CA MANAN GUPTA
Firstly to understand the provisions & needs of Form 15CA & 15CB, we have to understand the income Tax Act & Rules made behind the compliances and transactions required the compliances of Form 15CA & 15CB.
1. Section 195(6) of Income Tax Act- The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.
2. Rules 37BB of Income Tax Rules- Furnishing of information by the person responsible for making any payment including any interest or salary or any other sum chargeable to tax, to a non-resident, not being a company, or to a foreign company
(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or salary or any other sum chargeable to tax under the provisions of the Act, shall furnish the following, namely:—
(i) the information in Part A of Form No.15CA, if the amount of payment does not exceed fifty thousand rupees and the aggregate of such payments made during the financial year does not exceed two lakh fifty thousand rupees;
(ii) the information in Part B of Form No.15CA for payments other than the payments referred in clause (i) after obtaining—
(a) a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288; or
(b) a certificate from the Assessing Officer under section 197; or
(c) an order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195.
(2) The information in Form No. 15CA shall be furnished by the person electronically to the website designated by the Income-tax Department and thereafter signed printout of the said form shall be submitted to the authorized dealer, prior to remitting the payment.
Explanation 1.—For the purposes of this rule, “authorized dealer” means a person authorized as an authorized dealer under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999).
Explanation 2.—For the removal of doubts, it is hereby clarified that for payments of the nature specified in column (3) of the specified list below, no information is required to be furnished under sub-rule (1).
|Sl. No.||Purpose code as per RBI||Nature of payment|
|1||S0001||Indian investment abroad-in equity capital (shares)|
|2||S0002||Indian investment abroad-in debt securities|
|3||S0003||Indian investment abroad-in branches and wholly owned subsidiaries|
|4||S0004||Indian investment abroad-in subsidiaries and associates|
|5||S0005||Indian investment abroad-in real estate|
|6||S0011||Loans extended to Non-Residents|
|7||S0202||Payment for operating expenses of Indian shipping companies operating abroad.|
|8||S0208||Operating expenses of Indian Airlines companies operating abroad|
|9||S0212||Booking of passages abroad – Airlines companies|
|10||S0301||Remittance towards business travel.|
|11||S0302||Travel under basic travel quota (BTQ)|
|12||S0303||Travel for pilgrimage|
|13||S0304||Travel for medical treatment|
|14||S0305||Travel for education (including fees, hostel expenses etc.)|
|16||S0501||Construction of projects abroad by Indian companies including import of goods at project site|
|17||S0602||Freight insurance – relating to import and export of goods|
|18||S1011||Payments for maintenance of offices abroad|
|19||S1201||Maintenance of Indian embassies abroad|
|20||S1202||Remittances by foreign embassies in India|
|21||S1301||Remittance by non-residents towards family maintenance and savings|
|22||S1302||Remittance towards personal gifts and donations|
|23||S1303||Remittance towards donations to religious and charitable institutions abroad|
|24||S1304||Remittance towards grants and donations to other Governments and charitable institutions established by the Governments|
|25||S1305||Contributions or donations by the Government to international institutions|
|26||S1306||Remittance towards payment or refund of taxes|
|27||S1501||Refunds or rebates or reduction in invoice value on account of exports|
|28||S1503||Payments by residents for international bidding. ]|
3. section 271-I in the Income-tax Act relating to penalty for failure to furnish information or for furnishing inaccurate information under section 195. section 271-I so as to provide that if a person, who is required to furnish information under subsection (6) of section 195, fails to furnish such information; or furnishes inaccurate information, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one lakh rupees.
Earlier Issues before Amendment in Finance Act 2015
Provisions of Sec. 195(6) of the income tax act got amended by the Finance Act 2015 and it comes into force with effect from 1-6-2015. As per the amended provision, the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. When the original provision was inserted, it mandated the certification and reporting only when the person, who was required to deduct tax from the payment made to a non-resident, not being a company, or to a foreign company.
Thus the amendment took place from 1-6-2015 has triggered a question whether the payments made to the import of goods would also fall under the ambit of reporting under Sec.195(6) read with rule 37BB. It is understood that now many banks have been insisting for the certification and declaration reporting transactions in Form 15CA and Form 15CB.
At this point it is worthwhile to go through the memorandum explaining the provisions of the Finance Bill, 2015. It states that the mechanism of obtaining of information in respect of remittances fulfils twin objectives of ensuring deduction of tax at the appropriate rate from taxable remittances as well as identifying the remittances on which the tax was deductible but was not deducted at source. It is seen however in practice that the remitter does not provide the above information in respect of non-taxable remittances. Therefore, it is felt that obtaining of information only in respect of remittances which the remitter declared as taxable defeats one of the main principles of obtaining information in respect of foreign remittances i.e. to identify the taxable remittances on which tax was deductible but was not deducted. Thus, the above amendment is made in Section 195(6).
Further, there was no provision for levying of penalty for non-submission/inaccurate submission of the prescribed information in respect of remittance to the non-resident. For ensuring submission of accurate information in respect of remittance to a non-resident, a penal provision is incorporated in Section 271-I by the Finance Act, 2015 whereby a penalty of INR 1,00,000 would be levied for non-furnishing of information or furnishing of incorrect information under Section 195(6).
Impact of amended provisions to import payments to non-residents
In 2013 CBDT had notified certain 39 items of payments for which Form 15CA and 15CB was not required though Notification No. 58/2013 however, it was then reduced to 28 items by a later Notification No. 67/2013 which had omitted 11 items of payments from the specified list. It includes (i) Advance payment against imports and (ii) Payment towards imports-settlement of invoice. It is pertinent to note that at that point of time Form 15CA and 15CB are required to be submitted only for those payments which are chargeable to tax in India and therefore the removal of these two items were not a matter of debate as it exists today due to the amended provisions of Sec. 195(6).
Plain reading Section 195 of the Act with Rule 37BB, would certainly give an impression that when the remittance to non-resident is not chargeable to tax, then above provision does not get triggered. However, to conclusively determine whether the income of a non-resident is chargeable to tax or not one has to analyze the provisions of Sec.5(2) and Sec. 9(1) of the Act.
Taxability of payment to non-resident for imports
The income in the case of imports would be in the nature of business income and therefore sub-clause (i) to 9(1) would only be relevant and as per which “all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset of source of income in India or through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India”.
As per Explanation 1(a) to Section 9(1)(i), in the case of a business of which all the operations are not carried out in India, the income of the business is deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India.
“Business Connection” as per Explanation 2 to Section 9(1)(i) “Business connection would include any business activity carried out through a person who, acting on behalf of the non-resident,—
(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or
(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or
(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident”
Hence, to tax the business income of a non-resident in India, the transaction should be carried out by such non-resident in India directly by himself or indirectly through any business connection in India failing which such business income would not be liable to tax India. Even when it becomes taxable in India, as per Explanation 1 to Section 9(1)(i) of the Act, only such part of the income which is attributable to the operations carried out by such non-resident in India could be taxed in India.
Further, Section 90(2) of the Income Tax Act provides has an option to a non-resident to opt for the provisions of the Act or Double Tax Avoidance Agreement (DTAA), whichever is more beneficial to him. In most of the DTAAs that India entered into, the business income would be liable to tax in India only if such non-resident has any permanent establishment in India to which the transaction can be attributed. However, Sec.90(4) mandates for tax residency certificate from the respective country to claim DTAA benefit and Sec.90(5) read with Rule 21AB(1) to (12A) requires Form 10F to be given by the non-resident to avail the DTAA benefits.
Judicial precedents on taxability of payments to non-resident for import of goods
i. Vodafone International Holdings B.V. v. UOI (2012) 204 Taxman 408 (SC)
ii. GE Technology Cen (P) Ltd v. CIT (2010) 193 Taxman 234 (SC)
Thus, one can conclude that the import of goods is not liable to tax in India if
1. The contract between the parties are on principal-to-principal basis and at arm’s length basis,
2. Contracts to sell are made by the non-resident outside India,
3. Deliveries of the goods are taken outside India on FOB basis, and
4. The non-resident exporter of goods does not have any business connection or permanent establishment in India.
Thus, one cannot simply conclude that all imports are, as a matter of rule, exempt from tax and there could be imports, which do not comply with the conditions mentioned above and therefore result in some income being chargeable to tax in India. Therefore in order to conveniently conclude, it would be advisable to adhere with the conditions specified above while entering into contracts of sale/ import transactions and to obtain the following documents from the foreign exporter/vendor:
1. Tax Residency Certificate,
2. Form 10F signed by the vendor
3. A declaration from vendor stating he does not have a business connection or PE in India.
4. The contract of sale is entered on principal to principal at arm’s length with the non-resident signing the same outside India.
Whether payments to non-resident for imports requires 15CA and 15CB
Amending Sec.195(6) by removing the reference to the person referred to in Section 195(1) and replacing it with whether or not the sum being remitted was chargeable to tax, one could conclude that the prescribed information under Section 195(6) will have to be furnished in case of all remittances including that of the import payments.
However, it may be noted that Rule 37BB is not in line with the amended provision of Section 195(6). As per the present Rule 37BB, Form 15CB would be required only if the remittance is chargeable to tax. Therefore, one can even take a view that CBDT had not prescribed anything for reporting in case payments to non-resident that is not liable to tax in India. However, it would be dependent upon the authorized dealers. If the banker insist for Form15CB in all cases as per the amended Section 195(6), the payer has no choice but to obtain the same for all the remittances.
It is also understood that, in the conference organized by Chamber of Tax Consultants and IFA Delhi Chapter on 4 March 2015, the CBDT officials clarified that the reporting required under Section 195(6) is not required in all cases. Jt. Secretary, Pragya Saxena further clarified that only that ‘information’, which may be ‘prescribed’, would have to be furnished. One needs to wait and watch for more clarification and notification in this regard.
Possibility to levy Penalty for non filing of Form 15CA & Form 15CB
If one takes a view that if the remittance is not chargeable to tax, Form 15CB may not be required, he might wonder whether he would be subjected to penalty u/s 271-I. The stringent penalty provision, would also play as an incumbent on the payer to file Form 15CA and 15CB in all cases irrespective of the fact that the remittance to the non-resident is taxable or not unless CBDT clarifies otherwise.
One can note that even in case if tax authorities take penal action against the payer, it can be defended by quoting the conflict between Rule 37BB and Section 195(6). Though the department can argue that when there is a conflict between the act and the rule the rule prevails the argument from the payer is that the rules itself is awaited in the case of reporting the payments which are not chargeable to tax. Further, the decisions of SC in the case of Vodafone International Holdings B.V. v. Union of India (2012) 204 Taxman 408 (SC) and GE Technology Cen (P) Ltd v. CIT (2010) 193 Taxman 234 (SC) etc. can be relied upon to defend the levy of penalty. Time and again courts have held that, ‘when there are two possible interpretations of the Act, the one which is favourable to the assessee has to be preferred’. The above ratio has been applied by the Honbl’e Supreme Court in the cases of CIT V. Podar Cement (P.) Ltd. 226 ITR 625 and CIT V. Vegetable Products Ltd. 88 ITR 192. Therefore one can get the immunity from penalty proceedings
Procedure for furnishing Form 15CA
1. The Revised Procedure for furnishing information regarding remittances being made to non-residents wef 1 st July 2009 is as follows:-
2. The Person making the Payment (Remitter) shall obtain a certificate from an accountant (other than employee) in Form 15CB
3. The Remitter shall then electronically upload the undertaking containing the remittance details to the department in Form 15CA on the department website
4. The Information furnished in the Form 15CA is to be filed using the information contained in Form 15CB
5. The Remitter shall take a print out of this filled up Form 15CA (which will bear an acknowledgement number generated by the system) and sign it. The Form 15CA shall be signed by the person authorized to sign the return of income of the remitter or the person so authorized by him in writing
6. The duly signed form 15CA and Form 15CB shall be submitted in duplicate to the Reserve Bank of India/ Authorized Dealer. The Reserve Bank of India/ Authorized Dealer will then forward a copy of the Certificate and undertaking to the assessing officer concerned
A Remitter who has obtained a certificate from the Assessing Officer regarding the rate at or amount on which the tax is to be deducted is not required to obtain a certificate from the Accountant in Form 15CB. However, he is required to furnish information in Form 15CA and submit it along with a copy of the certificate from the Assessing Officer.
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