Case Law Details
Expenditure can be disallowed only in the event of non-deduction of tax at source, and not in the cases involving short deduction, TDS not required to be deducted on exchange rate difference if TDS already been deducted at the time of credit of amount
Sandvik Asia Ltd. Vs. JCIT (ITAT Mumbai)- Assessee was liable to pay Swiss Kroner 38,58,000/- to M/s A B Sandvik Coromant, Sweden and in the account books for the previous year relevant to the assessment year 1991-92, the said income was credited to the account of the aforesaid foreign concern. It was a common point between the parties that when the assessee credited the income payable to the foreign concern as research and technical know-how in the earlier year, the provision so made on the basis of the exchange rate then existing was subjected to tax deduction at source in terms of section 195(1) of the Act.
Notably, section 195(1) of the Act prescribes deduction of tax at source on a sum payable to non-resident either at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier. The phraseology of section 195(1) of the Act clearly brings out that deduction of tax is to be made at one instance, either at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier. Quite clearly, section 195(1) does not envisage deduction of tax at both instances, i.e. at the time of credit of income to the account of the payee as well as at the time of payment thereof. In other words, it would be safe to deduce that where the assessee has deducted tax at source at the earlier point of time, namely, at the time of crediting of income into the account of the payee, the assessee thereafter is under no obligation to again deduct tax at source at the time of payment of such income. Section 195(1) of the Act also enumerates the timing at which the tax is required to be deducted by the payer in relation to a transaction which entails payment of a sum chargeable under this Act to a non-resident. In the present case, it is evident that the assessee was required to deduct tax at source on its transaction to pay research and technical know-how fee to the foreign concern and it deducted requisite tax at source as per section 195(1) of the Act at the time when such income was credited to the account of the foreign concern as per the then prevailing foreign exchange rate. Consequently, it would follow that when such income is actually paid by the assessee to the foreign concern, the same would not again invite the deduction of tax at source as per section 195(1) of the Act. Ostensibly, as per the agreement, the assessee is to make a total payment of Swiss Kroner 38,58,000/-to the foreign concern and out of which, it was required to remit Swiss Kroner 7,71 ,600/- during the year under consideration. The amount of income credited to the account of the payee concern in the earlier year corresponded to Swiss Kroner 38,58,000/-, albeit it was stated in Indian rupees at the then prevailing exchange rate. During the year, out of the above amount, Swiss Kroner 7,71 ,600/- has been remitted. The amount remitted is only a part of the total obligation of Swiss Kroner 38,58,000/- and not in addition to the aforesaid amount. In this year, on account of fluctuation in foreign exchange rate, only the cost of remitting the amount to foreign concern has increased, but there is no additional amount of Swiss Kroner that is payable to the foreign concern other than Swiss Kroner 38,58,000/- credited to the account of the foreign concern in the earlier year. Ostensibly, the transaction with the payee concern remained of Swiss Kroner 38,58,000/- and, therefore, the same having been subjected to deduction of tax at source on an earlier occasion at the time of crediting of such income to the account of the payee, it would not again call for deduction of tax at source per section 195(1) of the Act. In fact, even the ratio of the judgment of the Honourable Karnataka High Court in the case of CIT v Mac Charles (I) Ltd. 195 Taxman 296 (Kar) supports the aforesaid proposition.
INCOME TAX APPELLATE TRIBUNAL, PUNE
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