Shakti LPG Ltd. v. Income-tax Officer
[Citation -2014-LL-0917-80]

Citation 2014-LL-0917-80
Appellant Name Shakti LPG Ltd.
Respondent Name Income-tax Officer
Court HIGH COURT OF HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
Relevant Act Income-tax
Date of Order 17/09/2014
Judgment View Judgment
Keyword Tags deduction of tax at source • deduct tax at source • legal obligation • levy of interest • foreign company • non-resident
Bot Summary: Proceedings under section 201 of the Act were initiated and a notice was issued treating the appellant as assessee in default. 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. 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. 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. 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. 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 of section 195 of the Act and thereby it is not under obligation to pay tax at all. The inescapable conclusion is that, the recipient of the amount did not qualify under section 195(1), the amount paid by the appellant was taxable, and the appellant was under obligation to effect deduction of tax at source.


JUDGMENT judgment of court was delivered by L. Narasimha Reddy J.-The unsuccessful appellant in I. T. A. No. 301/ Hyd/1996 before Hyderabad Bench "A" of Income-tax Appellate Tribunal (for short, "the Tribunal") filed this appeal under section 260A of Income-tax Act, 1961 (for short, Act), feeling aggrieved by order dated August 30, 2002. facts, in brief, are that appellant is assessee and is involved in activity of filling liquefied petroleum gas. As part of its activity, it is said to have entered into contract with M/s. Imodco Inc, firm from USA, to acquire some machinery and installation thereof in premises of factory/plant in year 1994-95. 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 Act were initiated and notice was issued treating appellant as "assessee in default". reply submitted by appellant was that amount was paid to non-resident and 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 Assessing Officer and order was passed requiring appellant to pay not only tax which was supposed to be deducted but also interest thereon, being Rs. 86,735. Feeling aggrieved by that, appellant filed appeal before Commissioner of Income-tax (Appeals). That was dismissed on November 14, 1995. Thereupon, it approached Tribunal with further appeal. Tribunal rejected appeal through order dated August 30, 2002. Sri Y. Ratnakar, learned counsel for appellant, submits that provision that gets attracted to facts of this case is section 195 and not section 201 of Act. He submits that even under section 195, occasion to effect deduction of tax would arise if only amount was chargeable to tax under provisions of Act and, in instant case, whether one goes by nature of person who received amount or nature of transaction, amount was not chargeable. He further submits that even otherwise, contract was composite in nature comprising sale of goods by recipient of amount and contract of installation and at best, it can be second portion of it, that can be brought under purview of section 195 read with section 91(2)(b) of Act. He placed reliance upon judgment of Supreme Court in GE India Technology Centre P. Ltd. v. CIT [2010] 327 ITR 456 (SC). Sri S. R. Ashok, learned senior counsel for respondent, on other hand, submits that appellant was under obligation to effect deduction of tax at source and to remit same to Department, when it paid amount of US $ 1,00,000 to U. S. firm and its failure, naturally resulted in initiation of proceedings under section 201 of Act. He contends that there is absolutely no doubt whatever, as to taxability of amount paid by appellant and in that view of matter, section 201 is appropriate provision. Learned senior counsel further submits that appellant never came forward with plea that contract comprised two parts and it cannot be permitted to canvass that contention at this stage, for first time. deduction of tax at source is one of important features of Act. In way, it obviates necessity for Department to track amount paid by assessee to another and then to levy tax on recipient. What started as matter of convenience has assumed character of legal obligation on part of person who pays amount. failure to deduct tax at source which was otherwise to be done invites several consequences, including levy of interest under section 201 of Act. Such assessee is liable to be treated as one, in default, under section 221 of Act. Section 195 of Act deals with set of circumstances pertaining to deduction of tax at source where, not only person who receives amount but also nature of amount that is paid become relevant. In other words, verification can be person specific and/or amount specific. If person who receives amount happens to be non-resident, subject to certain qualifications, individual who pays amount stands relieved from obligation to effect deduction of tax on amount so paid. Similarly, if amount paid is not taxable under Act obligation ceases. Section 195 reads: "195. Other sums.-(1) Any person responsible for paying to non-resident, not being company, or to foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under provisions of this Act (not being income chargeable under head'Salaries') shall, at time of credit of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at rates in force" (remaining part of section is omitted as not relevant for this case). In instant case, appellant is not able to demonstrate that person or agency whom it paid amount is one that is described in first part of sub-section (1) of section 195 of Act and thereby it is not under obligation to pay tax at all. Secondly, appellant was not able to establish that amount paid by it is not taxable. It is not in dispute that it was paid in context of installation of machinery of sophisticated technology. In case contract has separate components of sale of machinery on one hand and installation of machinery on other hand and consideration for both of them was specified, appellant could have certainly mentioned same in his returns, in which case it was possible for assessing authority to address issue even from point of view of sections 195 and 201 of Act. That not having been done and plea not having been taken in its correct perspective in proceedings initiated under section 201, it is difficult to accept contention as to severality of two components referred to above. inescapable conclusion is that, (a) recipient of amount did not qualify under section 195(1), (b) amount paid by appellant was taxable, and (c) appellant was under obligation to effect deduction of tax at source. Since that was not done, no exception can be taken to proceedings under section 201 of Act. Though it is urged on behalf of Revenue that in proceedings under section 201 of Act, any verification as to taxability or otherwise of income or components thereof is impermissible and though learned counsel for appellant has placed reliance upon judgment of Supreme Court in GE India Technology Centres' case [2010] 327 ITR 456 (SC), which in way held that such exercise is permissible, we desist from dealing with same in detail since facts of present case do not permit of it. We, therefore, dismiss appeal. However, since there was arguable point at every stage on account of there being possibility to take different views on same set of facts, we direct that appellant shall not be exposed to steps under section 221 of Act and other relevant provisions. There shall be no order as to costs. *** Shakti LPG Ltd. v. Income-tax Officer
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