Case: The Transmission Corporation of A.P. Ltd Vs. Commissioner of Income Tax, A.P

of this Act would mean sum on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. Consideration would be whether payment of sum to non-resident is chargeable to tax under the provisions of the Act or not ? That sum may be income or income hidden or otherwise embedded therein. If so, tax is required to be deducted on the said sum would be the income is to be computed on the basis of various provisions of the Act including provisions of computation of the business income, if the payment is trade receipt. However, what is to be deducted is income tax payable thereon at the rates in force. Under the Act, total income for the previous year would become chargeable to tax under Section 4. Sub-section (2) of Section 4 inter alia, provides that in respect of income chargeable under Sub-section (1), income tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that s to be paid to the non-resident is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income provided under Section 14 of the Act, that is to say, income from salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. The scheme of tax deduction at source applies not only to the amount paid which wholly bears income character such as salaries, dividends, interest of securities etc., but also to gross sums, the whole of which may not be income or profits of the recipient, such as payments to contractors and sub-contractors and the payment of insurance commission. It has been contended that the sum which may be required to be paid to the non-resident may only be a trading receipt, and, any contain a fraction of sum as taxable income. It is true that in some cases, a trading receipt may contain a fraction of sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain large sum as taxable income under the provisions of the Act. Whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. The purpose of sub-section (1) of Section 195 is to see that the sum which is chargeable under Section 4 of the Act for levy and collection of income tax, the payee should deduct income tax thereon at the rates in force, if the amount is to be paid to a non-resident. The said provision is for tentative deduction of income tax thereon subject to regular assessment and by the deduction of income-tax, rights of the parties are not, in any manner, adversely affected. Further, the rights of payee or recipient are fully safeguarded under Sections 195(2), 195(3) and 197. Only thing which is required to be done by them is to file an application for determination by the Assessing Officer that such sum would not be chargeable to tax in the case of recipient, or for determination of appropriate proportion of such sum so chargeable, or for grant of certificate authorising recipient to receive the amount without deduction of tax, or deduction of income-tax at any lower rates or no deduction. On such determination, tax at appropriate rate could be deducted at the source. If no such application is filed income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. He has to discharge the obligation of tax deduction at source. 10. The High Court of Calcutta considered and interpreted similar provision Section 18(3B) of the Income Tax Act, 1922, in the case of Ray and Co. (India) Private Limited v. Mukherjee, ITO 1959(36 ITR 365, and rightly held : if chargeable under the provisions of this Act means actually liable to be assessed to tax, in other words, if the sum contemplated is taxable income a difficulty is undoubtedly created as to complying with the provisions of the section. 11. The High Court further held that section 18(3B) contemplated not merely amounts, the whole of which was taxable without deduction, but amounts of a mixed composition, a part of which only might turn out to be taxable income, as well; and the disbursement, which were of the nature of gross revenue receipts, were yet sums chargeable under the provisions of the Income Tax Act and came within the ambit of Section 18(3B) of the Act. 12. Hence, in our view there is no substance in the contention of the learned Counsel for the Appellant that the expression any other sum chargeable under the provisions of this Act would not include cases where any sum payable to the non-resident is a trading receipt which may or may not include pure income. The language of Section 195(1) for deduction of income tax by the payee is clear and unambiguous and cats an obligation to deduct appropriate tax at the rates in force. We make it clear that the learned counsel for the parties have not advanced any submissions with regard to other findings given by the High Court. 13. In this view of the matter, the answer given by the High Court that (i) the assessee who made the payments to the three non-residents was under obligation to deduct tax at source under Section 195 of the Act in respect of the sums paid to them under the contacts entered into; and (ii) the obligation of the respondent-assessee to deduct tax under Section 195 is limited only to appropriate proportion of income chargeable under the Act, are correct.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]n (1), (2) and (3) of Section 195 and Section 197 leaves no doubt that the expression any other sum chargeable under the provisions of this Act would mean sum on whichx is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. Consideration would be whether payment of sum tot is chargeable to tax under the provisions of the Act or not ? That sum may be income or income hidden or otherwise embedded therein. If so, tax is required to be deducted on the said sum would be the income is to be computed on the basis of various provisions of the Act including provisions of computation of the business income, if the payment is trade receipt. However, what is to be deducted is income tax payable thereon at the rates in force. Under the Act, total income for the previous year would become chargeable to tax under Section 4.n (2) of Section 4 inter alia, provides that in respect of income chargeable undern (1), income tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that s to be paid to thet is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income provided under Section 14 of the Act, that is to say, income from salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. The scheme of tax deduction at source applies not only to the amount paid which wholly bears income character such as salaries, dividends, interest of securities etc., but also to gross sums, the whole of which may not be income or profits of the recipient, such as payments to contractors ands and the payment of insurance commission. It has been contended that the sum which may be required to be paid to thet may only be a trading receipt, and, any contain a fraction of sum as taxable income. It is true that in some cases, a trading receipt may contain a fraction of sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain large sum as taxable income under the provisions of the Act. Whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. The purpose ofn (1) of Section 195 is to see that the sum which is chargeable under Section 4 of the Act for levy and collection of income tax, the payee should deduct income tax thereon at the rates in force, if the amount is to be paid to a. The said provision is for tentative deduction of income tax thereon subject to regular assessment and by the deduction of, rights of the parties are not, in any manner, adversely affected. Further, the rights of payee or recipient are fully safeguarded under Sections 195(2), 195(3) and 197. Only thing which is required to be done by them is to file an application for determination by the Assessing Officer that such sum would not be chargeable to tax in the case of recipient, or for determination of appropriate proportion of such sum so chargeable, or for grant of certificate authorising recipient to receive the amount without deduction of tax, or deduction ofx at any lower rates or no deduction. On such determination, tax at appropriate rate could be deducted at the source. If no such application is filed income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. He has to discharge the obligation of tax deduction at source10. The High Court of Calcutta considered and interpreted similar provision Section 18(3B) of the Income Tax Act, 1922, in the case of Ray and Co. (India) Private Limited v. Mukherjee, ITO 1959(36 ITR 365, and rightly held :if chargeable under the provisions of this Act means actually liable to be assessed to tax, in other words, if the sum contemplated is taxable income a difficulty is undoubtedly created as to complying with the provisions of the section11. The High Court further held that section 18(3B) contemplated not merely amounts, the whole of which was taxable without deduction, but amounts of a mixed composition, a part of which only might turn out to be taxable income, as well; and the disbursement, which were of the nature of gross revenue receipts, were yet sums chargeable under the provisions of the Income Tax Act and came within the ambit of Section 18(3B) of the Act12. Hence, in our view there is no substance in the contention of the learned Counsel for the Appellant that the expression any other sum chargeable under the provisions of this Act would not include cases where any sum payable to thet is a trading receipt which may or may not include pure income. The language of Section 195(1) for deduction of income tax by the payee is clear and unambiguous and cats an obligation to deduct appropriate tax at the rates in force. We make it clear that the learned counsel for the parties have not advanced any submissions with regard to other findings given by the High Court13. In this view of the matter, the answer given by the High Court that (i) the assessee who made the payments to the threes was under obligation to deduct tax at source under Section 195 of the Act in respect of the sums paid to them under the contacts entered into; and (ii) the obligation of thee to deduct tax under Section 195 is limited only to appropriate proportion of income chargeable under the Act, are correct.