Special Bench Tribunal Ruling: If the Payer is of the bona fide belief that no part of the payment is chargeable to tax, he need not undergo the procedure of section 195 at all. The Tribunal has chosen not to follow the Karnataka High Court’s judgement in the case of Samsung Electronics. [ITO Vs Prasad Production Ltd. (ITA No. 663/Mds/2003)].
Facts:
Prasad Production Ltd. (assessee/ payer), an Indian company, was awarded a contract by the Tourism Department of Government of Andhra Pradesh to establish IMAX Theatre at Hyderabad. The assessee entered into an agreement with IMAX Ltd., Canada (IMAX) for purchase of equipment, maintenance and installation. As per the agreement, the total consideration was split into two parts, one for purchase of system and other for technology for transfer fee. The assessee remitted during the year under consideration a part remittance on account technology transfer fee without deduction of tax at source. The Assessing officer issued a notice to the assessee to show cause as to why the demand should not be raised under section 201 of the Income tax Act (Act). During the course of 201 proceedings, the assessee could not provide the break-up of amount remitted. On the basis of letters and copies of agreements filed by the assessee, the Assessing officer passed an order under section 201 and held that since the payment made was for a variety of services (installation charges, testing, supervision by IMAX personnel in India and training for projectionists), the amount remitted by the assessee was for provision of technical services in terms of section 9(1)(vii) of the Act. As the assessee did not obtain any order under section 195(2), 195(3) or 197, he held that the gross sum remitted was liable to tax under section 195 as per the decision of the Supreme Court in the case of Transmission Corporation of AP Ltd (239 ITR 587).
On appeal, the CIT(A) observed that the impugned payment represents consideration for installation, testing and operator training before the theater is ready for screening. Though the agreement provided for installation and training in the beginning, the amount of remittance represents a part of sale consideration of the equipment. Accordingly, he held that there is no ambiguity in regard to the portion which is taxable and portion which not taxable. As the entire sum is not chargeable to tax, he cancelled the order passed under section 201(1) and 201 (1A) of the Act.
On appeal to the Tribunal, the Honorable President constituted a Special Bench to hear and decide the matter.
Question before the Special Bench of Income tax Appellate Tribunal:
Whether for the purposes of sections 201(1) and 201 (1A), when an asssessee responsible for making payment to a non-resident, has not applied to the Assessing officer under section 195(2) for deduction of tax at source at lower or nil rate of tax, he is under statutory obligation to deduct tax at source on the entire payment to the non-resident treating the same as income chargeable to tax, in the light of decision of the Apex Court in the case of Transmission Corporation AP Ltd.?
Contention of the Revenue:
