Case Law Details
Brief of the Case
Authority for Advance Rulings held In the case of Satyam Computer Services Ltd., that it is trite law that unless the payment made attracts the tax under the Income Tax Act, there would be no liability to deduct tax under Section 195 of the Income Tax Act. An amount ordered by the US Court which is in nature of penalty can never attract any tax nor would such a payment made by the applicant attract any tax liability. Hence, the applicant would not be required to deduct any such amount under Section 195.
Facts of the Case
The Applicant is an Indian company incorporated under the Companies Act, 1956. The Applicant’s shares are listed on the NSE and BSE. Further, the Applicant’s American Depositary Shares (ADS) were listed on the New York Stock Exchange (NYSE). After the January 7, 2009 letter of the former Chairman of the Company and subsequent investigation by various authorities, a complaint was filed by the US Securities and Exchange Commission (SEC) against the Company in the United States District Court. In the complaint, SEC prayed before the US Court for among other restraints imposing a civil monetary penalty.
The Applicant submitted to the Court’s jurisdiction and filed its consent and undertaking with SEC on March 31, 2009, without admitting or denying the allegations in the complaint, agreeing to an amount of US $ 10 million as penalty and other restraints. Based on the consent and undertaking, the US Court passed the final Judgment/decree against the applicant on 6 April 2011. The Court held that the amount ordered to be paid as civil penalties pursuant to this Judgment shall be treated as penalties paid to the government for all purposes, including all tax purposes.
The Applicant wants ruling on whether tax under section 195 of the Income Tax Act is required to be deducted at source in connection with payment of the penalty pursuant to the US Court Order/Decree for violation of the provisions to the US Securities Exchange Act.
Submission of Department
There would be no necessity of deducting tax from the penalty amount of 10 million US $.
Held by AAR’s
It is trite law that unless the payment made attracts the tax under the Income Tax Act, there would be no liability to deduct tax under Section 195 of the Income Tax Act. A penalty ordered by the US Court can never attract any tax nor would such a payment made by the applicant attract any tax liability. It is, therefore, axiomatic that the payment being a penalty amount as ordered by the court of competent jurisdiction for the same, can never attracts any such tax liability. Hence, the applicant would not be required to deduct any such amount under Section 195. The law is very clear on this aspect.
AAR held that we agree with the department that there would be no necessity of deducting tax from the penalty amount of 10 million US $.
