D.C.I.T Cir - 2,Jalpaiguri., Jalpaiguri V. M/s S.A.Plywood Industry., Coochbihar

ITA 1854/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92016 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2012
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Assessee Lawyers: S JHAJHARIA
• Keywords: Double taxation relief; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 1854 /KOL/201 2 ASSESSMENT YEAR : 200 9 - 1 0 DEPUTY COMMISSIONER OF INCOME - TAX, VS. M/S. S. A. PLYWOOD INDUSTRY CIRCLE - 2, JALPAIGURI (PAN: AANFS1231Q) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 27 .0 5 .2015 DATE OF PRONOUNCEMENT: 11 . 0 6 . 2015 FOR THE APPELLANT : S HRI K. L. KANAK, SR. DR FOR THE RESPONDENT : SHRI S . JHAJHARIA, FCA ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT (A) , JALPAIGURI IN APPEAL NO . 96/JAL / CIT(A) /JAL/11 - 12 DATED 2 1 . 0 9 .201 2 . ASSESSMENT WAS FRAMED BY ACIT, CIRCLE - 2, JALPAIGURI U/S. 14 3 (3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 9 - 1 0 VIDE HIS ORDER DATED 2 3 .1 2 .20 11 . 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TDS U/S. 195 OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), JALPAIGURI HAS ERRED BY DISALLOWING THE ADDITIONS MADE BY THE AO AS PER PROVISIONS OF SECT ION 40(A)(IA) OF THE I. T. ACT, 1961, SINCE THE ASSESSEE DID NOT DEDUCT ANY TAX AT SOURCE WHICH SHOULD HAVE BEEN DEDUCTED U/S. 195 OF THE I. T. ACT, 1961 WHILE MAKING THE REMITTANCE TO THE FOREIGN COMPANY. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLYWOOD AND FOR THAT HE IMPORTED TIMBER, WHICH IS BEING USED AS RAW MATERIAL. DURING THE RELEVANT PREVIOUS YEAR 2008 - 09 RELEVANT TO AY 2009 - 10 ASSESSEE IMPORTED WOODS/LOG FROM OUTSIDE INDIA FOR A SUM OF RS.6,6 0,47,995/ - . THE ASSESSEE ALSO PAID CENVAT DUTY I.E. CUSTOMS DUTY AND REMITTED THE BALANCE AMOUNT OF RS.6,39,21,998/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID AMOUNT OF REMITTANCE WOULD NOT B E ADDED 2 ITA NO. 1854 /K/201 2 S. A. PLYWOOD INDUSTRY , AY 200 9 - 1 0 TO ITS TOTAL INCOME IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE RELEVANT PARA OF ASSESSMENT ORDER WHERE REQUISITION WAS MADE TO THE ASSESSEE AT PAGE 2 OF THE ASSESSMENT ORDER READS AS UNDER: (A) DURING THE YEAR HE HAS IMPORTE D WOOD/LOG FROM OUTSIDE INDIA TO THE TUNE OF RS.6,60,47,995/ - . THE AMOUNT REMITTANCE AFTER DEDUCTING THE CENVAT WORKED OUT AT RS.6,39,21,998/ - . ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT OF REMITTANCE WOULD NOT BE ADDED TO HIS TOTAL INCOME AS PER PROVISION OF SECTION 40(A)(I) OF THE I. T. ACT, 1961 AS THE PAYER I.E. THE ASSESSEE FIRM DID NOT DEDUCT TDS AS PER PROVISION OF SECTION 195 OF THE I. T. ACT, 1961. THE ASSESSEE EXPLAINED VIDE LETTER DATED 28.11.2011 THAT THE ASSESSEE IS MAKING PURCHASE FROM OUTSIDE INDIA I.E. PARTICULARLY MAYANMAR AND THE ACT OF PURCHASE HAS BEEN TAKEN OUTSIDE INDIA AND THE OWNERSHIP OF THE GOODS PURCHASED BY THE ASSESSEE IS ALSO TRANSFERRED ONLY OUTSIDE INDIA. EVEN THE PAYMENTS ARE MADE THROUGH BANKING CHANNEL OUTSIDE INDIA AND THE EXPORTER HAS NO CONNECTION WHATSOEVER WITH THE BUSINESS OF THE ASSESSEE OR WITH ANY BUSINESS IN INDIA. ACCORDING TO ASSESSEE, NO INCOME ACCRUES TO THE MYANMAR VENDOR IN INDIAN TERRITORY AND ACCORDINGLY, T HE PROVISIONS OF SECTION 195 OF THE ACT ARE NOT AT ALL ATTRACTED. HE ALSO EXPLAINED THAT THE PAYMENT IS ALSO THROUGH LETTER OF CREDIT (LC) THAT DOES NOT ATTRACT PROVISIONS OF SECTION 195 OF THE ACT BY ITSELF. BUT THE AO WAS NOT CONVINCED WITH THE EXPLANA TION OF THE ASSESSEE AND THEREBY HE INVOKED CBDT CIRCULAR NO. 759 DATED 18.11.1997 AND ALSO THE CASE LAW OF HON BLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD. VS. CIT (1999) 239 ITR 587 (SC) AND HOLDS THAT THE ASSESSEE IS DEFAULTER WI THIN THE MEANING OF PROVISIONS OF SECTION 195 OF THE ACT AND ACCORDINGLY, HE ESTIMATED THE PROFIT @ 5% ON THE REMITTANCE AMOUNT OF RS.6,39,21,998/ - AND ESTIMAT ED THE PROFIT AT RS.31,96,100/ - . AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER C ONSIDERING THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY VS. CIT (2010) 327 ITR 456 (SC) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD AR AND ALSO GONE THROUGH THE ASSESSMENT O RDER. THE MAJOR ISSUE INVOLVED IN THIS CASE, WHETHER THE AMOUNT RECEIVED BY THE EXPORTER FROM THE ASSESSEE OR PART THEREON WAS CHARGEABLE TO TAX IN INDIA. THERE IS NO MATERIAL ON RECORD TO SHOW THAT EXPORTER HAD ANY PE IN INDIA OR APART FROM REMITTANCE MAD E AGAINST THE IMPORT OF TIMBER, THE ASSESSEE MADE ANY OTHER PAYMENT TO THEM. THE AR EXPLAINED THAT IMPORT WAS MADE ON THE BASIS OF OGL AND PAYMENT WAS MADE THROUGH BANK. THUS, IT IS CLEAR THAT THE EXPORTER WAS NOT LIABLE TO PAY ANY TAX IN INDIA. IN THE CAS E OF TRANSMISSION CORPORATION OF AP LTD (SUPRA), IT WAS HELD THAT THE PURPOSE OF TDS PROVISION IN CHAPTER XVII - B IS TO SEE THAT THE SUM WHICH IS CHARGEABLE U/S. 4 OF LEVY AND COLLECTION OF INCOME - TAX, THE 3 ITA NO. 1854 /K/201 2 S. A. PLYWOOD INDUSTRY , AY 200 9 - 1 0 PAYER SHOULD DEDUCT TAX THEREON AT THE RATES IN FOR CE, IF THE AMOUNT IS TO BE PAID TO A NON - RESIDENT. THE SCOPE AND AMBIT OF SEC.195 HAS BEEN EXPLAINED BY THE SUPREME COURT IN GE INDIA TECHNOLOGY CENTRE P LTD VS CIT (2010) 327 ITR 456 (SC). IN THE SAID CASE THE EXPRESSION 'ANY OTHER SUM CHARGEABLE UNDER TH E PROVISIONS OF THE ACT' IN SEC.195 OF THE ACT WAS ELUCIDATED AND EXPLAINED. IT WAS HELD THAT IF PAYMENT IS MADE IN RESPECT OF THE AMOUNT WHICH IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF ACT, TDS IS NOT LIABLE TO BE DEDUCTED. DECISION OF THE SUPREM E COURT IN T RANSMISSION CORPORATION OF AP LTD. VS. CIT (1999) 239 ITR 587 (SC) OPERATES AND IS APPLICABLE WHEN THE SUM OR PAYMENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN SUCH CASES, TDS HAS TO BE DEDUCTED ON THE GROSS AMOUNT OF PAYMENT MA DE AND NOT MERELY ON THE TAXABLE INCOME INCLUDED IN THE GROSS AMOUNT. THE SAID DECISION WOULD NOT APPLY IN CASE PAYMENT IS MADE BUT THE SAID SUM IN ENTIRETY IS NOT CHARGEABLE OR ELIGIBLE TO TAX UNDER THE PROVISIONS OF THE I. T. ACT, 1961. IN VIEW OF THE AFORESAID LEGAL POSITION AND FACTS EXPLAINED, IT IS HELD THAT THE REMITTANCE MADE BY THE ASSESSEE CANNOT ATTRACT THE PROVISIONS OF SEC. 195 OF THE I. T. ACT, THUS, DISALLOWANCE MADE BY THE AO U/S. 40(A)(I) CANNOT BE SUSTAINED AND, THUS, DELETED. 4. BEFO RE US, LD. SR. DR HEAVILY RELIED ON CBDT CIRCULAR NO. 759 DATED 18.11.1997 AND THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD., SUPRA. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. ADMITTED FACTS ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF PLYWOOD WHERE IT IS USING IMPORTED TIMBER AS RAW MATERIAL. ADMITTEDLY, ASSESSEE HAS IMPORTED WOOD/LOG FROM MAYANMAR AND REMITTANCE IS ALSO MADE IN THAT COUNTRY THROUGH LC AFTER DEDUCTING CENVAT. WE ARE FAILED TO UNDERSTAND HOW THE AO CAN ESTIMATE THE PROFIT @ 5% BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TDS U/S. 195 OF THE ACT. THIS IS BEYOND COMPREHENSION. WHETHER TDS IS TO BE D EDUCTED U/S. 195 OF THE ACT OR NOT IS ANOTHER QUESTION BUT HOW THE AO CAN ESTIMATE PROFIT BY APPLYING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT . LEAVING ASIDE THIS FACT, WE FIND THAT NO INCOME HAS ACCRUED TO THE VENDOR AT MAYANMAR ON INDIAN TERRITORY UNDER ANY OF THE CIRCUMSTANCES. THE VENDOR AT MAYANMAR HAS NO BUSINESS CONNECTION IN INDIA IN ANY WAY. ASSESSEE IS ONLY AN IMPORTER AND VENDOR AT MAYANMAR IS SIMPLY SOLD THE WOOD TO THE ASSESSEE AND THAT ALSO IN THAT COUNTRY. THE PROVISIONS OF SECTION 194 OF THE ACT CANNOT COME INTO PLAY. HOWEVER, THIS ISSUE HAS BEEN SETTLED BY THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY, SUPRA , WHEREIN IT HAS BEEN HELD AS UNDER: 6. AT THIS STAGE WE MAY ALSO QUOTE HEREINBELOW SECTION 195 (6) AS INSERTED BY FINANCE ACT, 2008 W.E.F. 1.4.2008. 195(6) THE PERSON REFERRED TO IN SUB - SECTION (1) 4 ITA NO. 1854 /K/201 2 S. A. PLYWOOD INDUSTRY , AY 200 9 - 1 0 SHALL FURNISH THE INFORMATION RELATING TO PAYMENT OF ANY SUM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. 7. UNDER SECTION 195(1), THE TAX HAS TO BE DEDUCTED AT SOURCE FROM INTEREST (OTHER THAN INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING SALARIES) CHARGEABLE UNDER THE I.T. ACT IN THE CASE OF NON - RESIDENTS ONLY AND NOT IN TH E CASE OF RESIDENTS. FAILURE TO DEDUCT THE TAX UNDER THIS SECTION MAY DISENTITLE THE PAYER TO ANY ALLOWANCE APART FROM PROSECUTION UNDER SECTION 276B. THUS, SECTION 195 IMPOSES A STATUTORY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NONRESIDENT, A NY INTEREST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING DIVIDEND) CHARGEABLE UNDER THE 5 HTTP://WWW.ITATONLINE.ORG PROVISIONS OF THE I.T. ACT, TO DEDUCT INCOME TAX AT THE RATES IN FORCE UNLESS HE IS LIABLE TO PAY INCOME TAX THEREON AS AN AGENT. PAYMENT TO NON - RESIDENTS BY WAY OF ROYALTY AND PAYMENT FOR TECHNICAL SERVICES RENDERED IN INDIA ARE COMMON EXAMPLES OF SUMS CHARGEABLE UNDER THE PROVISIONS OF THE I.T. ACT TO WHICH THE AFORESTATED REQUIREMENT OF TAX DEDUCTION AT SOURCE APPLIES. THE TAX SO COLLECTED AND DEDUCTED IS REQUIRED TO BE PAID TO THE CREDIT OF CENTRAL GOVERNMENT IN TERMS OF SECTION 200 OF THE I.T. ACT READ WITH RULE 30 OF THE I.T. RULES 1962. FAILURE TO DEDUCT TAX OR FAILURE TO PAY TAX WOULD ALSO RENDER A PERSON LIABLE TO PEN ALTY UNDER SECTION 201 READ WITH SECTION 221 OF THE I.T. ACT. IN ADDITION, HE WOULD ALSO BE LIABLE UNDER SECTION 201(1A) TO PAY SIMPLE INTEREST AT 12 PER CENT PER ANNUM ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS ACTUALLY PAID. THE MOST IMPORTANT EXPRESSION IN SECTION 195(1) CONSISTS OF THE WORDS CHARGEABLE UNDER THE PROVISIONS OF THE ACT . A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON - RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT 6 HTTP://WWW.ITATONLINE.ORG CHARGEABLE TO TAX UNDER THE I.T. ACT. FOR INSTANCE, WHERE THERE IS NO OBLIGATION ON THE PART OF THE PAYER AND NO RIGHT TO RECEIVE THE SUM BY THE RECIPIENT AND THAT THE PAYMENT DOES NOT ARISE OUT OF ANY CONTRACT OR OBLIGATION BE TWEEN THE PAYER AND THE RECIPIENT BUT IS MADE VOLUNTARILY, SUCH PAYMENTS CANNOT BE REGARDED AS INCOME UNDER THE I.T. ACT. IT MAY BE NOTED THAT SECTION 195 CONTEMPLATES NOT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS, IT ALSO COVERS COMPOSIT E PAYMENTS WHICH HAS AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THUS, WHERE AN AMOUNT IS PAYABLE TO A NON - RESIDENT, THE PAYER IS UNDER AN OBLIGATION TO DEDUCT TAS IN RESPECT OF SUCH COMPOSITE PAYMENTS. THE OBLIGATION TO DEDUCT TAS IS, HOWEVER, LIMITED TO THE APPROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON - RESIDENT. THIS OBLIGATION BEING LIMITED TO THE APPROPRIATE PROPORTION OF INCOME FLOWS FROM THE WORDS USED IN SECTION 195(1), NAMELY, CHARGEABLE UNDER THE PROVISIONS OF THE ACT . IT IS FOR THIS REASON THAT VIDE CIRCULAR NO. 728 DATED OCTOBER 30, 1995 THE CBDT HAS CLARIFIED THAT THE TAX 7 HTTP://WWW.ITATONLINE.ORG DEDUCTOR CAN TAKE INTO CONSIDERATION THE EFFECT OF DTAA IN RESPECT OF PAYMENT OF ROYALTIES AND TECHNICAL FEES WHILE DEDUCTING TAS. IT MAY ALSO BE NOTED THAT SECTION 195(1) IS IN IDENTICAL TERMS WITH SECTION 18(3B) OF THE 1922 ACT. IN CIT VS. COOPER ENGINEERING [68 ITR 457] IT WAS POINTED OUT THAT IF THE PAYMENT MADE BY T HE RESIDENT TO THE NONRESIDENT WAS AN AMOUNT WHICH WAS NOT CHARGEABLE TO TAX IN INDIA, THEN NO TAX IS DEDUCTIBLE AT SOURCE EVEN THOUGH THE ASSESSEE HAD NOT MADE AN APPLICATION UNDER SECTION 18(3B) (NOW SECTION 195(2) OF THE I.T. ACT). THE APPLICATION OF SE CTION 195(2) PRE - SUPPOSES THAT THE PERSON RESPONSIBLE FOR MAKING THE PAYMENT TO THE NON - RESIDENT IS IN NO DOUBT THAT TAX IS PAYABLE IN RESPECT OF SOME PART OF THE AMOUNT TO BE REMITTED TO A NON - RESIDENT BUT IS NOT SURE AS TO WHAT SHOULD BE THE PORTION SO T AXABLE OR IS NOT SURE AS TO THE AMOUNT OF TAX TO BE DEDUCTED. IN SUCH A SITUATION, HE IS REQUIRED TO MAKE AN APPLICATION TO THE ITO(TDS) FOR DETERMINING THE AMOUNT. IT IS ONLY WHEN THESE CONDITIONS ARE SATISFIED AND AN APPLICATION IS MADE TO THE ITO(TDS) T HAT THE QUESTION OF MAKING AN ORDER UNDER SECTION 195(2) WILL ARISE. IN FACT, AT 8 HTTP://WWW.ITATONLINE.ORG ONE POINT OF TIME, THERE WAS A PROVISION IN THE I.T. ACT TO OBTAIN A NOC FROM THE DEPARTMENT THAT NO TAX WAS DUE. THAT CERTIFICATE WAS REQUIRED TO BE GIVEN TO RBI FOR MAKING REMITTANCE. IT WAS HELD IN THE CASE OF CZECHOSLOVAK OCEAN SHIPPING INTERNATIONAL JOINT STOCK COMPANY VS. ITO [81 ITR 162(CALCUTTA)] THAT AN APPLICATION FOR NOC 5 ITA NO. 1854 /K/201 2 S. A. PLYWOOD INDUSTRY , AY 200 9 - 1 0 CANNOT BE SAID TO BE AN APPLICATION UNDER SECTION 195(2) OF THE ACT. WHILE DECIDING THE SCOPE OF SECTION 195(2) IT IS IMPORTANT TO NOTE THAT THE TAX WHICH IS REQUIRED TO BE DEDUCTED AT SOURCE IS DEDUCTIBLE ONLY OUT OF THE CHARGEABLE SUM. THIS IS THE UNDERLYING PRINCIPLE OF SECTION 195. HENCE, APART FROM SECTION 9(1), SECTIO NS 4, 5, 9, 90, 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELEVANT, WHILE APPLYING TAX DEDUCTION AT SOURCE PROVISIONS. REFERENCE TO ITO(TDS) UNDER SECTION 195(2) OR 195(3) EITHER BY THE NON - RESIDENT OR BY THE RESIDENT PAYER IS TO AVOID ANY FUTURE HASSL ES FOR BOTH RESIDENT AS WELL AS NON - RESIDENT. IN OUR VIEW, SECTIONS 195(2) AND 195(3) ARE SAFEGUARDS. THE SAID PROVISIONS ARE OF PRACTICAL IMPORTANCE. THIS REASONING OF OURS IS BASED ON THE DECISION OF THIS COURT IN TRANSMISSION CORPORATION 9 HTTP://WWW.IT ATONLINE.ORG (SUPRA) IN WHICH THIS COURT HAS OBSERVED THAT THE PROVISION OF SECTION 195(2) IS A SAFEGUARD. FROM THIS IT FOLLOWS THAT WHERE A PERSON RESPONSIBLE FOR DEDUCTION IS FAIRLY CERTAIN THEN HE CAN MAKE HIS OWN DETERMINATION AS TO WHETHER THE TAX WAS DEDUCTIBLE AT SOURCE AND, IF SO, WHAT SHOULD BE THE AMOUNT THEREOF. FURTHER, HON'BLE SUPREME COURT ANSWERED THE SAME AS UNDER: WHILE INTERPRETING A SECTION ONE HAS TO GIVE WEIGHTAGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE PROVISIONS OF THE INCOME TAX ACT ONE CANNOT READ THE CHARGING SECTIONS OF THAT ACT DE HORS THE MACHINERY SECTIONS. THE ACT IS TO BE READ AS AN INTEGRATED 12 HTTP://WWW.ITATONLINE.ORG CODE. SECTION 195 APPEARS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOVERY. AS HELD IN THE CASE OF C.I.T. VS. ELI LILLY & CO. (INDIA) (P.) LTD. [312 ITR 225] THE PROVISIONS FOR DEDUCTION OF TAS WHICH IS IN CHAPTER XVII DEALING WITH COLLECTION OF TAXES AND THE CHARGING PROVISIONS OF THE I.T. ACT FORM ONE SINGLE INTEGRAL, INSEPARABL E CODE AND, THEREFORE, THE PROVISIONS RELATING TO TDS APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE I.T. ACT. IT IS TRUE THAT THE JUDGMENT IN ELI LILLY (SUPRA) WAS CONFINED TO SECTION 192 OF THE I.T. ACT. HOWEVER, THERE IS SOME SIMILAR ITY BETWEEN THE TWO. IF ONE LOOKS AT SECTION 192 ONE FINDS THAT IT IMPOSES STATUTORY OBLIGATION ON THE PAYER TO DEDUCT TAS WHEN HE PAYS ANY INCOME CHARGEABLE UNDER THE HEAD SALARIES . SIMILARLY, SECTION 195 IMPOSES A STATUTORY OBLIGATION ON ANY PERSON RES PONSIBLE FOR PAYING TO A NONRESIDENT ANY SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT , WHICH EXPRESSION, AS STATED ABOVE, DO NOT FIND PLACE IN OTHER SECTIONS OF CHAPTER XVII. IT IS IN THIS SENSE THAT WE HOLD THAT THE I.T. ACT CONSTITUTES ONE SINGLE INT EGRAL INSEPARABLE CODE. HENCE, THE PROVISIONS RELATING TO TDS 13 HTTP://WWW.ITATONLINE.ORG APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE I.T. ACT. IF THE CONTENTION OF THE DEPARTMENT THAT ANY PERSON MAKING PAYMENT TO A NON - RESIDENT IS NE CESSARILY REQUIRED TO DEDUCT TAS THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONEYS DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE I.T. ACT BY WHICH A PAY ER CAN OBTAIN REFUND. SECTION 237 READ WITH SECTION 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM, I.E., THE PAYEE COULD SEEK A REFUND. IT MUST THEREFORE FOLLOW, IF THE DEPARTMENT IS RIGHT, THAT THE LAW REQUIRES TAX TO BE DEDUCTED ON ALL PAYMENTS. THE PAY ER, THEREFORE, HAS TO DEDUCT AND PAY TAX, EVEN IF THE SO - CALLED DEDUCTION COMES OUT OF HIS OWN POCKET AND HE HAS NO REMEDY WHATSOEVER, EVEN WHERE THE SUM PAID BY HIM IS NOT A SUM CHARGEABLE UNDER THE ACT. THE INTERPRETATION OF THE DEPARTMENT, THEREFORE, NO T ONLY REQUIRES THE WORDS CHARGEABLE UNDER THE PROVISIONS OF THE ACT TO BE OMITTED, IT ALSO LEADS TO AN ABSURD CONSEQUENCE. THE INTERPRETATION PLACED BY THE DEPARTMENT WOULD RESULT IN A SITUATION WHERE EVEN WHEN 14 HTTP://WWW.ITATONLINE.ORG THE INCOME HA S NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE IN INDIA, THE GOVERNMENT WOULD NONETHELESS COLLECT TAX. IN OUR VIEW, SECTION 195(2) PROVIDES A REMEDY BY WHICH A PERSON MAY SEEK A DETERMINATION OF THE APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE WHERE A PROPORTION OF THE SUM SO CHARGEABLE IS LIABLE TO TAX. THE ENTIRE BASIS OF THE DEPARTMENT S CONTENTION IS BASED ON ADMINISTRATIVE CONVENIENCE IN SUPPORT OF ITS INTERPRETATION. ACCORDING TO THE DEPARTMENT HUGE SEEPAGE OF REVENUE CAN TAKE PLACE IF 6 ITA NO. 1854 /K/201 2 S. A. PLYWOOD INDUSTRY , AY 200 9 - 1 0 P ERSONS MAKING PAYMENTS TO NON - RESIDENTS ARE FREE TO DEDUCT TAS OR NOT TO DEDUCT TAS. IT IS THE CASE OF THE DEPARTMENT THAT SECTION 195(2), AS INTERPRETED BY THE HIGH COURT, WOULD PLUG THE LOOPHOLE AS THE SAID INTERPRETATION REQUIRES THE PAYER TO MAKE A DEC LARATION BEFORE THE ITO(TDS) OF PAYMENTS MADE TO NON - RESIDENTS. IN OTHER WORDS, ACCORDING TO THE DEPARTMENT SECTION 195(2) IS A PROVISION BY WHICH PAYER IS REQUIRED TO INFORM THE DEPARTMENT OF THE REMITTANCES HE MAKES TO THE NONRESIDENTS BY WHICH THE DEPAR TMENT IS ABLE TO KEEP TRACK OF THE REMITTANCES BEING MADE TO NON - RESIDENTS OUTSIDE INDIA. 15 HTTP://WWW.ITATONLINE.ORG WE FIND NO MERIT IN THESE CONTENTIONS. AS STATED HEREINABOVE, SECTION 195(1) USES THE EXPRESSION SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT. WE NEED TO GIVE WEIGHTAGE TO THOSE WORDS. FURTHER, SECTION 195 USES THE WORD PAYER AND NOT THE WORD ASSESSEE . THE PAYER IS NOT AN ASSESSEE. THE PAYER BECOMES AN ASSESSEE - IN - DEFAULT ONLY WHEN HE FAILS TO FULFILL THE STATUTORY OBLIGATION UNDER SECTION 195(1). IF THE PAYMENT DOES NOT CONTAIN THE ELEMENT OF INCOME THE PAYER CANNOT BE MADE LIABLE. HE CANNOT BE DECLARED TO BE AN ASSESSEE - IN - DEFAULT. THE ABOVEMENTIONED CONTENTION OF THE DEPARTMENT IS BASED ON AN APPREHENSION WHICH IS ILL FOUNDED. THE PAYER IS ALSO AN ASSESSEE UNDER THE ORDINARY PROVISIONS OF THE I.T. ACT. WHEN THE PAYER REMITS AN AMOUNT TO A NON - RESIDENT OUT OF INDIA HE CLAIMS DEDUCTION OR ALLOWANCES UNDER THE INCOME TAX ACT FOR THE SAID SUM AS AN EXPENDITURE . UNDER SECTION 40(A)(I) , INSERTED VIDE FINANCE ACT, 1988 W.E.F. 1.4.89, PAYMENT IN RESPECT OF ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE INCOME TAX ACT WOULD NOT GET THE BENEFIT OF DEDUCTION IF THE ASSESSEE FAILS TO DEDUCT TAS IN 16 HTTP://WWW.ITATON LINE.ORG RESPECT OF PAYMENTS OUTSIDE INDIA WHICH ARE CHARGEABLE UNDER THE I.T. ACT. THIS PROVISION ENSURES EFFECTIVE COMPLIANCE OF SECTION 195 OF THE I.T. ACT RELATING TO TAX DEDUCTION AT SOURCE IN RESPECT OF PAYMENTS OUTSIDE INDIA IN RESPECT OF ROYALTIES, FEES OR OTHER SUMS CHARGEABLE UNDER THE I.T. ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASSESSEE HE WILL DEFINITELY CLAIM DEDUCTION UNDER THE I.T. ACT FOR SUCH REMITTANCE AND ON INQUIRY IF THE AO FINDS THAT THE SUMS REMITTED OUTSIDE INDIA COMES WITHIN THE DEFINITION OF ROYALTY OR FEES FOR TECHNICAL SERVICE OR OTHER SUMS CHARGEABLE UNDER THE I.T. ACT THEN IT WOULD BE OPEN TO THE AO TO DISALLOW SUCH CLAIM FOR DEDUCTION. SIMILARLY, VIDE FINANCE ACT, 2008, W.E.F. 1.4.2008 SUB - SECTION (6) HAS BEEN INSERTED IN S ECTION 195 WHICH REQUIRES THE PAYER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY UM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. THIS PROVISION IS BROUGHT INTO FORCE ONLY FROM 1.4.2008. IT WILL NOT APPLY FOR THE PERIOD WITH WHICH WE ARE CONCERNED IN THESE CASES BEFORE US. THEREFORE, IN OUR VIEW, THERE ARE ADEQUATE SAFEGUARDS IN THE ACT WHICH WOULD PREVENT REVENUE LEAKAGE. IN VIEW OF THE ABOVE DECISION, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE. HENCE, WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE AND REVENUE S APPEAL IS ACCORDINGLY DISMISSED. 6 . IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 7 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.06.2015 SD/ - SD/ - ( P. K. BANSAL ) (MAHAVIR SINGH) ACCOUNTANT MEMB E R J UDICIAL MEMBER DATED : 11TH JUNE , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 7 ITA NO. 1854 /K/201 2 S. A. PLYWOOD INDUSTRY , AY 200 9 - 1 0 1 . A PPELLANT DCIT, CIRCLE - 2, JALPAIGURI 2 RESPONDENT M/S. S. A. PLYWOOD INDUSTRY, PACHAGARH, MATHABHANGA, DIST. COOCHBEHAR - 736146 3 . THE CIT (A), JALPAIGURI 4. 5. CIT , JALPAIGURI DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .