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 1158. Where whole payment would not be income chargeable to tax in the hands of recipient non-resident, person responsible for paying such sum may make application for determination of appropriate portion

1. I am directed to state that section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any interest (not being “interest on security”) or any other sum (not being dividends) chargeable under the provisions of the Income-tax Act to deduct income-tax at the “rates in force”, unless he is himself liable to pay income-tax thereon as an agent. Payments to a non-resident, by way of royalty for the use of, or the right to use, any copyright (e.g., of literary, artistic or scientific work including cinematograph films or films or tapes for radio or television broadcasting), any patent, trade mark, etc., and payments for technical services rendered in India are some of the typical examples of sums chargeable under the provisions of the Income-tax Act to which the aforesaid requirement of tax deduction at source will apply. The term “rates in force” means the rates of income-tax specified in this behalf in the Finance Act of the relevant year.

2. Where the person responsible for paying any such sum to a non-resident considers that the whole amount thereof would not be income chargeable under the Income-tax Act in the case of the recipient non-resident, he may make an application under section 195(2) to the Income-tax Officer for the determination of the appropriate portion of such payment which would be taxable and in respect of which tax is to be deducted under section 195(1).

3. The object of section 195 is to ensure that the tax due from non-resident persons is secured at the earliest point of time so that there is no difficulty in collection of tax subsequently at the time of regular assessment. Failure to deduct tax at source from payment to a non-resident may result in loss of revenue as the non-resident may sometimes have no assets in India from which tax could be collected at a later stage. Tax should, therefore, be deducted in all cases where it is required to be deducted under section 195 before the payment is made to the non-resident and the tax so deducted should be paid to the credit of the Central Government as required by section 200 read with rule 30. Failure to do so would render a person liable to penalty under section 201 read with section 221, and would also constitute an offence under section 276B.

Circular: No. 152 [F.No. 484/31/74-FTD-II], dated 27-11-1974


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July 2024