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As per section 195(1) of Income Tax Act, any person responsible to for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable to tax shall, at the time of credit of such income or at the time of payment, whichever is earlier, deduct income-tax thereon at the rates as applicable.
Please also refer the case JLC Electromet Pvt. Ltd. Vs ACIT (ITAT Jaipur). I’m trying to analyse only some of the provisions applicable, only for understanding purpose. As per Section 195 of Income Tax Act, any person who makes payment to non-resident by way of interest (except the interest as specified in Sections 194LB or […]
Section 206AA does not override provisions of section 90(2) and in case of payment made to non-resident, assessee correctly applied rate of tax prescribed under concerned DTAAs and not as per section 206AA because provisions of the DTAAs were more beneficial and DTAA acquired primacy in such case.
Commission paid to foreign agents for procuring export orders could not be treated as income taxable in India when parameters of DTAAs were applied to transactions in question. Also non-resident agents did not have PE or business connection in India. Therefore, impugned payment could not be held as taxable in the hands of non-resident agents in India and, therefore, liability to withhold tax under section 195 did not arise.
Earlier, the person making a remittance to Non-Resident was required to furnish a certificate in specified format circulated by RBI. Basic purpose was to collect the taxes at a stage when the remittance is made as it may not be possible to collect the tax from the NR at a later stage.
Coming to the provisions of section 40(a)(ia) of the Act, the said section also provides that any interest, royalty, fees for technical services or other sum chargeable under this Act on which tax is deductible at source under chapter XVII-B and such tax has not been deducted or after deduction has not been paid on or before the due date specified in section 139(1) of the Act. We therefore find that both the provisions of section 195(1) as well as 40(a)(ia) of the Act talks about deduction of tax at source where the sum is chargeable under this Act.
Provisions of tax deduction at source (TDS) with regard to payment of any other sum to a non-resident is covered under section 195 of the Income Tax Act, 1961 which are explained hereunder.
Since the title in goods passed from foreign suppliers to assessee outside India at the port of shipment and AO failed to show as to how income of foreign parties was chargeable to tax in India, therefore, no income had accrued to foreign parties in India in terms of section 5 and section 9, therefore, section 195 did not apply to payments.
M/s. Wipro Limited Vs ACIT (ITAT Bangalore) In this case relief was allowed by learned CIT (A) in respect of levy of surcharge and cess by directing the AO that surcharge and cess should be levied only in the cases where the non resident vendors are residents of countries with which DTAA allows withholding rate […]
It was held that where the software is purchased across the counter as shrink proof software, then it is not akin to royalty both under the Income Tax Act or the DTAA. The Tribunal held that since the definition of ‘royalty’ has not been amended under DTAA,
