High Court Of Andhra Pradesh
Shakti Lpg Ltd. Vs. ITO, Ward -8, (TDS), Hyderabad
Section 9, 195, 201
L. Narasimha Reddy And Challa Kodanda Ram, JJ.
I.T.T.A. No. 215 Of 2003
September 17, 2014
JUDGMENT
L. Narasimha Reddy, J. – The unsuccessful appellant in ITA No.301/Hyd/1996 before the Hyderabad Bench A of the Income Tax Appellate Tribunal (for short, the Tribunal) filed this appeal under Section 260A of the Income Tax Act, 1961 (for short, the Act) feeling aggrieved by the order dated 30-08-2002.
2. The facts, in brief, are that the appellant is an assessee and is involved in the activity of filling the liquefied petroleum gas. As a part of its activity, it is said to have entered into a contract with M/s. Imodco Inc, a firm from USA to acquire some machinery and installation thereof in the premises of the factory/plant in the year 1994-95. A sum of US $ 1,00,000/- was paid as consideration. However, no deduction at source, towards tax was made. Therefore, proceedings under Section 201 of the Act were initiated and a notice was issued treating the appellant as assessee in default. The reply submitted by the appellant was that the amount was paid to a non-resident and the contract was mostly for supply of goods on purchase and on that account, there was no occasion to effect deduction of tax at source. That plea was not accepted by the assessing officer and an order was passed requiring the appellant to pay not only the tax which was supposed to be deducted, but also interest thereon, being Rs.86,735/-. Feeling aggrieved by that, the appellant filed an appeal before the Commissioner of Income Tax (Appeals). That was dismissed on 14-11-1995. Thereupon, it approached the Tribunal with a further appeal. The Tribunal rejected the appeal through order dated 30-08-2002.
3. Sri Y. Ratnakar, learned counsel for the appellant submits that the provision that gets attracted to the facts of this case is Section 195 and not Section 201 of the Act. He submits that even under Section 195, the occasion to effect deduction of tax would arise if only the amount was chargeable to tax under the provisions of the Act and in the instant case, whether one goes by the nature of person who received the amount or the nature of transaction, the amount was not chargeable. He further submits that even otherwise, the contract was composite in nature comprising of the sale of goods by the recipient of the amount and the contract of installation and at the best, it can be the second portion of it, that can be brought under the purview of Section 195 read with Section 91 (2) (b) of the Act. He placed reliance upon the judgment of the Supreme Court in GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18.
4. Sri S.R. Ashok, learned Senior Counsel for the respondent, on the other hand, submits that the appellant was under an obligation to effect the deduction of tax at source and to remit the same to the department, when it paid the amount of US $ 1,00,000/- to the U.S firm and its failure, naturally resulted in initiation of proceedings under Section 201 of the Act. He contends that there is absolutely no doubt whatever, as to the taxability of the amount paid by the appellant and in that view of the matter, Section 201 is the appropriate provision. Learned Senior Counsel further submits that the appellant never came forward with a plea that the contract comprised of two parts and it cannot be permitted to canvass that contention at this stage, for the first time.
5. The deduction of tax at source, is one of the important features of the Act. In a way, it obviates the necessity for the department to track the amount paid by an assessee to another, and then to levy tax on the recipient. What started as a matter of convenience has assumed the character of legal obligation on the part of the person who pays the amount. The failure to deduct tax at source which was otherwise to be done, invites several consequences, including levy of interest under Section 201 of the Act. Such assessee is liable to be treated as the one, in default, under Section 221 of the Act.
6. Section 195 of the Act deals with a set of circumstances, pertaining to deduction of tax at source where, not only the person who receives the amount, but also the nature of the amount that is paid become relevant. In other words, the verification can be person specific and/or the amount specific. If the person who receives the amount happens to be non-resident, subject to certain qualifications, the individual who pays the amount stands relieved from the obligation to effect deduction of the tax on the amount so paid. Similarly, if the amount paid is not taxable under the Act, the obligation ceases. Section 195 reads:
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(remaining part of the section is omitted as not relevant for this case).
7. In the instant case, the appellant is not able to demonstrate that the person or agency whom it paid the amount is the one that is described in the first part of sub-section (1) of Section 195 of the Act and thereby it is not under obligation to pay tax at all. Secondly, the appellant was not able to establish that the amount paid by it is not taxable. It is not in dispute that it was paid in the context of the installation of a machinery of sophisticated technology.
8. In case, the contract has separate components of sale of machinery on the one hand and the installation of machinery on the other hand and the consideration for both of them was specified, the appellant could have certainly mentioned the same in his returns, in which case it was possible for the assessing authority to address the issue even from the point of view of Sections 195 and 201 of the Act. That not having been done and the plea not having been taken in its correct perspective in the proceedings initiated under Section 201, it is difficult to accept the contention as to the severality of the two components referred to above. The inescapable conclusion is that,
(a)the recipient of the amount did not qualify under Section 195(1),
(b)the amount paid by the appellant was taxable and
(c)the appellant was under obligation to effect deduction of tax at source.
Since that was not done, no exception can be taken to the proceedings under Section 201 of the Act.
9. Though it is urged on behalf of the Revenue that in the proceedings under Section 201 of the Act, any verification as to the taxability or otherwise of the income or the components thereof is impermissible and though the learned counsel for the appellant has placed reliance upon the judgment of the Supreme Court in GE India Technology Centre (P.) Ltd.’s case (supra), which in a way held that such an exercise is permissible, we desist from dealing with the same in detail since the facts of the present case do not permit of it.
10. We, therefore, dismiss the appeal. However, since there was an arguable point at every stage on account of there being a possibility to take different views on the same set of facts, we direct that the appellant shall not be exposed to steps under Section 221 of the Act and other relevant provisions.
11. There shall be no order as to costs.
[Citation : 369 ITR 167]
