Section 195(7)

S ECTION 195(7) A N D C HARGEABILITY TO I NCOME T AX A X

ESEARCH P APER IN INTERNATIONAL T AX R ESEARCH Seminar

– Professor R. B. Krishna Trimester XIV

SURBHI K UWELKER UWELKER ID. NO. 1686 V TH Y EAR EAR , B.A., LL.B. (HONS.)

D ATE OF SUBMISSION: 28 TH DECEMBER , 2012

National Law School of India University NAGARBHAVI, BANGALORE BANGALORE - 560 242.

INTERNATIONAL T AXATION Section 195(7) and Chargeability to Income Tax

Table of Contents

Table of Cases _____________________________________________________________ 2 Table of Statutes ___________________________________________________________ 3 § INTRODUCTION- THE A MENDMENT ________________________________________ 2 § 'CHARGEABLE' TO T AX _________ _________________________________________________ § DEDUCTION IF CHARGEABLE OR ONLY R EMITTED? _____________________________ Conclusion & Recommendations ______________________________________________ Bibliography _______________________________________________________________

NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

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Table of Cases

A. I ndia 

Universal Radiators Coimbatore v. Commissioner of Income Tax , 201 ITR 800 (SC).

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Ishwarlal v. State of Maharashtra , [1968]70 ITR 95 (SC).

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Chatturam v. Commissioner of Income Tax , 1955 SCR (2) 290.

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Kalwa v. Union of India , 49 ITR 165 (SC).

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Kesoram Industries and Cotton Mills v. CWT , 59 ITR 767.

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Wallace Bros . v. Commissioner of Income Tax , 16 ITR 240.

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Electronic Corporation of India v. Commissioner of Income Tax , (1989) 183 ITR 43 (SC).

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Tata Consultancy Services v. State of Andhra Pradesh (2004) 271 ITR 401 (SC).

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Commissioner of Income Tax and Ors. v. Samsung Electronics Co. Ltd. (India Software Operations), (2010) 320 ITR 210 (Kar).

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G.E. India Technology Private Limited v. Commissioner of Income Tax and Anr ., (2010)10 SCC 29.

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G.E. India Technology Private Limited v. Commissioner of Income Tax and Anr ., (2010) 320 ITR 209 (Kar).

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Bharat Hari Singhania and Ors. v. Commissioner of Wealth Tax and Ors., (1994) 207 ITR 1 (SC).

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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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§ INTRODUCTION - 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 nonresident which amounts to income chargeable to tax in India to withhold tax, preassessment, 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 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 subsection (1) on that proportion of the sum which is so chargeable.”4 (emphasis supplied) “

Section 195(1), ITA. 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 year…income tax…shall be charged for that year in accordance with and subject to the provisions of this Act.. ” Section 4(2) following from the stress on chargeability mentioned therein expressly states that only “ In respect of income chargeable under sub-section(1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provisions of this Act.” 3 Section 195(7), ITA is exactly worded as follows – “ Notwithstanding anything contained in subsection (1) and sub-section (2), the Board may, by notification in the official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under 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. 1

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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 assessee‟s 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 source before making payments to a non-resident if the income of such non-resident is chargeable to tax in India. “Person”, here, will take its meaning from section 2 and would include all persons, whether resident or non-resident. Therefore, a non-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 conditions specified in the Act and if the income of the payee non-resident is chargeable to tax, then tax has to be deducted at source, whether the payment is made by a resident 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 nonresident 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 tax8 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. Under section 6 and section 9, ITA. Section 195(2), ITA. 7 Notes on Clauses, the Finance Bill, 2012. 8 There remains no distinction between who can be taxed and who doesn‟t other than tests such as those of nexus and so forth – discussed further in the paper. However these highlight tests to determine chargeability and hence is the same is removed from the equation t he same doesn‟t arise. 5

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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 and no explanation of the context in which these circulars function the provision seems to leave it to the Board‟s 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 decisions10 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.

This interpretation is purely of the r esearcher‟s through a reading of the Bill as t he notes are silent on the same and no reason for introducing this particular amendment is mentioned unlike other provisions which have detailed reasoning or sight judicial interpretation as reasons for the suggested changes. 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 High court whose decision it overruled in coming to the conclusion that no withholding obligation may exist on suns not taxable and in the process departed from other High Court decisions such as, most notably Commissioner of Income Tax and Ors. v. Samsung Electronics Co. Ltd. (India Software Operations), (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 copyright are 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. 9


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§ “CHARGEABLE” 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. This further 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. Palkhivala13 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 computation laid 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., 9th 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 , 16 ITR 240 at 244. This was followed by the Indian Supreme Court in cases such as Kesoram Industries and 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, was followed 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 more recently 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). NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

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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 under section 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 is inconsistent 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 rule21 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 real22 – which could be business connection, residence, source of flow of funds to name 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 amendment‟s 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 Section 5(2)(a) and (b), the ITA. 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 in order to tax income and issues such as needing a permanent establishment are contentious though not the 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 on interest, royalties and technical services. 17

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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 in the 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

Though provisions of DTAAs would supercede such laws. However such agreements do not exists in every 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., 9th edn., Lexis Nexis-Butterworths: New Delhi, 2004) at 2104. 27 239 ITR 587 (SC). 24


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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,

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 payer‟s believes no part of the remittance is chargeable with no 195 obligation (ii) the payer believes the whole remittance is chargeable where a 195 deduction is made and (iii) the payer believes that only a part remittance is chargeable (a Transmission Corporation situation) where he can such an application u/s 195(2). If not done, tax is deducted on the whole amount. 29 The decision in Transmission Corporation has been widely discussed independently and in the GE context – 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 at http://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 nonresident. 31 Which is also echoed in the Finance Act‟s amendment to section 195 in another sub-section. 32 Which would have great disadvantages for instance in a Vodafone context where even if there were no underlying asset in India, tax would still be deductable under the India regime by Vodafone, which is 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 case law as the question of nexus, as mentioned before remains unclear. Revenue would typically argue at the term „any person‟ would be absolutely anybody including non-residents in section 195 as long as chargeability is established, while the other side would opt for the section 2 definition requiring only residents to have such obligation – the Revenue‟s 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 in Commissioner of Income Tax v. Eli Lilly, though in the latter case the decision was restricted to salaries under section 192. 28


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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 Court‟s 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 Corporation36 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 this consideration 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

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 Court‟s decision in Vijay Ship Breaking Corporation and 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 hence therefore 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). 34


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NOC as mentioned by the court.40 Further reasoning provided by the court, which it submitted 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 deduct owing 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 Bill‟s 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 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 Source and Tax Collection at Source Provisions”, Notes on Clauses - Finance Bill 2012: Direct Taxes, at 15. 42 Notes on Clauses, id . 40


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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 to there 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 certain assesses 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 Board‟s 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

A similar bias change though the logic remains the same seems to have been made for the purposes of allowing or disallowing deductions on expenditure by the payer- deductor should the payee pay the tax instead – Notes on Clauses, supra 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. 43


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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 to pass 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 certificate48 or NOC for remittance abroad, 49 a remedy lies in a writ petition whereby he may be compelled to do so.

Under the ITA under section 246 which allows for an “Appeal by a person changed as an assessee in default under section 201”. 47 See Commissioner of Income Tax v. Wesman Engineering Company , 188 ITR 327. 48 Palkhivala at 2106. 49 Id. 46


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Conclusion


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BIBLIOGRAPHY

Articles

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Section 195(7)

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