LIONBRIDGE TECHNOLOGIES P.LTD, MUMBAI V. ITO (IT) (TDS)-4, MUMBAI

ITA 7121/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100664 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 17-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAMPURNA
• Keywords: Double taxation relief; Non-deduction of tax
• Section: 194C; 201(1)

Judgement Text

LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L , MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , J UDICIAL MEMBER ITA NO. : 7121 /MUM/20 1 2 ( ASSESSMENT YEAR: 200 7 - 0 8 ) LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED , 5 TH & 6 TH FLOOR, SPECIAL BUILDING, HIRANANDANI GARDE N S, POWAI MUMBAI - 400 0 76 .: PAN: AA B C T 338 0 Q VS ITO (INTERNATIONAL TAXATION)(TD S) , - 4, ROOM NO. 115, 1 ST FLOOR, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 0 38 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJIT KUMAR JAIN RESPONDENT BY : SHRI VIVEK A PERAMPURNA /DATE OF HEARING : 02 - 06 - 201 5 / DATE OF PRONOUNCEMENT : 05 - 08 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE A GAINST IMPUGNED ORDER DATED 0 3 .0 9 .20 1 2 , PASSED BY CIT (A) - 11 , MUMBAI IN RELATION TO ORDER PASSED U/S 201(1) & 201(1A) FOR THE ASSESSMENT YEAR 2007 - 08. THE GROUNDS AS RAISED BY THE ASSESSEE READS AS UNDER: 1. THE COMMISSIONER OF INCOME TAX (APPEALS), (HEREINAFTER REFERRED TO AS CIT(A)), H AS ERRED IN UPHOLDING THE ORDER OF THE INCOME - TAX OFFICER (INTERNATIONAL TAXATION )(TDS) - 4, MUMBAI (THE AO) HOLDING THE APPELLANT AS AN ASSESSEE IN DEFAULT UNDER SECTION 201/201(1A) OF THE INCOME TAX ACT, 1961 (ACT) FOR NON - DEDUCTION OF TAX AT SOURCE. YOUR APPELLANT RESPECTFULLY SUBMITS THAT THE CIT(A) HAS NOT APPRECIATED THAT PAYMENT AS REIMBURSEMENT OF COST FOR PURCHASE OF STANDARD OFF THE SHELF SOFTWARE, A LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 2 COPYRIGHTED ARTICLE, BY THE APPELLANT TO ITS GROUP COMPANY, LIONBRIDGE TECHNOLOGIES INC. USA IS NOT IN NATURE OF ROYALTY IN THE HANDS OF RECIPIENT UNDER INCOME TAX ACT READ WITH THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA AND THEREFORE THE QUESTION OF WITHHOLDING DOESNT ARISE. YOUR APPELLANT THEREFORE PRAYS THAT TAX LIABILITY UNDER SECTION 201(1) AT RS. 24,88,039 AND INTEREST LIABILITY UNDER SECTION 201(1A) AT RS. 12,68,900 BE DELETED. 2. THE BRIEF FACTS OF THE CASE ARE THAT LIONBRIDGE TECHNOLOGIES I NC, USA HAS ENTERED INTO AN AGREEMENT WITH MICROSOFT INC. USA AND SK ILLS OFT (WHICH ARE REFERRED AS VENDORS) FOR THE PURCHASE OF S TANDARD OF F THE SHELVES SOFTWARE TO BE USED BY LIONBRIDGE ENTITIES ACROSS THE GLOBE. LIONBRIDGE US HAD MADE THE PAYMENT TO THE VENDORS FOR THE PURCHASE OF SOFTWARE, WHICH IN TURN WAS REIMBURSED BY TH E VARIOUS GROUP ENTITIES USING THE SOFTWARE. THE LI O NBRIDGE USA ALLOCATED THE COST OF THE SOFTWARE AMONGST VARIOUS GROUP ENTITIES BASED ON HEADCOUNTS I.E. THE NUMBER OF DESKTOP IN EACH OFFICE. THE SAID ALLOCATION WAS MADE ON COST AND NO MARK - UP WAS CHARGED BY THE LIONBRIDGE US. THE ASSESSEE BEING ONE OF THE GROUP ENTITY , MADE THE PAYMENTS TO LIONBRIDGE USA AS REIMBURSEMENT OF THE COST OF THE SOFTWARE. THE ASSESSEES STAND WAS THAT THE ACQUISITION OF THE SOFTWARE FOR THE USE OF SOFTWARE DOES NOT GIVE RISE TO ROYALTY OR INCOME IN THE HANDS OF THE RECIPIENT , BECAUSE IT WA S PURCHASED OFF SHELF AND WAS MERELY A REIMBURSEMENT OF COST. THE COPIES OF THE AGREEMENTS ENTERED INTO BY THE LIONBRIDGE USA AND MICROSOFT I NC. UNDER WHICH THE PARENT COMPANY HAS MADE THE COMPANY OF MICROSOFT WAS FURNISHED ALONG WITH THE ALLOCATION KEY AND AMOUNT ALLOCATED TO VARIOUS ENTITIES . THE ASSESSING OFFICER HELD THAT THE ASSESSEE SHOULD HAVE WITHH E LD THE TAX ON THE AMOUNT REMITTED TO LIONBRIDGE US , AS SUCH A PAYMENT AMOUNTS TO PAYME NT TOWARDS ROYALTY. ACCORDINGLY, HE TREATED THE ASSESSEE IN DEFAULT U/S 201(1) AND CALCULATED THE AMOUNT OF TDS DEDUCTIBLE AND INTEREST THEREON U/S 201(1A). LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 3 3. BEFORE THE CIT(A), THE ASSESSEE FILED ITS DETAILED SUBMISSION ALONG WITH THE VARIOUS JUDICI AL DECISIONS. HOWEVER, THE LD. CIT(A) REJECTED THE ASSESSEES CONTENTION AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 4. BEFORE US, LD. COUNSEL SHRI AJIT KUMAR JAIN , SUBMITTED THAT THE ASSESSEE WOULD HAVE BEEN LIABLE TO WITHH O LD THE TAX U/S 195 ON THE AMOUNT REMITTED TO NON - RESIDENT , ONLY IF THE INCOME WOULD HAVE BEEN CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE NON - RESIDENT. HERE IN THIS CASE, THE LIONBRIDGE US HAS PURCHASED A SOFTWARE FROM MICROSOFT INC. AND HAS ALLOCATED THE COST OF PURCHASE TO VARIOUS GROUP ENTITIES INCLUDING ASSESSEE WITHOUT ANY MARK - UP, THUS AMOUNT PAID BY THE ASSESSEE IS ONLY REIMBURSEMENT OF COST INCURRED BY LIONBRIDGE US. THERE IS NO SUCH INCOME OF LIONBRIDGE USA, WHICH IS TAXABLE IN INDIA. HE SUBMITTED THAT THE PRESENT CA SE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G E INDIA CENTRE TECHNOLOGY LTD VS CIT , REPORTED IN 3 39 ITR 587 ( 193 TAXMAN 234). HE ALSO REFERRED TO THE BILLS RAISED BY MICROSOFT AND THE AMOUNT OF COST DIVI DED BETWEEN DIFFERENT GROUP COMPANIES INCLUDING THE ASSESSEE IN INDIA. HE T HUS HE SUBMITTED THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS; AND IT CANNOT BE TREATED AS ASSESSEE IN DEFAULT. 5. ON THE OT HER HAND, LD. DR SUBMITTED THAT THE ALLOCATION KEY USED BY LIONBRIDGE US FOR ALLOCATING THE COST AMONGST VARIOUS GROUP ENTITIES WAS INAPPROPRIATE AND IT IS OPEN TO VERIFICATION . ACCORDINGLY, COST ALLOCATED TO ASSESSEE IN INDIA WAS INA CCURATE. ON MERITS, HE RELIED U PON THE ORDER OF THE CIT(A). 6 . THE LD. DR WAS REQUIRED BY US TO CLARIFY AND TO BRING ON RECORD , WHETHER ANY ASSESSMENT WAS MADE IN THE HANDS OF THE LIONBRIDGE US TO BRING THE AMOUNT RECEIVED FROM LIONBRIDGE INDIA I.E. ASSESSEE TO TAX IN INDIA. IN RESPONSE, THE LD. DR SUBMITTED LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 4 THAT NO ASSESSMEN T HAS BEEN MADE IN THE HANDS OF THE LIONBRIDGE US , NOR IT HAS BEEN HELD AS TAXABLE IN THE HANDS OF THE US COMPANY. 7 . WE HAVE HEARD THE RIVAL CONTENTION AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. LIONBRIDGE USA HAS ENTERED INTO AN AGREEMENT WITH VENDORS LIKE MICROSOFT INC. FOR THE PURCHASE OF STANDARD OFF SHELVES SOFTWARE TO BE USED BY LIONBRIDGE GROUP ENTITIES ACROSS THE GLOBE. THE COST OF THE PURCHASE OF THE SOFTWARES HAS BEEN ALLOCATED AMONGST VARIOUS GROUP ENTITIES BASED ON ALLO CATION KEY OF NUMBER OF DESKTOP IN EACH OFFICE. THE SAID ALLOCATION WAS MADE AT COST AND NO MARK - UP WAS CHARGED . A CCORDINGLY , ALL THE GROUP ENTITIES HAD REIMBURSED THEIR SHARE OF COST TO THE LIONBRIDGE USA. IN SUPPORT, THE COPY OF THE AGREEMENT ALONG WITH INVOICES BY THE VENDORS AND ALLOCATION KEY HAS BEEN PLACED IN THE PAPER BOOK. IT HAS NOT BEEN DISPUTED THAT THE COST OF REIMBURSEMENT PAID TO LIONBRIDGE USA IS NOT CHARGEABLE TO TAX IN INDIA. IF THAT IS SO, THEN ASSESSEE WAS NOT REQUIRED TO WITHHOLD THE TA X U/S 195 AND THIS PROPOSITION IS WELL SUPPORTED BY A DECISION OF HONBLE SUPREME COURT IN THE CASE OF G E INDIA TECHNOLOGY CENTRE P LTD ( SUPRA ). SECONDLY, H ERE IN THIS CASE, IT IS NOT A QUESTION WHERE LIONBRIDGE US HAS DEVELOPED SOFTWARE WHICH HAS BEEN GI VEN FOR USE TO THE ASSESSEE. THE SOFTWARE HAS BEEN PURCHASED FROM MICROSOFT, THE COST OF WHICH H AS BEEN DISTRIBUTED AMONGST ALL THE GROUP ENTITIES . IT IS PURE CASE OF REIMBURSEMENT OF COST AND ADMITTEDLY, THERE IS NO MARK - UP. ACCORDINGLY, THERE WAS NO LIAB ILITY TO DEDUCT TDS ON SUCH REIMBURSEMENT OF COST. ON FIRST PROPOSITION, T HE HONBLE SUPREME COURT IN THE CASE OF G E INDIA TECHNOLOGY CENTRE P LTD ( SUPRA ) THE HAS ELABORATED THIS CONCEPT AND DEDUCTIBILITY OF TDS IN THE FOLLOWING MANNER : - 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 THE CASE OF RESIDENTS. LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 5 FAILURE TO DEDUCT THE TAX UNDER THIS SECTION MAY DISENTITLE THE PAYER TO ANY ALLOWANCE APART FROM PROSECUTION UNDER SECTI ON 276B . THUS, SECTION 195 IMPOSES A STATUTORY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT, ANY INTEREST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING DIVIDEND) C HARGEABLE UNDER THE 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 PAYMEN T 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 C OLLECTED 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 T AX WOULD ALSO RENDER A PERSON LIABLE TO PENALTY 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 EXPR ESSION 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 CHAR GEABLE 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 CONTRA CT OR OBLIGATION BETWEEN 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 COMPOSITE PAYMENTS WHICH HAS AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THUS, WHERE AN AMOUNT IS PAYABLE TO A NON - RESIDENT, THE P AYER 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 - RE SIDENT. 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 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 THE RE SIDENT TO THE NON - RESIDENT 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 SECTION 195(2) PRE - LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 6 SUPPOSES THAT THE PERSON RESPONSIBLE FOR MAKING THE PAYMENT TO THE NON - RESIDENT IS I N 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 TAXABLE 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) THAT THE QUESTION OF MAKING AN ORDER UNDER SECTION 195(2) WILL ARISE. IN FACT, AT 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 MAKI NG 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 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) , SECTIONS 4 , 5 , 9 , 90 , 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELE VANT, 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 HASSLES FOR BOTH R ESIDENT AS WELL AS NON - RESIDENT. IN OUR VIEW, SECTIONS 195(2) AND 195(3) ARE SAFEGUARDS. THE SAID PROVISIONS ARE OF PRACTICAL IMPORTANCE. THIS REASONIN G OF OURS IS BASED ON THE DECISION OF THIS COURT IN TRANSMISSION CORPORATION (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. SUBMISSIONS AND FINDINGS THEREON . 8. IF THE CONTENTION OF THE DEPARTM ENT THAT THE MOMENT THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAS ARISES IS TO BE ACCEPTED THEN WE ARE OBLITERATING THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1) . THE SAID EX PRESSION IN SECTION 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. THE PAYER IS BOUND TO DEDUCT TAS ONLY IF THE TAX IS ASSESSABL E IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAS BEING DEDUCTED. [SEE : VIJAY SHIP BREAKING CORPORATION AND OTHERS VS. CIT 314 ITR 309] 9. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. SEC TION 195 FALLS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOVERY. CHAPTER XVII - B DEALS WITH DEDUCTION AT SOURCE BY THE PAYER. ON ANALYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS, HOWEVER, THE EXPRESSION 'SUM CH ARGEABLE UNDER THE PROVISIONS OF THE ACT' IS USED ONLY IN SECTION 195 . FOR EXAMPLE, SECTION 194C CASTS AN LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 7 OBLIGATION TO DEDUCT TAS IN RESPECT OF 'ANY SUM PAID TO ANY RESIDENT'. SIMILARLY, SECTIONS 194EE AND 194F INTER ALIA PROVIDE FOR DEDUCTION OF TAX IN RESPECT OF 'ANY AMOUNT' REFERRED TO IN THE SPE CIFIED PROVISIONS. IN NONE OF THE PROVISIONS WE FIND THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT', WHICH AS STATED ABOVE, IS AN EXPRESSION USED ONLY IN SECTION 195(1) . THEREFORE, THIS C OURT IS REQUIRED TO GIVE MEANING AND EFFECT TO THE SAID EXPRESSION. IT FOLLOWS, THEREFORE, THAT THE OBLIGATION TO DEDUCT TAS ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. SECTION 195(2) IS NO T MERELY A PROVISION TO PROVIDE INFORMATION TO THE ITO(TDS). IT IS A PROVISION REQUIRING TAX TO BE DEDUCTED AT SOURCE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A NON - RESIDENT. THEREFORE, SECTION 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROVISIONS, I.E., SECTIONS 4 , 5 AND 9 . THIS REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1) . THE FACT THAT THE REVENUE HAS NOT OBTAINED ANY INFORMATION PER SE CANNOT BE A GROUND TO CONSTRUE SECTION 195 WIDELY SO AS TO REQUIRE DEDUCTION OF TAS EVEN IN A CASE WHERE AN AMOUNT PAID IS NOT CHARGEABLE TO TAX IN INDIA AT ALL. WE CANNOT READ SECTION 195 , AS SUGGESTED BY THE DEPARTMENT, NAMELY, THAT THE MOMENT THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAS ARISES. IF WE WERE TO ACCEPT SUCH A CONTENTION IT WOULD MEAN THAT ON MERE PAYMENT INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. THEREFORE, AS STATED EARLIER, IF THE CONTENTION OF THE DEPARTMENT WAS ACCEPTED IT WOULD MEAN OBLITERATION OF THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' FROM SECTION 195(1) . WHILE INTERPRETING A SE CTION 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 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 S INGLE INTEGRAL, INSEPARABLE 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 (SUPR A) WAS CONFINED TO SECTION 192 OF THE I.T. ACT. HOWEVER, THERE IS SOME SIMILARITY 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 RESPONSIBLE FOR PAYING T O A NON - RESIDENT 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 INTEGRAL INSEPARABLE CODE. HENCE, THE PROVISIONS RELATING TO TDS APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE I.T. ACT . IF THE CONTENTION OF THE DEPARTME NT THAT ANY PERSON MAKING LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 8 PAYMENT TO A NON - RESIDENT IS NECESSARILY 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 BEC AUSE THERE IS NO PROVISION IN THE I.T. ACT BY WHICH A PAYER 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 PAYER, THEREFORE, HAS TO DEDUCT AND PAY TAX, EV EN 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, NOT 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 THE INCOME HAS NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE IN INDIA, THE GOV ERNMENT 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 PROPORTIO N 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 PERSONS MAKING PAYME NTS 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 INTERPRETATIO N REQUIRES THE PAYER TO MAKE A DECLARATION 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 I NFORM THE DEPARTMENT OF THE REMITTANCES HE MAKES TO THE NON - RESIDENTS BY WHICH THE DEPARTMENT IS ABLE TO KEEP TRACK OF THE REMITTANCES BEING MADE TO NON - RESIDENTS OUTSIDE INDIA. 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 `PAY ER' 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 OR DINARY 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 FO R TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 9 THE INCOME TAX ACT WOULD NOT GET THE BENEFIT OF DEDUCTION IF THE ASSESSEE FAILS TO DEDUCT TAS IN 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 PAYME NTS 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 SECTION 195 WHICH REQUIRES THE PAYER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY SUM 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 . 7. THUS, FOLLOWING THE AFORESAID RATIO AND PRINCIPLES OF THE HONBLE SUPREME COURT , WHICH IS APPLICABLE IN THE PRESENT CASE ALSO , W E HOLD THAT ASSESSEE WA S NOT LIABLE TO DEDUCT TDS U/S 195 , AS SUM PAID TO NON - RESIDENT I.E. LIONBRIDGE US IS NOT CHARGEABLE TO TAX IN INDIA. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOW ED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST , 2015. SD/ - SD/ - ( . . ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 5 TH AUGUST , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 11 , MUMBAI. 4) THE CIT CONCERNED ____/DIT(IT0 ) - II, MUMBAI. 5) , , / LIONBRIDGE TECHNOLOGIES PRIVATE LIMITED ITA NO. 7121 /MUM/20 1 2 10 THE D.R. L BENCH, MUMBAI. 6) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS