Section 195 of the Income Tax Act provides for tax deduction at source from payment of interest or any other sum chargeable under the provisions of the Income-tax Act (other than salaries or dividend specified in S. 115-O) to a non-resident or a foreign company at the prescribed time at the rates in force.
Where the person responsible for paying any sum chargeable under this Act considers that whole of such sum would not be income chargeable in the hands of recipient, he may make an application to the Assessing officer to determine by an order, the appropriate proportion of such sum so chargeable to, and upon such determination, tax shall be deducted under this section only on that proportion of the sum which is so chargeable.
TDS has to be deducted at the time of credit or payment whichever is earlier. TDS rates shall be relevant rates in force applicable in that financial year.
Section 195(6) introduced by Finance Act 2008 (w.e.f. 1/4/2008)
Requires the person making payment to NR to furnish the information relating to payment.
Furnishing of information – Rule 37BB (w.e.f. 1 July 2009)
- Furnish information to the tax department – Form 15CA
- Obtain CA certificate before making payment to NR – Form 15CB
Related Cases:
Exemptions—Section 10(15A), read with section 195, of the Income-tax Act, 1961 AFT TRUST-SUB-1 vs. CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES [2005]
S. 195, 201(1), 201(1A) & 271C of IT Act, 1961—TDS—Payment made by the assessee to the resident of India in respect of purchase of land, who is holding the power of attorney for non-resident co-owners cannot be considered as payment to non-resident because the power of attroney holder is not merely acting as an agent of the non-residents to receive money but as a person who has the right to alienate the land by the virtue of rights vested in him by the power of attorney signed by the co-owners, therefore, S. 195 is not applicable and the assessee cannot be treated as an assessee in default S. 201(1) and therefore, penalty u/s 271C is also not leviable—Rakesh Chauhan vs. Dy. Dir. of IT (2010) 128 TTJ 116 (ITAT-Chd)
Income tax Act, 1961—S. 195—TDS—”Whether the High Court was right in holding that the moment there is remittance the obligation to deduct tax at source (TAS) arises? Whether merely on account of such remittance to the non-resident abroad by an Indian company, could it be said that income chargeable to tax under the Income Tax Act, 1961 (for short “I.T. Act”) arises in India? While remitting the case. Hon Supreme Court of India held that:—”In the present case on facts the ITO (TDS) had taken the view that since the sale of the concerned software, included a license to use the same, the payment made by appellant(s) to foreign Suppliers constituted “royalty” which was deemed to accrue or arise in India and, therefore, TAS was liable to be deducted u/s 195(1) of the Act. The said finding of the ITO(TDS) was upheld by the CIT(A). However, in second appeal, the ITAT held that such sum paid by the appellant(s) to the foreign software Supplier was not a “royalty” and that the same did not give rise to any “income” taxable in India and, therefore, the appellant(s) was not liable to deduct TAS. However, the High Court did not go into the merits of the case and it went straight to conclude that the moment there is remittance an obligation to deduct TAS arises, which view stands hereby overruled. Since the High Court did not go into the merits of the case on the question of payment of royalty, we hereby set aside the impugned judgments of the High Court and remit these cases to the High Court for de novo consideration of the cases on merits. The question which the High Court will answer is –whether on facts and circumstances of the case the ITAT was justified in holding that the amount(s) paid by the appellant(s) to the foreign software Suppliers was not “royalty” and that the same did not give rise to any “income” taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source? ” GE India Technology Centre Private Ltd. vs. CIT & Anr. [2010] 15 ITCD 135 (SC)
S. 9(1)(iv) & 195 of IT Act, 1961—Deemed Income—Two directors of the assessee-company travelled to Singapore for purchase of plant know-how pursuant to the resolution of board of Directors of the assessee-company. As per the agreement, the assessee-company paid some amount to the Singapore Company and rest of amount was payable in installments. As per cl. 10(a) of the said agreement, the title in the documents stood transferred to the Indian assessee and it became the owner and could use the same for any purpose albeit after a period of five years. Therefore, the said payment cannot be termed as royalty so as to attract TDS —CIT vs. Maggronic Devices (P) Ltd. [2009] 228 CTR 241 (HP)
S. 195 of IT Act, 1961—TDS—As per S. 195, the tax at source is to be deducted on the “sum chargeable under the provisions of this Act” Therefore, the obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India. Sub-sec.(2)of S. 195 enables a person responsible for paying any such sum chargeable under the Act to a non-resident to seek determination as to whether tax shall be deducted under sub-sec. (1) or not, however, indubitably, this is only a tentative determination. Therefore, the assessee is not liable to deduct tax at source u/s 195 in respect of the mobilization and demobilization costs reimbursed by it to non-resident company—Van Oorad ACZ India (P) Ltd. vs. CIT. [2010] 323 ITR 130 (DEL)
S. 90 & 195 of IT Act, 1961, art. 7 & 12 of DTAA between India & USA—Double taxation relief—The applicant is a company based in USA which is engaged in the business of manufacture of process control instruments, engineering and research and technology based services, Co-operative or consortium services etc. It incorporated in India and it incurred expenditure in relation to the functions for the benefit of the group as a whole persuant to the agreement between applicant and Indian company, the applicant raises invoice on IIPL for the amounts worked out on the basis of the formula in the agreement. The applicant is not liable to be taxed in India as per the provisions of DTAA viz. art. 7.1 and art. 12.4(b) and IIPL is not obliged to withhold tax at source u/s 195 of IT Act, 1961—Invensys Systems Inc In re. (2009) 225 CTR 113 (AAR)
S. 248, r/w S. 195 of the IT Act, 1961—Appeal (CIT)—As per conjoint reading of S. 195, 201, 246(1)(i) and 248 being a payer, the assessee has every right to question the tax liability of payee to avoid the vicarious consequences. Therefore, the assessee being a payer has locus standi to file appeal before CIT(A) against tax liability of his contractee—Jindal Thermal Power Co. Ltd. vs. DCIT (TDS) [2010] 321 ITR 31 (Kar.)
S. 195A, 260A of IT Act, 1961—Appeal (High Court)—Since the tax effect involved in the appeal is less than the monetary limit of Rs. 4 Lakhs, the appeal u/s 260A of the Act is not maintainable—CIT vs. Tadashi Murakami (2009) 319 ITR 347 (Delhi)
S. 9(1)(vi) & 195, arts. 7 & 12 of DTAA between India & Switzerland—Double taxation relief—Applicant, an India company, proposes to enter into a cost contribution agreement (CCA) with its group company ABB Zurich in Switzerland whereby it is required to make payment to the said company representing its share of the cost incurred towards basic research and development activities carried out by ABB Zurich. Hence, the payment made to ABB Ltd., towards the applicants share of the cost incurred in respect of R & D activities are not liable to be taxed under the IT Act, 1961 as business income in the absence of PE in India, having regard to art. 7 of the tax treaty. Nor can it be subjected to tax as royalty or fees for technical services under art. 12 of the treaty. The applicant is not under an obligation to withhold the tax u/s 195 of the Act as the income is not chargeable to tax—ABB Ltd.
S. 195 of IT Act, 1961, art, 12(3),(4) DTAA between India and Singapore—Non-resident—The applicant is a company incorporated in India to undertake the business of general insurance. AXA Asia regional Centre Pvt. Ltd. is a company incorporated in Singapore. The applicant entered into an agreement with AXA Asia Regional Centre for receiving assistance such as business support, marketing information technology support services and strategy support, etc., from the latter. The fee paid to AXA Asia Regional centre by the applicant does not amount to fees for technical services within the meaning of the India-Singapore DTAA and since that non-resident company does not have PE in India, therefore, the payments received by it are taxable as “business profits” in India under the said DTAA—Bharati AXA General Insurance Co. Ltd., In re. (2010) 326 ITR 477 (AAR)
S. 195(3) of IT Act, 1961, r. 29B of IT Rules 1962—Deduction of tax at source—Sub-sec. (3) of S. 195 of the Act, provides that subject to the rules which are made under sub-sec. (5), a person entitled to receive a sum on which income-tax has to be deducted under sub-sec. (1) may make an application to the Assessing Officer for the grant of a certificate authorizing him to receive such sum without deduction of tax. Under sub-rule (1) of rule 29B of the Rules 1962, a person entitled to receive interest or any other sum on which income-tax has to be deducted u/s 195(1) is permitted to make an application for the grant of a certificate under sub-sec. (3) of S. 195 if he fulfills the conditions specified in sub-rule (2), authorizing him to receive without deduction of tax such income as is referred to therein—Mckinsey and Co. Inc. vs. Union of India [2010] 231 CTR 430 (BOM)
S. 10(58), 17(2)(iv) & 195 of the IT Act, 1961—Salary—The excess amount of tax deposited with the Central Government by the employer, over and above the amount due, and refunded to the assessee, cannot be treated either as salary or taxable perquisite in the hands of the assessee—Satoru Tanaka vs. ACIT (2009) 121 TTJ 654 (ITAT-Delhi)
S. 5 & 195 of the IT Act, 1961—Income—Income of a non-resident assessee is to be included in previous year on accrual basis. Likewise interest receivable by a non-resident assessee from an Indian company on debentures every year on July & Dec. will be taxable in the financial year in which it become due—Smt. Trishal Jain vs. CIT (P&H)
S. 90 & 195 of IT Act, 1961, art. 4, 7 & 12 of DTAA between India and UAE—Double taxation relief—For claiming treaty benefit, the assessee has to prove that it is a tax resident of UAE and has also referred to documentary evidence like tax residency certificate. It is not necessary that unless a person is taxed in the UAE that person cannot claim the benefit of Indo-UAE tax treaty in India. What is really relevant to see is whether or not the recipient is resident of UAE— Hindustan Petroleum Corporation Ltd. vs. A. Director of IT (2010) 130 TTJ 518 (ITAT-Mum)
S. 195 & 248 of IT Act, 1961—Appeal [CIT(A)]—The appellate authority exercises power only for the purpose of correcting any mistake or error, illegality committed by the original authority and nothing beyond. The extent of the powers, authority and jurisdiction of an appellate authority at the best can be said to be co-extensive with that of the original authority and can never be put on a higher level or on a higher pedestal as the appellate authority cannot assume such powers which the original authority did not have while disposing of the appeal directed against the order passed by the original authority, the purpose of which is only to correct the errors of original authority. It is obvious that the scope of appeal u/s 248 can never be beyond the scope of examination of the nature of obligation u/s 195(2) cast on a resident payer and as already indicated the scope of rather the lack of it, for assessing the dispute relating to income of the non-resident in the hands of a resident payer, while considering the question of chargeability or otherwise in terms of S. 195(1) and, therefore, in an appeal u/s 248, the dispute relating to the chargeability alone can be subject matter and not a possibility of assessing to the chargeability alone can be subject-matter and not a possibility of assessing the income of the non-resident in the hand of the resident payer—CIT vs. Sonata Information Technology Ltd. (2010) 232 CTR 20 (Ker)
S. 9(1)(viii), 115A(1)(b) & 195 of IT Act, 1961, art. 12 of DTAA between India & USA—Double taxation relief—The receipts under the contract attributable to software and installation and other services are definitely covered by cl. (b) of para 4 of art. 12 of DTAA. The applicant AAI has entered into a contract for automation upgrade of a runway at IGI Airport with US company, which involves supplying hardware, software and providing services in connection with installation thereof by the latter, US company is bound to provide necessary information to operate, maintain and repair the system delivered under the contract. Therefore, payment towards supply of software as a part of package of setting up upgraded automation system at IGI Airport by applicant to US company can be legitimately brought within the fold of art. 12(4)(b) of Indo-US DTAA as information and inputs concerning various technical aspects based on the expertise and experience of US company are made available to applicant thourgh the mechanism of this software which enables it to apply the technology and, thus, same is liable to be taxed in India. Further, the payment made for installation services too is taxable although, the payment for hardware is not taxable in India—Airports Authority of India, In re. [2010] 323 ITR 211 (AAR)
S.195 of IT Act, 1961, art. 7, 12(4) of DTAA between India and Singapore—Double taxation avoidance—The assessee entered into an agreement for availing of logistics services from Sun, Singapore, and associated company. In absence of any evidence on record that said agreement in fact made available the technical knowledge, experience and skill to the assessee for its use, the payments made by the assessee are not liable to be taxed under the head “Fees for Technical Services”. Since the said associated company does not have PE in India, the payments which are required to be taxed under the head “Business” are not taxable in terms of article 7 of the said DTAA. When the income of the recipient is not taxable in India, the assessee is not required to deduct tax at source u/s 195 of the Act—Sun Micro System India Pvt. Ltd. vs. ITO [2010] 130 TTJ 597 (BANGALORE)
S.195 of IT Act, 1961, art. 7, 12(4) of DTAA between India and Singapore—Double taxation avoidance—The assessee entered into an agreement for availing of logistics services from Sun, Singapore, and associated company. In absence of any evidence on record that said agreement in fact made available the technical knowledge, experience and skill to the assessee for its use, the payments made by the assessee are not liable to be taxed under the head “Fees for Technical Services”. Since the said associated company does not have PE in India, the payments which are required to be taxed under the head “Business” are not taxable in terms of article 7 of the said DTAA. When the income of the recipient is not taxable in India, the assessee is not required to deduct tax at source u/s 195 of the Act—Sun Micro System India Pvt. Ltd. vs. ITO [2010] 125 ITD 196 (BANGALORE)
Income Tax Act, 1961, S. 9(1) (vii), 90 and 195—Tax deducted at source—The following questions were framed for consideration by this Authority: “(i) Whether on the facts and circumstances of the case, the amount paid or payable by the applicant to HMFICL under the terms of the secondment agreement dt. 13th March, 2006 is in the nature of income accruing to M/s. HMFICL in respect of which, tax is liable to be deducted at source by the applicant under the provisions of IT Act, 1961 ? (ii) If the answer to the first question is in the affirmative, what is the rate at which tax is required to be deducted at source by the applicant ? (iii) Whether, on the facts and circumstances of the case, HMFICL has a PE in India and any income can be attributed to it under the provisions of IT Act read with DTAA ?”. While answering the question, the Authority for Advance Rulings held that:—”At the resumed hearing on 15th Sept., 2008, a contention was raised by the learned counsel for the applicant that the real and economic employer of the seconded employee is the applicant because the day to day working of the employee is supervised and controlled by the applicant. It is therefore submitted that the amount paid in the form of reimbursement shall be deemed to be payment made towards salary and not FTS. Certain passages in OECD Commentary on art. 15 of the model treaty have been relied upon to substantiate the argument. We must say that such contention goes contrary to the averments made and the stand taken in the application. In the view we have taken, it is unnecessary to comment on the tenability of the contention and the applicability of the passage cited by the learned counsel. In view of the foregoing discussion, the first question is answered in the negative and we hold that no tax is liable to be deducted at source by the applicant in respect of the payments made or to be made to HMFICL under the terms of the secondment agreement. The other two questions do not call for any answer.” Cholamandalam ms General Insurance Co. Ltd., In re. [2009] 10 ITCD 4 (AAR)
S. 195 of the IT Act, 1961, r/w art. 141 of the constitution of India—Deduction of tax at source—The judgment of the Supreme Court in Transmission Corpn. of A. P. Ltd vs. CIT [1999] is a binding authority for the proposition of S. 195 of the Act and there is absolutely no scope for the High Court. Interpretation of S. 195 of the Act in the judgment is law declared and binding on all courts in country and whether assessee like it or not, it has to be necessarily applied to cases wherein exercise of undertaking, interpreting and explaining scope of provisions of S. 195 and scheme of this provision and manner in which section works are involved—CIT vs. Samsung Electronics Co. Ltd.
S. 9(1)(i) 90 & 195 of IT Act, 1961, art. 5 & 7 of DTAA between India & USA—Double taxation relief—A product purchase agreement (PPA) was executed by and between N and its affiliates on the one part and LT of USA & its affiliates on the other part for inter alia, supply of products to NI, Indian unit of N, to meet its manufacturing requirements in India. LT entered into an assignment agreement with the applicant, Indian company of the same group, irrevocably assigning all its beneficial rights title, interest, obligations and duties under the said PPA in favour of the applicant. US company has no fixed place, PE in India as the applicant never acted as an agent much less as a dependent agent of the US company and is carrying on its business operations by itself without any direction or instruction from the latter, supplying goods to NI on a principal to principal basis as per the terms of the assignment agreement and, thus, the in view of art. 7.2 of the DTAA, the business profits of the US company are not taxable in India and, therefore, the applicant is not needed to withhold tax u/s 195 of the Act—Laird Technologies India (Pvt.) Ltd.
S. 195 of IT Act, 1961, r/w art. 5 and 7 of DTAA between India and Netherlands —Deduction of tax at sources—The assessee is a foreign company incorporated in Netherlands having its principal branch office in India. In course of its banking activities, the assessees said branch in India remitted substantial funds to its head office as payment of interest. U/s 90 the Government of India has entered into an agreement with the Government of Netherlands for relief of tax and avoidance of double taxation. Such agreement also applied to the assessee. Therefore, for the purpose of relief of tax which was related to avoidance of double taxation, a more beneficial provision amongst rival provisions in the Agreement and the Act would apply to the assessee. Under art. 7, read with definition of art. 5, the permanent establishment is to be taken as an assessee for the purpose of computation of business profits. Under sub-sec. 3(b) of art. 7, payment of interest can be claimed as a deduction. If no tax is deductible u/s 195(1), S. 40(a)(i) would not come in the way of the assessee claiming such deduction from its income. Therefore, assessee would be entitled to deduct such interest paid, as permitted by the Convention of Agreement in the computation of its income—ABN Amro Bank, N. V. vs. CIT
S. 4, 195, 201(1), (1A) of IT Act, 1961—Deduction of tax at source—In sub-sec. (1) of S. 195 of the Act, the crucial expression is “any other sum chargeable under the provisions of this Act.” It would mean that person making payment to the non-resident would be liable to deduct tax if the payment so made is chargeable to tax under the Act. If the charge u/s 4 fails, automatically S. 195 would be inapplicable. S. 195 will be applicable only if the payment made to the non-resident is chargeable to tax. If the payer fails to make an application u/s 195(2), then the payer will have to deduct tax from the entire payment. If the payer has a bona fide belief that no part of the payment has income character, then S. 195(1) will not apply because S. 195 will apply only if the payment is chargeable to income-tax, either wholly or partly—ITO vs. Prasad Production Ltd. [2010] 129 TTJ 641[SB](CHENNAI)
S. 115A(1)(b) & 195 of IT Act, 1961, art. 12 of DTAA between India & USA—Double taxation relief—Applicant, an Indian company, entered into an agreement with HOK, a US entity, for provision of architectural design services for constructing commercial/hotel complex in India. As per the agreement, US entity and the associate architect RSP are jointly responsible for providing the entire design, construction documents and construction administration services necessary to complete the project. The payment received by US entity for providing the entire design, construction documents and construction administration services to the applicant, necessary to complete the building project is in the nature of fees for technical services or included services within meaning of cl. (a) of art. 12.4 of the Indo-US DTAA, as the technical services rendered by US entity resulted in development and transfer of technical plan and design to the applicant and the activities of transfer of documents and rendering of such services cannot be disintegrated—HMS Real Estate (P) Ltd. In re. [2010] 325 ITR 71 (AAR)
S. 195 of IT Act, 1961—TDS—As per S. 195, the tax at source is to be deducted on the “sum chargeable under the provisions of this Act” Therefore, the obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India. Sub-sec. (2) of S. 195 enables a person responsible for paying any such sum chargeable under the Act to a non-resident to seek determination as to whether tax shall be deducted under sub-sec. (1) or not, however, indubitably, this is only a tentative determination. Therefore, the assessee is not liable to deduct tax at source u/s 195 in respect of the mobilization and demobilization costs reimbursed by it to non-resident company—Van Oorad ACZ India (Pvt.) Ltd. vs. CIT [2010] 230 CTR 365 (DEL)
Income tax Act, 1961, S. 195—TDS—Double Taxation Avoidance Agreement—Assess purchased certain software from a Singapore Company under an agreement. It was submitted that the consideration paid to Singapore Company is not liable to tax in India as the price paid for the purchase of the licensed software for its own use and represents commercial profits of the Singapore Company. It was submitted that since the Singapore Company has no PE in India, its profits are not subject to tax in India. CIT held that Singapore Company has given right to use the software, therefore, the payment is a royalty and taxable in India under article 12 of the DTAA between India and Singapore. While deciding the appeal ITAT, Mumbai Bench held that:—”We are of the considered opinion that computer software when put into a media and sold, it becomes goods like any other audio cassette or painting on canvass or book. In view of the decisions cited above, we are of the considered opinion that the amount paid by the assessee towards purchase of IXOS-eCON for R/3 50 users cannot be treated as payment of royalty taxable in India under Article 12 of DTAA between India and Singapore. Therefore, the assessee, in our opinion, is not liable to deduct tax at source. ” Kansai Nerolac Paints Ltd., Mumbai vs. Addl. dit (International Taxation)-I (1), Mumbai [2010] 15 ITCD 87 (ITAT-Mum)
S. 115A(1)(b) & 195 of IT Act, 1961, art. 12 of DTAA between India & USA—Double taxation relief—Applicant, an Indian company, entered into an agreement with HOK, a US entity, for provision of architectural design services for constructing commercial/hotel complex in India. As per the agreement, US entity and the associate architect RSP are jointly responsible for providing the entire design, construction documents and construction administration services necessary to complete the project. The payment received by US entity for providing the entire design, construction documents and construction administration services to the applicant, necessary to complete the building project is in the nature of fees for technical services or included services within meaning of cl. (a) of art. 12.4 of the Indo-US DTAA, as the technical services rendered by US entity resulted in development and transfer of technical plan and design to the applicant and the activities of transfer of documents and rendering of such services cannot be disintegrated—HMS Real Estate (Pvt.) Ltd.
S. 195 of IT Act, 1961—TDS—As per S. 195, the tax at source is to be deducted on the “sum chargeable under the provisions of this Act” Therefore, the obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India. Sub-sec.(2) of S. 195 enables a person responsible for paying any such sum chargeable under the Act to a non-resident to seek determination as to whether tax shall be deducted under sub-sec. (1) or not, however, indubitably, this is only a tentative determination. Therefore, the assessee is not liable to deduct tax at source u/s 195 in respect of the mobilization and demobilization costs reimbursed by it to non-resident company—Van Oorad ACZ India (Pvt.) Ltd. vs. CIT.
S. 195 of the IT Act, 1961, r/w art. 141 of the constitution of India—Deduction of tax at source—The judgment of the Supreme Court in Transmission Corpn. of A. P. Ltd vs. CIT [1999] is a binding authority for the proposition of S. 195 of the Act and there is absolutely no scope for the High Court. Interpretation of S. 195 of the Act in the judgment is law declared and binding on all courts in country and whether assessee like it or not, it has to be necessarily applied to cases wherein exercise of undertaking, interpreting and explaining scope of provisions of S. 195 and scheme of this provision and manner in which section works are involved—CIT vs. Samsung Electronics Co. Ltd.
S. 9(1)(vii), 195, 197, 201(1) & 201(1A) of IT Act, 1961, Art. 12 of DTAA between Indian & Singapore—TDS—The ITO issued certificate u/s 197 which authorised the assessee to pay without deduction of income-tax the sum credited in the name of LLAH. Hence, the Assessing Officer cannot subsequently treat the assessee as an assessee in default u/s 201, more so when the Assessing Officer has not made any disallowance u/s 40(a)(i) thereby accepting that no tax is required to be deducted at source—Bovis Lend Lease (India)(Pvt.) Ltd. vs. ITO. [2010] 127 TTJ 25* (ITAT-Bang B)(UO)
S. 9(1)(vii), 90 & 195 of IT Act, 1961, art. 13 of DTAA between India & France—Double taxation relief—One of the discernible common factors in Indian DTAA with UK, USA and Switzerland are that unless the fees for services that ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property is attributable to PE and fulfills the other requirements laid down under the relevant article dealing with business profits, the same cannot be taxed in the source country. In the present matter the activities of conducting impact tests by French company on the cars manufactured by the assessee company in the presence of assessees representative and submission of test reports which are utilized for product development in India is in the nature of technical services and, therefore, payment made by the assessee to French company for such tests is fee for technical services within the meaning of art. 13(4) of the DTAA between India and France as well as S. 9(1)(vii) of the Act and therefore, these payments made by the assessee to French company are chargeable to tax in India and liable to deduct tax at source u/s 195 of the Act—Maruti Udyog Ltd. vs. ACIT (International Taxation) (2010) 130 TTJ 66 (ITAT-Delhi)
S. 195 of IT Act, 1961, art. 7, 12(4) of DTAA with USA—Non-resident—The applicant, a foreign company based in USA engaged in the business of manufacture of process control instruments, engineering and research and technology process based services, co-operative or consortium services, etc., entered into an agreement called the cost allocation agreement with an Indian company, which was the part of the Indian companies group. Agreement taken place to provide such functions to Indian company and against that applicant received amount from Indian company on basis of cost. Applicant not having “PE” in India. Hence, such amount received by applicant cannot be taxed in India—Invensys systems Inc., In re. (2009) 317 ITR 438 (AAR)
S. 9(1)(vii), 90 & 195 of the IT Act, 1961, Art. 12 & 13 of DTAA between India and Korea—Double Taxation Avoidance Agreement—No tax is liable to be deducted at sources by applicant in respect of reimbursement of part of salary by applicant paid by foreign company to its deputed employee in India to work under the instruction of applicant under a secondment agreement for mutual benefit of insurance business of both the parties which does not result generation of any income in the hands of foreign company, thus, cannot be treated as fees for technical services under Expln. 2 to S. 9(1)(vii) or art. 13(4) of DTAA between India and Korea—Cholamandalam MS General Insurance Co. Ltd.
Reference:
As Per Section 195, of the Income Tax Act, 1961-2015
Other sums.
195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) [or section 194LD] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall, at the time of credit of such income to the account of the payee or at the time of 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 there under 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-section (1) only on that proportion of the sum which is so chargeable.
(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the [Assessing] Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the [Assessing] Officer before the expiry of such period, till such cancellation.
(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
(6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board. 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 furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.
(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 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.