Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: due date for vat payment :: list of goods taxed at 4% :: Central Excise rule to resale the machines to a new company :: VAT RATES :: form 3cd :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: ACCOUNTING STANDARD :: articles on VAT and GST in India :: cpt :: empanelment :: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4%
 
 
News Headlines »
 Govt to simplify income tax laws, sets up task force under taxman Arbind Modi to study overhaul
 Infosys to configure GST network for filing returns
 Save income tax through mutual fund investment. All you need to know
 Income tax returns (ITR): On sale of property, here is what you should know
 Section 35 of the Income-tax Act?
 Notification regarding extension of last date w.r.t submission of closing stock by dealer.
 Integrated Goods and Services Tax (IGST) Rules, 2017 (As on 15.11.2017)
 Central Goods and Services Tax (CGST) Rules,2017 (As on 15.11.2017)
  101st Constitution Amendment Act, 2016
 Pr. Commissioner Of Income Tax-6 Vs. Mccain Foods India Pvt. Ltd.
 Section 10 of the Income-tax Act, 1961

Withholding tax on tax-free remittances
December, 04th 2006

A plain reading of Section 195 of the Income-tax Act shows that any person responsible for paying to a foreign company (i) any interest or (ii) any other sum chargeable under the provisions of the Act (except salary), is required to deduct income-tax at the time of credit of such sum to the account of the payee or at the time of actual payment thereof, whichever is earlier. Non-compliance of the above provision leads to disallowance of expenditure in the hands of the payer [see Section 40 (a)(i)]. 
 
The issue for consideration is whether it is mandatory to make application to Income Tax Department under Section 195 even if the amount to be remitted is not liable to tax. In a recent case of IMT Labs (AAR 676 of 2005), the Authority for Advance Rulings held that scheme of tax deduction at source applies not only to the amount paid, which wholly bears income character, but also to gross sums, the whole of which may not be income or profits of the recipient. In this regard, the authority relied on the decision of Supreme Court in case of Transmission Corporation of AP Ltd vs CIT (239 ITR 587). 
 
Earlier, in case of Al Nisr Publishing (239 ITR 879), the Authority for Advance Rulings had expressed a entirely contrary opinion. On the question whether the advertising revenue remitted out of India by the agent(s) of the applicant is subject to deduction of tax at source under Section 195 or any other provision of the Income-tax Act, 1961, the Authority held that the remitter of money was not required to deduct tax at source. 
 
It was observed that the commission received in India is not taxable in the hands of the applicant in view of Article 7 read with Article 5 of the DTAA. There is, therefore, no obligation to deduct tax at source from the remittances made to the non-resident applicant. 
 
Furthermore, in several cases, the different benches of Income-tax Appellate Tribunal have held that if the payment made to non-resident is not chargeable to tax, the provisions of Section 195 are not attracted. In Lufthansa Cargo India (P) Ltd 91 ITD 133, the tribunal, relying on the apex courts decision in Transmission Corporation (supra), held as under: The language of Section 195 (1) is unambiguous on the subject. 
 
It is only such sums which are chargeable under the provisions of this Act (not being income chargeable under the head Salaries) that come within the purview of Section 195. If the payment is not chargeable to tax, the provisions of Section 195 are not attracted. 
 
In this context, it will also be relevant to note that earlier no remittance out of India was allowed unless a no objection certificate was obtained from the Income-tax Department. This procedure has been amended vide Circular No. 759 dated November 18, 1997. 
 
Under the revised procedure, remittance can be made on the basis of a CA Certificate. It is, therefore, felt that the Supreme Court case discussed above will not be applicable after amendment of the procedure. 
 
It is, however, curious that the decision of the apex court in Transmission Corporation (supra) is being referred to both in favour of the proposition and also for against the proposition. 
 
Therefore, it is necessary that the contradiction in judicial interpretation of Section 195 should be quickly resolved because the same is creating great amount of confusion to foreign enterprises doing business in India.

H P Aggarwal

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Integrated Software Solutions Integrated Software Development Integrated Software Services Integrated Software Solutions India Integrated Softw

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions