ITA being unnecessary and
agrees with the reasoning of the court in GE India, 12 while attempting to support the
argument on a few more flanks as well.
9 This interpretation is purely of the researchers through a reading of the Bill as the notes are silent on
the same and no reason for introducing this particular amendment is mentioned unlike otherprovisions which have detailed reasoning or sight judicial interpretation as reasons for the suggestedchanges.10 The seminal case being the 2010 decision of G.E. India Technology Private Limited v.Commissioner of Income Tax and Anr ., (2010)10 SCC 29 which remanded the case back to the Highcourt whose decision it overruled in coming to the conclusion that no withholding obligation may existon suns not taxable and in the process departed from other High Court decisions such as, mostnotably Commissioner of Income Tax and Ors. v. Samsung Electronics Co. Ltd. (India SoftwareOperations) , (2010) 320 ITR 210 (Kar).11 The scope of this paper however is limited to examining this amendment and the obligation to withhold tax on amounts paid to non-residents only that not chargeable to income tax. Accordingly,many issues parallel arising in the software experience in light of cases defining royalty and copyrightare not the subject of this paper though they form the subject matter of many cases involved such as
GE (supra note 3), Samsung (supra note 3), Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 and so forth.12 Supra note 4.
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C HARGEABLE TO T AX SECTION 4, 5 AND 9
The term chargeable to tax appears in two sections that are relevant to the current
amendment section 195 itself under sub-clause (1) and second section 4. Thisfurther then has implications in connection with the consequences of non deduction
of tax at source under provisions such as section 201.
Starting with the basic provisions for establishing charge section 4, other than
income taxed needing to be chargeable and there being collection of only such
income, certain further aspects are relevant. Palkhivala 13 notes pertinently that
though rates applicable per the charge are those of the assessment year which may be
fixed after the said year and that this assessment is usually done year end after the
close of the year, the liability to tax arises not later than the close of the previous
year, though quantification of the amount to be taxed is postponed. 14 Liability to tax
is hence an independent consideration to assessment and this has been reiterated by
the Indian Supreme court as well, assessment is only to quantify the liability which
has already definitely and finally been created by charging sections. 15 Further it is
relevant to note such charge is in accordance with and subject to the provisions of the
Act nothing should be treated as charged to tax unless the process of computationlaid down by the Act established what the status of income, profits and gains is. 16
This becomes relevant in of deduction is a pre-assessment collection procedure.
Though assessment may take place at a prior stage, whether the income is chargeable
to income tax is something determinable from the ITA based on the nature of
income, independent of the Finance Act which quantifies the same.
Interpretation of income in usually in its widest possible sense.Further, income in
the hands of non-residents is taxable if it has or is deemed to have an Indian source
13 Kanga, Palkhivala and Vyas The Law and Practice of Income Tax Vol I (D. Vyas, ed., 9 th edn.,Lexis Nexis-Butterworths: New Delhi, 2004) at 186.14 Being the ratio of the Privy Council decision of Wallace Bros . v. Commissioner of Income Tax , 16ITR 240 at 244. This was followed by the Indian Supreme Court in cases such as Kesoram Industriesand Cotton Mills v. CWT , 59 ITR 767 (SC) at 783. Palkhivala sites numerous other decisions as well see Kalwa v. Union of India , 49 ITR 165 (SC).15 The House of Lords decision to this effect in Whitney v. Inland Revenue , 10 TC 88 at 110, wasfollowed by the Indian Supreme Court in cases such as Chatturam v. Commissioner of Income Tax ,
1955 SCR (2) 290 at 298-99, Ishwarlal v. State of Maharashtra , [1968]70 ITR 95 (SC) at 98 and morerecently see Universal Radiators Coimbatore v. Commissioner of Income Tax (infra ).16 Universal Radiators Coimbatore , ibid. MANU/SC/0034/1993 at para 4 alt. see 201 ITR 800 (SC).
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under section 5. 17 Yet, this is Subject to the Provisions of this Act... 18 which means
that though income cannot be taxed unless it falls under section 5, the same income
may be not be taxed should provisions of the Act say so 19 other provisions of the
Act could have an overriding effect. Should incomes be taxable if chargeable undersection 4 and chargeable income be that which is defined by section 5 then other
provisions of the Act could override the same. A non-obstante clause in the manner
in which present in section 195, which attacks such chargeability could hence be
possibly justified in this manner. Yet, it has been held by the Supreme Court that the
meaning of such clauses must be ascertained by reading them in the context of the
provisions of and consistent with the scheme of the enactment. 20 It is argued further
in this paper, as also mentioned before, through examples why the amendment isinconsistent with the scheme of the Act, making this cause likely to be interpreted
favourably toward the assessee or struck down.
Non Resident Income first needs to be income under section 5 and thereafter taxable
under section 9. What is chargeable under section 9 may be of relevance in this
context. The general rule 21 laid down by courts is that must be sufficient nexus
between a person and the country seeking to tax him and such nexus needs to be
real 22 which could be business connection, residence, source of flow of funds toname the most common. The residence of the payee being in India is never in itself a
sufficient nexus for the purposes of levy of tax. 23 The amendments doing away with
chargeability would therefore have situations wherein not only such residents
without nexus, but both residents and non-residents would, with no nexus (and
hence no basis of charge) be required to withhold tax which would perceptibly
include practically any payment anywhere in the world an undefined and hence
unacceptable outer limit. Under the law pre-amendment, tax liability and withholding obligation existed, for instance under section 9(1)(vii)(b) for instances
17 Section 5(2)(a) and (b), the ITA.18 Section 5(2), ITA commences with the mentioned phrase.19 Palkhivala, supra note 13, who cites CIT v. Nippon , 233 ITR 158, as authority, at 311.20 See Bharat Hari Singhania and Ors. v. Commissioner of Wealth Tax and Ors. , (1994) 207 ITR 1(SC).21 Details of what amounts to income that may be taxed, the extent of territorial nexus required inorder to tax income and issues such as needing a permanent establishment are contentious though notthe subject matter of this paper here the generic standard has been discussed for the purposes of argumentation.22 See Electronic Corporation of India v. Commissioner of Income Tax , (1989) 183 ITR 43 (SC)23 Such is opined by Palkhivala, supra note 13 at 384 especially in the context of section 9 levies oninterest, royalties and technical services.
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such as when an Indian tourist utilized professional services on a trip abroad making
him obligated to deduct tax on his transaction purely based on his residence. At a
primary level this taxation of non-residents because residents utilize their services
would by itself be, in the opinion of some, against well settled principles of international taxation. 24 Here the amendment goes a step farther and makes
absolutely anything taxable, doing away completely with the nexus requirement. 25
DEDUCTABLE IF CHARGEABLE OR ONLY REMITTED ?
DEDUCTABLE IF CHARGEABLE OR ONLY REMITTED ?
Section 195 mandates the withholding of tax at the time of payment of income to a
non-resident payee. The object of this section is to ensure the ease in collection of
chargeable amounts forming chargeable parts of income of non-residents which are
sourced from or connected to India. 26 Having already discussed the latter prong
above, the further consequences of the same may now be considered specifically in a
section 195 context. Case law has helped develop the issue of chargeability in this
context as follows
I. Pre GE India
The issue of chargeability to income tax being required by this provision has been
long debated in case law. Transmission Corporation v. Commissioner of Income
Tax ,27 decided by the Supreme Court pronounced a two pronged verdict in the case
first that sums need not only be pure profit to be deductable, but may also be gross
trading receipts. At the same time, the case held that an application under section
195(2) could be made should there be the need to determine if any of the income inthe gross receipts was chargeable to tax and if so to what proportion. It is submitted,
that the question before that court was limited to whether tax could and to what
24 Though provisions of DTAAs would supercede such laws. However such agreements do not exists inevery context see Palkhivala, supra note 13 at 384.25 Which though not the subject of this paper, as evident from the case of GVK Industries Ltd. and Anr. v. Income Tax Officer and Anr. , [2011]332ITR130(SC).26 Kanga, Palkhivala and Vyas The Law and Practice of Income Tax Vol II (D. Vyas, ed., 9 th edn.,Lexis Nexis-Butterworths: New Delhi, 2004) at 2104.27 239 ITR 587 (SC).
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extent be deducted on composite India source income of a non-resident payee. 28 If
such sum, as per the wording used by the court, was not inquired about under
section 195(2) for a determined of the proportion to be taxed, then the liability to
deduct tax arose as a statutory obligation. 29
This decision was thereafter, it is submitted, read constrictively by the Karnataka
High Court while deciding the controversial case of Samsung Electronics ,30 wherein
tax was required to be withheld not withstanding its chargeability by both residents
and non-residents. 31 This leads to the odd situation a non-resident to non-resident
transaction as well, unless a certificate under section 195(2) were obtained from the
AO,32 tax would still be payable despite absolutely no link to India. Though the
Indian position of law remains unclear, 33 keeping in mind the object of the provision
which is to ease the collection of taxes and so make a resident responsible to pay
them for a non- resident by withholding. Thus the term any persons in section 195,
28 This decision was infact interpreted correctly in between by High Courts, a case in point being ITO v. M/s Prasad Production wherein the Special Bench of the Chennai ITAT ruled against the Revenue who argued that though chargeability was essential, the assessee could not decide chargeability himself, and was thus bound to deduct in every case unless section 195(2) applications were made.The Bench held, that it was the payer who first decided if the payment he is making bears character of income. Thus three stages were possible (i) the payers believes no part of the remittance ischargeable with no 195 obligation (ii) the payer believes the whole remittance is chargeable where a195 deduction is made and (iii) the payer believes that only a part remittance is chargeable (aTransmission Corporation situation) where he can such an application u/s 195(2). If not done, tax isdeducted on the whole amount.29 The decision in Transmission Corporation has been widely discussed independently and in the GEcontext for instance K. K aria and A. Jasani discuss it in Payment to Non -Resident in Respect of Income not Chargeable to Tax Obligation of TDS under section 195 available athttp://www.bcasonline.org/articles/artin.asp?968.30 Samsung in particular at the AO level dealt with the issue of chargeability and the distinction between copyright and copyrighted article for the purposes of determining if the payment was a
royalty payment yet the High Court disregarded the issue completely, believing that chargeability was irrelevant to the issue as all remittances would have be withheld on by a resident and a non-resident.31 Which is also echoed in the Finance Acts amendment to section 195 in another sub -section.32 Which would have great disadvantages for instance in a Vodafone context where even if there wereno underlying asset in India, tax would still be deductable under the India regime by Vodafone, whichis an absurd conclusion.33 Though not entirely in the scope of this paper, the issue of non-resident to non-resident transaction being within the extra-territorial power of the state to legislate on is a position with conflicting caselaw as the question of nexus, as mentioned before remains unclear. Revenue would typically argue atthe term any person would be absolutely anybody including non-residents in section 195 as long aschargeability is established, while the other side would opt for the section 2 definition requiring only residents to have such obligation the Revenues side has been supported by the Mumbai ITAT in
Satellite TV v. Deputy Commissioner of Income Tax , (2006) 99 TTJ (Mum) 1025 as well as inCommissioner of Income Tax v. Eli Lilly , though in the latter case the decision was restricted tosalaries under section 192.
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would hence need to ideally mean only residents. 34 Yet it may be argued that
however the logic behind chargeability and collection in terms of the nexus required
for both is often different. This discussion though pertinent has unfortunately seen
the enactment of the 2012 amendment to mandate withholding by non-residents as well, a knee jerk reaction to the Supreme Courts decision in Vodafone .
This however has been taken a step further by eliminating chargeability altogether
and hence, even for a resident, almost every transaction would need approaching the
AO for determination leading to unnecessary time spent on formalities impeding
commerce. Thereafter as well it remains unclear as to whether after the
determination, since chargeability is of no consequence, should the income not be
chargeable, whether the sum should be withheld on or not and to what extent.
II. GE and Thereafter
GE India 35 as decided by the Supreme Court in 2010 was conclusive on the point of
whether the chargeability was necessary, stating, in light of the correct interpretation
of Transmission Corporation 36 and overruling its High Court decision in the process
that tax cannot be withheld unless chargeable under the act. 37 In the High Court
decision, 38 the court seemed to ignore consideration of this issue by stating that thisconsideration helped to decide if income was chargeable to tax. Since that was in the
opinion of the court an irrelevant factor given that all remittances were taxable, the
same was never discussed .39
The court in GE stated and it is submitted correctly that section 195(2) is only used as
in the event that there is doubt about the extent of liability under section 195(1). This
is akin to the requirements of the erstwhile Act of 1922 which had provisions for an
34 This point of view has infact been reiterated by the House of Lords in Clark v. Oceanic Contractors ,[1983] 2 WLR 94 which was dealt with recently by the Court of Appeal in Andre Agassi v. Robinson , 2006 UKHL 23. Here chargeability simply was not considered adequate nexus to make non-residents withhold tax.35 Supra note 3.36 As discussed on footnote 28 above.37 The case cited as authority was the Supreme Courts decision in Vijay Ship Breaking Corporationand Ors . v. Commissioner of Income Tax, 314 ITR 309 (SC) at para 8 of the judgement.38 (2010) 201 ITR 209 (Kar) in the last paragraph of the judgement the same is expressly stated.39 In cases such as Samsung , (supra note 4) the entire issue on royalty and the distinction between
copyright and copyrighted article dealt with this issue of what was chargeable to tax and hencetherefore on what tax was to be withheld wherein they decided similarly to the High Court in GE ,supra note 4 (2010) 320 ITR 209 (Kar).
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2004/1518.html&query=%22oceanic+and+contractors%22&method=booleanhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2004/1518.html&query=%22oceanic+and+contractors%22&method=booleanhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2004/1518.html&query=%22oceanic+and+contractors%22&method=booleanhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2004/1518.html&query=%22oceanic+and+contractors%22&method=booleanhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2004/1518.html&query=%22oceanic+and+contractors%22&method=booleanhttp://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2004/1518.html&query=%22oceanic+and+contractors%22&method=boolean -
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NOC as mentioned by the court. 40 Further reasoning provided by the court, which it
sub mitted was extremely sound, was the inclusion of the term chargeable only in
section 195 and not the other provisions of the Chapter XIV, alongside there being an
inherent incentive to withhold tax even without a mandatory obligation to deductowing to deduction expenses that could be claimed. The court additionally noted that
section 195(2) was being used a s reporting mechanism whereas under section 195(6)
post the 2008 amendment similar obligations anyway existed.
Based on the above reasoning of the court, it makes coherent logical sense to see why
the provisions in the scheme of the act operate in a manner whereby chargeability is
essential. There can however be additional justification to support the same as well.
Arguments still to be inserted
1) Based on Statutory Interpretation
2) Scheme of ITA and how it works. Follows from this are also the consequences
seen in other sections. For instance, under section 201 and the consequent
penalty provisions, the payer is responsible to pay interest on the sum
chargeable to income tax from the time deducted to payment and the payee is
then accordingly responsible to pay the said amount of tax the obligation of
the payer shifts to the payee on default even in a 195 situation, and the payee
can understandably not be expected to pay the entire deductable amount but
only the amount chargeable to tax and assessed at the year end. 41
3) Interestingly the Finance Bills notes on clauses mentions that As there is no
one-to-one correlation between the tax to be deducted by the payer and the
tax paid by the payee, there is lack of clarity as to when it can be said that
payer has paid the taxes directly. Also, there is no clarity on the issue of the
cut-off date, i.e. the date on which it can be said that the payee has discharged
his tax liability. 42 Though this is true for residents and non-residents, the
same is remedied by reducing the burden on payers to resident payees by
40 Which cited the decision of Czechoslovak Ocean Shipping International Joint Stock Company v. ITO, 81 ITR 162 (Cal).41 Section 191, ITA read with section 201, ITA. See also Rationalization of Tax Deduction at Sourceand Tax Collection at Source Provisions, Notes on Clauses - Finance Bill 2012: Direct Taxes, at 15.42 Notes on Clauses, id .
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allowing for production of certificates to assure the government of payment by
the resident payee. There is no reason for this not to apply to a non-resident
and seems to be a hypocritical stance taken by the government. 43
4) The risk run is that even one off transactions such as gifts would amount tothere being a deduction obligation on a resident or a non resident. Burden of
proof to prove that such transaction are income rests ordinarily on the
revenue. CIT v. Dhable 202 ITR 316 (Palkhivala 241)
5) It has been held by courts that the Board may not pre-empt a judicial
interpretation of the scope and ambit of a provision of the Act by a circular, as
the task of interpretation of the laws is the exclusive domain of the judiciary. 44
In this situation, provision of authority to the Board to categorize certainassesses as those needing to quantify their income whether chargeable or not
would amount to creating a new category of incomes that would then be
subject to deduction. This would, though not a new levy per se, would amount
to the Boards own unique interpretation of the law as it stands, independent
of the legislature having given it the power to do so.
6) At a more general level, executive actions, which the Boards circulars qualify
as may supplement a statute or cover areas to which the statute does not
extend but cannot run contrary to statutory provisions or whittle down their
effect. 45 This power given to the Board entitles it to do that?
7) Section 195 is the only one that uses chargeable to tax versus al the other sections
that use the term general versus specific - see statutory interpretation.
8) DTAA Argument of contradictions arising with obligations thereunder
wherein the DTAA should actually prevail - If by a resident to a non resident,
then commercial difficulties still (basic) - For example, a blanket provision
would cover payments made to a non-resident for purchase of goods even if the NR has no PE in India. This would militate against the provisions of the
DTAA (read in PE context change what is considered a PE _ we assume a
PE is needed can extraterritoriality surpass that?) Even assuming that a
43 A similar bias change though the logic remains the same seems to have been made for the purposesof allowing or disallowing deductions on expenditure by the payer- deductor should the payee pay the
tax instead Notes on Clauses, s upra note 11 at page 17.44 Grasim v. Additional Commissioner of Income Tax , 245 ITR 677.45 Commissioner of Income Tax v. Srinivasan , 23 ITR 87 (SC) at 100.
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payment is specifically exempted by the Act or by a treaty, a withholding
liability u/s 195 will subsist.
9) Remedies
The Supreme Court has held previously that an appellate authority 46 is competent topass an order as regards the amount on which the tax is to be deducted or revise the
same, the right of appeal not being restricted to total denial but also partial denial
with a part of payment subject to withholding obligations. 47
Should the income not be taxable under the Act and the AO refuses to issue such a
certificate 48 or NOC for remittance abroad, 49 a remedy lies in a writ petition whereby
he may be compelled to do so.
46 Under the ITA under section 246 which allows for an Appeal by a person changed as an assessee indefault under section 201. 47 See Commissioner of Income Tax v. Wesman Engineering Company , 188 ITR 327.48 Palkhivala at 2106.49 Id.
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Conclusion
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BIBLIOGRAPHY
A. Articles
B. Books