M/s Texas Instruments Incorporated v DDIT (International Taxation) (2011-TII-16-ITAT-BANG-INTL)


•        Assessee a non-resident company received royalty from its Indian subsidiary and offered the same to tax. It had also received income from the subsidiary for providing IT infrastructure supply services and IT support

•        On an application u/s 195(2) by the Indian subsidiary the A.O directed that 20% of the same was chargeable to tax in India. Accordingly, the subsidiary deducted tax @ 20% of the gross receipts

•        AO concluded that not only the gross receipts were chargeable to tax in India but also the other payments including employee salaries and equipment and maintenance charges were taxable in India as royalty at the rate of 15 %. AO raised a demand for tax as well as interest on the advance tax payable but not paid. CIT(A) confirmed the order of the AO.

•        CIT(A) held that if its plea were to be accepted, the deductee would not be required to pay interest u/s 234B and would also not be liable to pay interest u/s 201 (1A) because it has acted in compliance with the withholding order u/s 195(2), thereby causing loss of revenue to the exchequer


Issue: Is the assessee liable to interest u/s 234B for the difference in tax payment due to lower deduction undera 195 order?

Decision: The assessee has not approached the deductor to deduct the tax at lower rate. It is the deductor who approached the department claiming that the payments to be made to the assessee are not chargeable to tax in India and to determine the chargeability. Where all payments made to non-resident are subject to deduction of tax at source u/s 195, the interest u/s 234B is not leviable on the non-resident.

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June 2021