Messrs. Arthur Andersen & Co v. The Deputy Commissioner Of Income Tax Tds Range 1, Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORIGINAL SIDE INCOME TAX APPEAL NO.420 OF 2004 Messrs. Arthur Andersen & Co. vs. The Deputy Commissioner of Income TaxTDS Range 1, Mumbai. Appellants Respondents Mr.Sanjeev M. Shah with Mr.Prakash Shah i/b. M/s.DSKLegal for the appellants. Mr.R.V.Desai, senior counsel with Ms.S.V.Bharucha i/bMr.P. Kapur for the respondents. CORAM: R. M. LODHA &J.P.DEVADHAR,JJ. DATED: 3rd December 2004 P.C.Heard Mr.Sanjeev M. Shah, the learned counsel forthe appellants. We perused the order of the DeputyCommissioner of Income Tax dated 15th June 1994 passedon the application made by the appellants for a NoObjection Certificate for the remittance of theequivalent of US $ 4,87,300 to M/s.Arthur Andersen &Co., Societe Cooperative, a Swiss Co-operative Society(AASC) and the order passed by the Appellate Authority and the Income Tax Appellate Tribunal. 2. The Deputy Commissioner of Income Tax held thus: made by the appellants to AASC and the Assessing Officerwas directed to allow the remittances of the paymentwithout deducting the tax on the payments.5. The revenue was dissatisfied with the order of theCommissioner of Income Tax (Appeals) and preferred theappeal before the Income Tax Appellate Tribunal. TheIncome Tax Appellate Tribunal set aside the order of theCommissioner of Income Tax (Appeals) and restored theorder of the Assessing Officer. The Income TaxAppellate Tribunal relied upon the judgment of theSupreme Court in the case of Transmission Corporation ofA.P. Ltd & Anr. v. Commissioner of Income Tax, (1999)239 ITR 587. The order passed by the Income Tax Appellate Tribunal is impugned in this income tax appeal. 6. In Transmission Corporation of A.P. Ltd., theSupreme Court with reference to Section 195 of IncomeTax Act, 1961 held that the said provision was fortentative deduction of income tax subject to regularassessment and by the deduction of tax, the rights of the parties are not in any manner adversely affected. The Supreme Court held thus: " The scheme of sub-sections (1)(, (2) and (3)of section 195 and section 197 leaves no doubtthat the expression "any other sum chargeableunder the provisions of this Act" would mean Appellate Tribunal is impugned in this income tax appeal. 6. In Transmission Corporation of A.P. Ltd., theSupreme Court with reference to Section 195 of IncomeTax Act, 1961 held that the said provision was fortentative deduction of income tax subject to regularassessment and by the deduction of tax, the rights of the parties are not in any manner adversely affected. The Supreme Court held thus: " The scheme of sub-sections (1)(, (2) and (3)of section 195 and section 197 leaves no doubtthat the expression "any other sum chargeableunder the provisions of this Act" would mean "sum" on which income-tax is leviable. Inother words, the said sum is chargeable to taxand could be assessed to tax under the Act.The consideration would be-whether payment ofthe sum to the non-resident is chargeable totax under the provisions of the Act or not?That sum may be income or income hidden orotherwise embedded therein. If so, tax isrequired to be deducted on the said sum, whatwould be the income is to be computed on thebasis of various provisions of the Actincluding provisions for computation of thebusiness income, if the payment is a tradereceipt. However, what is to be deducted isincome-tax payable thereon at the rates inforce. Under the Act, total income for theprevious year would become chargeable to taxunder section 4. Sub-section (2) of section4, inter alia, provides that in respect ofincome chargeable under sub-section (1),income-tax shall be deducted at source whereit is so deductible under any provision of theAct. If the sum that is to be paid to thenon-resident is chargeable to tax, tax isrequired to be deducted. The sum which is tobe paid may be income out of different headsof income provided under section 14 of theAct, that is to say, income from salaries,income from house property, profits and gainsof business or profession, capital gains andincome from other sources. The scheme of taxdeduction at source applies not only to theamount paid which wholly bears "income"character such as salaries, dividends,interest on securities, etc., but also togross sums, the whole of which may not beincome or profits of the recipient, such aspayments to contractors and sub-contractorsand the payment of insurance commission. Ithas been contended that the sum which may berequired to be paid to the non-resident mayonly be a trading receipt, and, may contain afraction of the sum as taxable income. It istrue that in some case, a trading receipt maycontain a fraction of the sum as taxableincome, but in other cases such as interest,commission, transfer of rights of patents,goodwill or drawings for plant and machineryand such other transactions, it may contain alarge sum as taxable income under theprovisions of the Act. Whatever may be theposition, if the income is from profits andgains of business, it would be computed under the Act as provided at the time of regularassessment. The purpose of sub-section (1) ofsection 195 is to see that the sum which ischargeable under section 4 of the Act for levyand collection of income-tax, the payer shoulddeduct income-tax thereon at the rates inforce, if the amount is to be paid to anon-resident. The said provision is fortentative deduction of income-tax thereonsubject to regular assessment and by thededuction of income-tax, the rights of theparties are not, in any manner, adverselyaffected. Further, the rights of the payee orrecipient are fully safeguarded under sections195(2), 195(3) and 197. The only thing whichis required to be done by them is to file anapplication for determination by the AssessingOfficer that such sum would not be chargeableto tax in the case of the recipient, or fordetermination of the appropriate proportion ofsuch sum so chargeable, or for grant ofcertificate authorising the recipient toreceive the amount without deduction of tax,or deduction of income-tax at any lower ratesor no deduction. On such determination, taxat the appropriate rate could be deducted atthe source. If no such application is filed,income-tax on such sum is to be deducted andit is the statutory obligation of the personresponsible for paying such "sum" to deducttax thereon before making payment. He has todischarge the obligation of tax deduction atsource."7. The Division Bench of this Court in the case ofCommissioner of Income-tax v. Tata Engineering andLocomotive Co.Ltd., 245 ITR 823 relying upon thejudgment of the Supreme Court in the case ofTransmission Corporation of A.P. Ltd. reiterated thelegal position that Section 195 of the Income Tax Act isonly for tentative deduction of income tax subject toregular assessment and the rights of the parties are notin any manner adversely affected. With reference to the assessment proceedings. Hence, no substantialquestion of law arises." rise to any substantial question of law warranting decision by this Court. 9. The appeal, therefore, does not deserve to beadmitted and is dismissed in limine. (R.M.LODHA,J.) (J.P. DEVADHAR,J.)