Payment Made To Non-Residents In Their Indian Bank Accounts & Form 15CA/15CB

ISSUE INVOLVED

The matter of whether Form 15CB is required for making payments to the Indian Bank account of a non-resident / foreign company is a grey area in the Income-tax law. Various entities have not been filing Form 15CA / 15CB while making payments to Indian Bank account of non-residents / foreign companies, since paying bank does not insist on the same while other entities are regularly filing Form 15CA / 15CB while making payment to a non-resident / foreign companies in their Indian bank accounts.

LEGAL POSITION

Section 2(29D) of the Income-tax Act, 1961 [“the Act”] defines the term ‘Non-resident’, “as a person who is not a ‘resident’ [and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6”.

Section 195 of the Act deals with the provisions of tax deduction at source [“TDS”] of Non-residents. Section 195(6) of the Act provides as: “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”.

Rule 37BB of the Income-tax Rules, 1962 [“the Rules”] deals with the form and manner in which the information relating to any sum paid by the non-resident is required. Rule 37BB provides as under:

“The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum chargeable under the provisions of the Act, shall furnish the following, namely: 

1. the information in Part A of Form No.15CA, if the amount of payment or the aggregate of such payments, as the case may be, made during the financial year does not exceed five lakh rupees; 

(i) for payments other than the payments referred in clause (i), the information,—

(a) in Part B of Form No.15CA after obtaining,—

(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;

(ii) in Part C of Form No.15CA after obtaining a certificate in Form No. 15CB from an accountant as defined in the Explanation below sub-section (2) of section 288. 

The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum which is not chargeable under the provisions of the Act, shall furnish the information in Part D of Form No.15CA.” 

• Section 271I of the Act provides as: “If a person, who is required to furnish information under sub-section (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” 
• Section 273B of the Act provides as: “Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, section 271BA, section 271BB, section 271C, section 271CA, section 271D, section 271E, section 271F, section 271FA, section 271FAB, section 271FB, section 271G, section 271GA, section 271GB, section 271H, section 271-I, section 271J, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA or section 272B or sub-section (1) or sub-section (1A) of section 272BB or sub-section (1) of section 272BBB or clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”

FAVOURABLE ARGUMENTS

• At the first blush of section 195(6) of the Act, it can reasonably be concluded that section 195(6) of the Act will apply at the time of making remittance to non-resident / Foreign companies in their Indian Bank accounts since the term ‘Non-resident’ is very well defined in the Act. 
• On the reading of the law as it stood, it can reasonably be concluded that the intention of the law is clear that Form 15CA / 15CB should be filed for all payments to non-residents – whether the payment is in India or outside India except certain specified/exempted payments. 
• The certain specified/exempted payments are mentioned in rule 37BB of the Rules for which Form 15CA / 15CB are not required which are as under:
• the remittance is made by an individual and it does not require prior approval of Reserve Bank of India as per the provisions of section 5 of the Foreign Exchange Management Act, 1999 (42 of 1999) read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000; or
• the remittance is of the nature specified in column (3) of the specified list below:

• Further, let us analyze this issue from a practical point of view. While preparation of Form 15CA online and preparation of Form 15CB using the offline utility of the Income-tax department, one has to mention the name of the country to which such remittance is to be made. It is relevant to note that Form 15CA & Form 15CB permits filling up “India” as a “Country to which remittance is made”, thereby clearly permitting the filing of Form with respect to payments within India.
• From the above discussion, it could reasonably be concluded that Form 15CA / Form 15CB is required to be filed compulsorily in case payment is made to Non-resident irrespective of the fact whether the payment is made into its foreign bank account or Indian bank account. Non-compliance of section 195(6) of the Act would attract a penalty of one lakh rupees under section 271I of the Act.

ADVERSE ARGUMENTS

• Section 195(6) of the Act was introduced through Finance Act, 2008. The scope of this section was later expanded vide Finance Act, 2015. The memorandum to Finance Act, 2008 read as: 

“The purpose of the undertaking and the certificate is to collect taxes at the stage when the remittance is made as it may not be possible to recover the tax at a later stage from the non-residents. There has been a substantial increase in foreign remittances, making the manual handling and tracking of certificates difficult. To monitor and track transactions in a timely manner, it is proposed to introduce the e-filing of the information in the certificate and undertaking. The amendment, therefore, proposes to provide that the person responsible for deduction of Income-tax shall furnish the information relating to the payment of any sum to the non-resident or to a foreign company in a form and manner to be prescribed by the Board.”

• The intention of the lawmakers for such an amendment can be concluded from the memorandum to the finance bill. The legislators wanted to capture all foreign remittances through the filing of Form 15CA / 15CB by the remitter. In common parlance, the term ‘Foreign remittance’ means money that is sent over international borders.
• Further, on perusal of Form 15CA / 15CB, it can reasonably be said that Form 15CA / 15CB is required only when payments are being remitted outside India.
• Further, as far as leviability of penalty u/s 271I of the act is concerned, section 273B of the Act comes to rescue the assessee. Section 273B clearly states that no penalty shall be imposable on the assessee, for any failure referred to in certain provisions if he proves that there was reasonable cause for the said failure. The provisions listed in Section 273B include penalty levied under Section 271I and the assessee may submit that he was of the belief that no Form 15CA/ Form 15CB is to be furnished in the present case. It is also well settled that the expression ‘reasonable cause’ must receive a liberal interpretation so as to advance substantial justice.
• ‘Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead an ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences will follow.
• From the above, it could reasonably be argued that the intention of the legislator is pretty clear in respect of filing of Form 15CA / 15CB (i.e., Form 15CA / 15CB is required to be filed only in case of foreign remittance). Further, if any penalty proceedings u/s 271I of the act is initiated by the tax authorities, the assessee can take a shield under section 273B and may avoid the leviability of the penalty.

CONCLUDING REMARKS

Though a possible view of non-filing of Form 15CA / 15CB exists, in case of remittance is to be made to an Indian bank account of the non-resident, it is advisable to file Form 15CA / 15CB even in cases where remittances are to be made to Indian bank accounts of the non-resident.

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