Non Resident Tax

Withholding
Section 195
CA Kapil Goel FCA LLB
Advocate
Delhi High Court
kapilnkgoelandco@gmail.com
9910272806

Importance of Section
195
More and More Cross Border Payments
Increased revenues attention like form 15CA and

15CB
Professional Diligence for CAs
Gateway to International Taxation for Domestic
Persons
Default consequences for payer:
Demand u/s Section 201; Interest of 201(1A)
Penalty u/s Section 221 &/or 271C
Prosecution u/s Section 276B
Disallowance of expense u/s Section 40(a)(i)

Revenue

Unique Features of section 195 as

compared to other TDS provisions
Unlike personal payments exempted in section

194C etc; no exclusion for the same in section 195

(all payments covered excl salaries provided
chargeability there) eg payment to foreign
architect for residential house construction etc
Unlike threshold criteria specified in section 194C
etc, no basic limit in section 195 even Re 1
payment is covered
Unlike other provisions in Chapter XVII (TDS
provisions), section 195 uses a special phrase
chargeable to tax under the Act
All payers covered irrespective of legal character
HUF; Indl etc

Objective behind section

195
Non resident transient connection
Potential Difficulty in Recovery having little/no

assets in
India
To Avoid Hassles of recovery from Non resident
AAR in 238 ITR 575 & CBDT Circular of 1974

Nature of TDS
Provisions :SC
SC views in Eli Lily 312 ITR 225:
The purpose of TDS provisions in Chapter XVII B is to see that the sum which is chargeable under Section 4
for levy and collection of income-tax, the payer should deduct tax thereon at the rates in force, if the
amount is to be paid to a non-resident. The said TDS provisions are meant for tentative
deduction of income-tax subject to regular assessment. (see Transmission Corporation of A.P. Ltd.
and Anr. v. CIT reported in [1999] 239 ITR 587 at p. 594).

Similar views of Mum ITAT in IDBI Limited 104 TTJ 230 17. In our humble
understanding, conceptually, liability of TDS is in the nature of a
vicarious or substitutionary liability which presupposes existence of a
principal or primary liability.

Important concepts on TDS

particularly u/s 195
Payer has to bonafidely take cognizance of all available

facts; (cannot make error of fact but error of judgment is

tolerable: refer Madras high court in Chennai port trust
ITA 1409/2005);
Payer role u/s 195 cannot be equated to role of
investigator and assessing officer assessing payee; but
limited role is to ensure due diligence on part of payer;
There cannot be impossible and infallible onus on payer
as TDS provision is machinery/procedural provision (has
to implemented in manner in which it is workable)
(mumbai bench ITAT in 137 TTJ 662 National Aviation case)
Section 195 itself cannot decide taxability of payee which
is tackled elsewhere (section 9 & other charging sections)
refer SC decision in Eli Lily 312 itr 225(whole act is
integrated code of taxation)

Allahabad high court in

Jagran Prakashan case
345 ITR 288
Revenues onus before proceeding against

payer u/s 201

"...........it is clear that deductor cannot be
treated an assessee in default till it is found
that assessee has also failed to pay such tax
directly. In the present case, the IT authorities
had not adverted to the Explanation to s. 191
nor had applied their mind as to whether the
assessee has also failed to pay such tax
directly. Thus, to declare a deductor, who
failed to deduct the tax at source as an
assessee in default, condition precedent is

Allahabad high court in

Jagran Prakashan case
345 ITR 288
The fact that assessee has failed to pay tax
directly is thus, foundational and jurisdictional
fact and only after finding that assessee has
failed to pay tax directly, deductor can be
deemed to be an assessee in default in
respect of such tax.....
Applied by Luck bench ITAT in ICICI Case 156
TTJ 569

Overview of section 195

Overview of section 195

Section 195(1) : Key

Phrases
Any person responsible for paying to a; (payer)
A Non resident, not to a company or to a

foreign company ; (payee)

Any Interest or other sum chargeable under the
provisions of the Act;
Shall at the time of credit or payment
whichever is earlier;
Of the subject payment;
Shall deduct the tax at rates in force

Payer Covered
Payment by branch to HO/another branch abroad

whether payment by a person to a payee u/s

195? 5 Member Special Bench ITAT in
Sumitomo Mitsui Banking Corp (others incl
97 ITD 89 Kol ITAT SB ABN Amro; Mum ITAT
Dresdner Bank; British Bank at 108 ITD 375;
19 SOT 730) CBDT Circular No 746
Payment by Agent to Principal Abroad for

Indian Collections (SC Narsee Nagsee 35 ITR

134; Bang ITAT 113 TTJ 863: IF VENDOR OF
PROPERTY NON RESIDENT PURCHASER TO

Payer Covered
Whether Non Resident Payer Covered: Eg

purchase of Indian co. shares by A from B both are

non residents : contract and payment outside
India?; Payment outside India by Branch of Indian
Co In singapore to foreign people for singapore
branch business purposes (daily house keeping)
etc?
Refer BHC in Vodafone Sep 2010; SC in Eli Lily
(supra)
Section 195 embodies a machinery that would
render tax collection effective and must be
construed to effectuate the charge of tax. There

Responsible for Making Payment

SC in GE Technology case 234 CTR 153 & BHC

Vodafone case
Voluntary Payments eg Membership fees paid

to overseas business chamber; may be Mutual

concern operating on Mutuality basis
Contractual Obligation whether must? Eg

Damages paid to Non resident person for non

supply of plant and machinery

Chargeable to tax under

the Act
Jurisdictional Fact must exist like reasons must

u/s 148 for reopening; DI Satisfaction must for

search u/s 132; satisfaction must u/s 153C refer
SC in Arun Kumar vs UOI
SC GE case on above phrase:
Gives reasonable autonomy to payer to
decide sum chargeable and its amount
Magnatise: Provision of Section 4;5;9 and
90(2)/Treaty Provisions ; 195 to be read with
Charging provisions
Unique from other sections of TDS

CBDT instruction no.2/2014

27/2/2014
After considering SC orders in 327 ITR 456 (GE
Technology case); Transmission Corporation
case (299
ITR 587) and Madras high court 348 ITR 530
(Chennai Metropolitan sewerage board), it is directed
by board, that while adjudicating liability of payer u/s
201 (tds default provision), AO shall compute
appropriate proportion of sum chargeable to tax on
basis of i) nature of remittances ii) income
component therein and iii) other relevant facts
(where no application is filed by payer u/s 195(2))

CBDT instruction no.2/2014

27/2/2014
- Prospective or retrospective (whether

advantage can
be taken in ongoing pending proceedings at
AO level or appellate level)? Seems can be
applied to pending proceedings also;
- One possible way to compute income
component : Rule 10 ( determination of
income in case of non residents can be
useful tool) &
- Possible way to collate requisite information
is exercise of power u/s 133(6) from
recipient of income

Chargeable to tax under

Act
How to approach taxability of non resident payee
while proceeding u/s 195 of the Act:

Step 1: Make the classification of

transaction (eg whether covered u/s 9(1)
(vii) or u/s 9(1)(i) resp. dealing with Fees
for technical services and Business
transaction in general etc)
Step 2: Check the taxability under Income
Tax Act

Chargeable to tax under Act: Act or

DTAA/Treaty whichever is beneficial
prevails
Nature of Income

Act (apart from section 5 where-ever

applicable)

Treaty/DTAA

Business/Profession

Section 9(1)(i): Concept of Business

Connection

Salary Income

Section 9(1)(ii)

Article 5;7; 14: Concept of

Permanent Establishment/PE
or Fixed Base
Article 15

Dividend Income

Section 9(1)(iv) and section 115A

Article 10

Interest Income

Section 9(1)(v) and section 115A

Article 11

Royalties

Section 9(1)(vi) and section 115A

Article 12

Fees for technical

services/FTS

Section 9(1)(vii) and section 115A

Article 12

Capital Gains

Section 9(1)(i) and section 45

Article 13

Chargeable to tax under

Act
Payments for which stand can be taken on
chargeability point by payer itself, without
approaching AO/TDS u/s 195(2):
Payments for capital account: loans; their
repayment, gift remittance etc
Payment for revenue account: Simpliciter
raw material import
Payment expressly exempt under the Act
eg section 10

Taxation of services/FTS: Important Concepts

(no FTS in DTAA; Connected with PE 44DA etc)
Make Available

Taxation of services: Important

Concepts
Independent Personal Services

Payee Covered
Non resident Non company and Foreign

Company (section 2 definitions)

Status at the time of payment or preceding
year?
Payment to agent of non resident (SC Narsee 35
ITR 134)
Whether covers resident but not ordinarily
resident as payee u/s 195? Seems No
Branch/PE of Non resident Assessee CBDT
Circular No 20/3-1-1961 (foreign bank branch
practical way out branches obtain 195(3)
certificates)

Precautions in applying DTAA and

Referral check

Payment covered

Where No credit nor payment ITAT in CJ Intl case

Payment in Kind: SC ruling in Kachanganga Sea Foods

Ltd IN 7/7/2010 Approving APHC order 265 ITR 644

Adjustment of Payment : SC JB Boda 223 ITR 271 ;
Mum ITAT SB in Mahindra and Mahindra; Mum ITAT
Raymond 86 ITD 791
Payment subject to Approval : Adverse views in Kar HC
in United Breweries Ltd 211 ITR 256 (fav views in BHC
in 259 ITR 391 & 249 ITR 141)
Some treaties creates chargeability at satisfaction of
payment of Royalty etc- Whether tds arises at the
time of provision or at payment stage (where
chargeability gets completed) divided views AAR

Payment covered
Adhoc Provision Whether attracts TDS liability?

Refer SC in 48 ITR 1 ; 55 ITR 699; - Kanga Palkivala etcPossible view TDS liability is attracted when service
provider etc can claim payment of amount credited)
Payment of Advance : In NR Payee follows accrual
system- possible view- no chargeable income arises so
as to attract TDS u/s 195 (However refer contra
observations in AAR at 267 ITR 727)
Income Tax Refund- Interest Thereon- Yes 195 applies
(but classification dispute whether covered u/art 12
Interest income or is covered under business income
(max. rate)- Held by Del ITAT in Pride Foramer 116 TTJ
369 covered u/art 12 @ 10%

Payment covered
Remuneration to Non resident Partners (in case

partners are carrying activities outside India for firms

business could be argued that same is not chargeable
to tax in India)
Award amount under court rule: DHC 127 DLT (2006)

401 = Held not applies ; same by BHC in 265 ITR 254

Void Agreements Payment Delhi ITAT in Ericsson 81

ITD 77 no TDS applies

Section 195(2): Application by Payer

to revenue: No Format
SC views on aforesaid provision in GE case Gist:
Based on principle of proportionality
Applies when payer has no doubt for

chargeability vis a vis Payee : Computation

in doubt
Is not applicable to every foreign remittance
as revenue seeks to keep track of foreign
payments through this and for admin
convenience Not tenable

Section 195(2): Application by Payer

to revenue: No Format
Whether applies to foreign company also?
Seems yes
Whether can be taken for Nil TDS? ? Contrary
decisions in 113 ITD 85 (YES) ; 81 ITR 162; 28
TTJ 425
(NO) Better view : YES (Bang ITAT Biocon
Pharma
Case ADVERSE view)
whether for all phases of work separate
certificate is required? Held Yes in 113 ITD 85

Section 195(2): Application by Payer

to revenue: No Format
Writ petition possible to be filed against
195(2) and section 264 revision also possible:
refer Bombay High Court in L&T; Mc Kinsey
and Diamond Star cases
For appeal against 195(2): Where cum tax
arrangement section 248 possible) scope of
section 248 whether much wider?
Case Study: Relating to LOB benefit in India
Singapore DTAA

Section 195(2): Application by Payer

to revenue: No Format
Case Study: If AO/TDS u/s 195(2) issues a
certificate u/s 195(2) holding the field for a
period of time, if payer based on the same
makes some payment (partly), whether AO by
cancelling and issuing/revising fresh 195(2)
ask the payer to withhold the tax on revised
say increased rate for earlier remittances
also, contending that payer is having
sufficient balance in his possession, to take
care off the same?
Case Study: Whether 264 FAVORABLE
order over 195(2) application is binding

Section 206AA(1)
(1) Notwithstanding anything contained in any
other provisions of this Act, any person entitled to
receive any sum or income or amount, on which tax
is deductible under Chapter XVIIB (hereafter
referred to as deductee) shall furnish his Permanent
Account Number to the person responsible for
deducting such tax (hereafter referred to as
deductor), failing which tax shall be deducted at the
higher of the following rates, namely:
(i) at the rate specified in the relevant provision
of this Act; or
(ii) at the rate or rates in force; or

Section 206AA(1): Salient Features

Word used is entitled to receive
Overrides the whole Act incl Finance Act
Applies when tax is deductible under any of the

provisions of Chapter XVII-B

One leg: Rates in Force is defined u/s 2(37A)(iii):
DTAA/Act which ever is beneficial applies read with
CBDT Circular No 728 30/10/1995 (also applies to same
term used in section 195(1)
Inserted by the Finance (No. 2) Act, 2009, w.e.f. 1-42010

Objective behind section

206AA
Statutory provisions mandating quoting of
Permanent Account Number (PAN) of deductees in
Tax Deduction at Source (TDS) statements exist
since 2001 duly backed by penal provisions. The
process of allotment of PAN has been streamlined
so that over 75 lakh PANs are being allotted every
year. Publicity campaigns for quoting of PAN are
being run since the last three years. The average
time of allotment of PAN has come down to 10
calendar days. Therefore, non-availability of PAN
has ceased to be an impediment. In a number of
cases, the non-quoting of PANs by deductees is
creating problems in the processing of returns of

Objective behind section

206AA
.In

order to strengthen the PAN mechanism,

it is proposed to make amendments in the Income
Tax Act to provide that any person whose receipts
are subject to deduction of tax at source i.e. the
deductee, shall mandatorily furnish his PAN to the
deductor failing which the deductor shall deduct tax
at source at higher of the following rates
Memorandum Explaining Provisions of Finance No 2
Bill 2009

Press Release on 206AA

Clarified vide Press Release Dated January
20, 2010
.All deductees, including non-residents having
transactions in India liable to TDS, are advised to
obtain PAN by 31st March 2010 and communicate
the same to their deductors before tax is actually
deducted on transactions after that date.REF no.
402/92/2006 MC (04 OF 2010).

Issues u/s 206AA

Non residents

Issues u/s 206AA

Whether 206AA applies to section 192 payments?

Section 195(6) : Rule

37BB
Section 195 [(6) The person referred to in subsection (1) shall furnish the information relating to
payment of any sum in such form and manner as
may be prescribed by the Board.]
Rule 37BB. (1) The information under sub-section
(6) of section 195 shall be furnished by the person
responsible for making the payment to a nonresident, not being a company, or to a foreign
company, after obtaining a certificate from an
accountant as defined in the Explanation to section
288 of the Income-tax Act, 1961 (old language till
September 2013)

Objective of section
195(6)
..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 nonresidents. There has been 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 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 payment of any sum to

New Rule 37BB (w.e.f1/10/2013)

Key points:
i) Amended rule requires reporting in cases
where taxability is there in hands of recipient non
resident;
ii) Additionally it specifies list of 28 payments for
which no information is required to be furnished at
all;
iii) In between it was suggested in a notification
which was not enforced that 39 payments do not
require any reporting;
iv) Small payments not exceeding Rs 50,000
(aggregate Rs 250,000) only requires filing of Part A
of Form 15CA;

New Rule 37BB (w.e.f1/10/2013)

Key points:
vi) Salary also included (provided chargeable and
exceeding small payment criteria) not covered
earlier;
vii) Specific duty on Authorized dealer to
maintain 15CA which can be called upon by income
tax authority in any proceeding under the Act;
viii) Revised Form 15CB (part B of 15CA) aim to
capture almost entire process of determination of
taxability in cross border payment as glaring
from:a) taxability under Act without considering
DTAA; b) Where DTAA is considered details for TRC;
applicable DTAA; its relevant article; tax liability

Concerns and Issues

a) What is significance of sum not chargeable to tax in

amended rule 37BB vis a vis specified 28 payments;
b) Status for commission payment; import payment and freight
payment in new format for reporting?
c) Difference in opinion between BANK (authorized dealer ) and
payer/deductor Way out?
d) Whether declaration on plain paper can be sufficient in non
chargeable cases instead of 15CA?
e) Insulation from reporting in rule 37BB do not automatically
bars revenue to quiz payer on its decision for no TDS (hence
exercise of bonafide opinion must on part of payer)
f) Complicated cases (where DTAA involved, difference in court
rulings on taxability like software purchase etc) : better to
report and make compliance (as also reflect due diligence on
part of payer);
g) Credit card payments and personal payments (except gift

Form No 15CA and Form

15CB
- Documentation by CA while issuing Form 15CB
- Agreement and Invoices; Tax Residency
Certificate
- Declaration/Certificate from payee for no
PE, tax residency, beneficial owner, treaty
entitlement, etc and Indemnification from payee
- Payment details
- Correspondences
- Technical Advice prove bonafides
- Proof of services being rendered in case of Group
Company transactions
- E-mails etc regarding pricing in case of Group

Form 15CB: Example of language

Example of Certification language by CA:
Since subject services being advertisement charges
are classifiable as business profits under India- USA
DTAA, in absence of payees PE under Article 5 of said
DTAA, the subject remittance to payee is not taxable
as business profits in India and hence it is concluded
that no tax is deductible on the same We place
reliance upon following
Since subject export commission payable to non
resident payee is classifiable as business profits under
India USA DTAA, in absence of payees PE under
article 5 of said DTAA, the subject remittance to payee

IN THE INCOME TAX APPELLATE TRIBUNAL C Bench Chennai

ITA No.909/Mds./2013 Assessment year:2009-10 M/s.Delta
Shoes Pvt Ltd., Date of Pronouncement : 31.07.13: (significance
of declaration from payee)

Assessee moved in appeal before the CIT(A) wherein it

argued that certification/declaration from the two
overseas agents were duly produced by it. As per the
assessee, both these persons had declared that they
were not having any establishment in India Held: It
seems Assessing Officer disbelieved such declaration for
a reason that it did not have a government
authentication. In our opinion, there is no such
requirement under the Act. When assessee had obtained
confirmation from the non-resident agents that they were
not having any establishment in India, it could be
disbelieved only if there were any circumstances, which

Critical Points in Form

15CB
Beneficiary of Payment; Documents Examined

Form No 15CB whether applies to all

payments? Rule versus Act 195(1) versus
195(6)

No appeal against CA Certificate 106 ITD 521

Embroiling Issues
TRC/Tax Residency certificate u/s 90(4) & (5) :

(4) An assessee, not being a resident, to whom an agreement referred

to in sub-section (1) applies, shall not be entitled to claim any relief
under such agreement unless 60b[a certificate of his being a resident] in
any country outside India or specified territory outside India, as the
case may be, is obtained by him from the Government of that country
or specified territory.]
(5) The assessee referred to in sub-section (4) shall also provide such
other documents and information, as may be prescribed.]
(only required where DTAA applied to give benefit to non
resident)

Amendments by finance act 2012 in

section 195
Non resident to non resident transaction covered by

adding explanation 2 to section 195(1) to overcome SC

order in Vodafone case 341 ITR page 1
Sub section 7 was inserted in section 195 giving

delegated power stating Notwithstanding anything

contained in sub-section (1) and sub-section (2), the Board may,
by notification in the Official Gazette, specify a class of persons
or cases, where the person responsible for paying to a nonresident, not being a company, or to a foreign company, any
sum, whether or not chargeable under the provisions of this Act,
shall make an application to the Assessing Officer to determine,
by general or special order, the appropriate proportion of sum
chargeable, and upon such determination, tax shall be deducted

Reimbursements
ACIT vs. Modicon Network (P) Ltd. (2007) 14 SOT 204
(Delhi).
Applied by Bang ITAT in CGI INFORMATION
SYSTEMS & MANAGEMENT CONSULTANTS PVT
LTD on software cost reimbursement (refer M&M
SB ITAT)
For costs contributions refer E&Y Advance
ruling; HMS Real Estate advance ruling; Case of
M/s. Invensys Systems Inc. USA Applicant (no
technical services involved etc) ; Advance Ruling
in ABB Ltd; Held the reimbursement of research

Reimbursements
Documentation important; to ensure same is on actual: Refer

Guj High Court ruling in the case of SCARLET DESIGNS PVT LTD TAX APPEAL No. 1849 of 2008;

Delhi ITAT Grand Prix 34 DTR (Del)(Trib) 248; Expeditors International 118 TTJ 652;

Bang Bench in International Airport Ltd 116 ITD 446;

Krupp Udhe GMBH INCOME TAX APPEAL NO.2626 OF 2009

CIT vs Siemens Aktiongesellschaft 310 ITR 320 (Bom)

Information Architechts BHC

Tekmark Global Solutions LLC Mum ITAT ITA No. 671/Mum/2007 February 23, 2010

Nathpa Jhakri Joint Venture vs ACIT Mumbai ITAT 37 SOT 160

BHC in Krupp GmbH

The learned Counsel appearing on behalf of the

Revenue has stated that the first and second question

relate to the same issue namely whether
reimbursement of expenses would be liable to be
included in the income and hence they are taken up
together Held
In so far as the issue of reimbursement is concerned,
the Tribunal held that though there was a conflict
between the judgment of the Kerala High Court, which
was relied upon by the Commissioner of Income Tax
(Appeals) and the judgment of the Calcutta High Court
in the case of CIT V/s. Dunlop Rubber Company
Limited.

BHC in Krupp GmbH

It would follow a view which was favourable to the

assessee, consistent with the judgment in Vegetable

Products Limited The question as to whether a
reimbursement for expenses would form part of the
taxable income is not resintegra in so far as this
Court is concerned. In Commissioner of Income Tax
V/s. Siemens Aktiongesellschaft5, a Division Bench of
this Court held that it was in agreement with the view
taken by the Calcutta High Court in Dunlop Rubber
Company Limited (supra) and by the Delhi High Court
in Commissioner of Income Tax V/s. Industrial
Engineering Products (Private) Limited.

BHC in Krupp GmbH

Further refer:

a) Delhi Bench ITAT in Grand Prix (in context of

section 194C reimbursements to CHA etc) 34
DTR 248 & Expeditors International 118 TTJ
652
b) BHC in Information Architechts
c) DHC in Fortis & Lear Automotives
d) Gujarat High Court in SCARLET DESIGNS
PVT LTD e) Bang Bench in International Airport
Ltd 116 ITD 446

Refund of TDS u/s 195

Refund of sums deducted: CBDT Circular no
7 of
2007 23/10/2007- Contract cancellation (when
no
remittance to non resident, in case amount
remitted to
non resident- same is returned to payer);
Subsequent
exemption under law; deduction of tax twice; by
mistake;
higher tds rate applied when law provides lower
rate,

Other interesting Issues related

to195
Time limit u/s 201 for non resident payee?
Disallowance u/s 40(a)(i) for capitalized cost

with No TDS
Disallowance u/s 40(a)(i) for Section 42 cases
or where income assessed on estimated basis?
Advance Ruling recourse to be weighted
Section 40(a)(iii) Delhi ITAT Dolphin 28 SOT 141
No Surcharge/Education cess if treaty rates
applied, ordinarily (SC 83 ITR 346 etc) Section 44BB/44BBB/ section 112 application

Embroiling Issues
Professional payment vs technical services

under the act can be differently classified?

Prima Facie Yes (refer 154 TTJ 537; 318 ITR
237 )
Whether after amendment in section 9(1)(vii)
that services can be rendered anywhere (place
of utilization important) has any effect on
DTAA?
Fav .Bombay high court and ITAT decision in
Ishikawa case post amendment
Treaty Concept of making available technology
read into section 9(1)(vii) in diluted manner

Embroiling Issues
Onus on revenue to prove services make

available technology and recipient has

PE/business connection in India
Before retrospective amendment in section 9
for no TDS on stated transactions : no adverse
view possible against payer u/s 201/40(a)(i)
Agra ITAT in Virola International case
(itatonline.org)
Role of Section 195 in Sharing of proceeds :
Delhi ITAT in Hughes case 51 SOT 356 (applied
318 ITR 289)
Concept of business connection & permanent
establishment (vis a vis subsidiary) explained

Delhi high court in EON technologies 246 CTR Page 40

which states as under:
Ay-2007-2008. The commission was paid to non-resident agent for

sales abroad. No income to non-resident accrued in India. the

commission paid could not be disallowed for want of DTS under s.
195 Payment received in India- Mere book- entery did not mean
that payment was received in India. Business connection- The nonresident agent operated abroad. There was no business
connection. No income to non-resident accrued in India. Ss.5(2),
9(i)(i), 40(a)(i) and 195 of the Income Tax Act 1961 & The term
business connection has been interpreted by the Supreme Court
to mean something more than mere business and is not equivalent
to carrying on business, but a relationship between the business
carried on by a non-resident, which yields profits and gains and
some activities in India, which contributes directly or indirectly to
the earning of those profits or gains. It predicates an element of
continuity between the business of the non-resident and the
activity in India [CIT Vs. R.D. Aggarwal and Company (1965) 56
ITR 20 (SC), Carborandum & Co. Vs. CIT (1977) 2 SCC 862 and

Commission Expense Post

Withdrawal of Circular No 786/2K
"Commission" simpliciter is not Fees For Technical Services
u/s 9(1)(vii) of the Act and same being in the nature of
"business income" for recipient of income/payee/non
resident, is also not taxable in India vide section 9(1)(i) in
case of absence of business connection in India. Therefore,
since chargeability for non resident agent providing services
to Indian Party is clear as per aforesaid understanding and
since there is NIL chargeability under the Act itself for non
resident payee, option to approach AAR/AO u/s 195/197, in
my considered view, is not required to be exercised, in facts
of instant case. This is supported from SC/other rulings in
a) Shoorji Plaoonji 39 ITR 775
b) Perofrming rights 106 ITR 11
c) Cal HC in 5 ITR 216
Further, one would be on much stronger footing, in case
relevant DTAA contains in Article 12 (mainly) dealing with
royalty and fees for included services "make available"

IN THE INCOME TAX APPELLATE TRIBUNAL

PUNE BENCH A, PUNE ITA Nos.2563, 2564 & 2565/PN/2012
A.Y. 2008-09 Mahindra Forgings Ltd. Date of order : 27.02.2014

NO tds required u/s 195 for overseas remittance relating to :

a) transportation /travel and C&F charges for machinery import b) air fare
expenses of technicians supervising machinery erection ;
c) supervision of installation and erection being integral part of purchase price
not chargeable to tax in india (Mumbai Bench L in the case of DCIT, Mumbai
Vs.Dodsal (P.) Ltd. (2013) 29 taxmann.com 65 (Mum), ITAT, Chennai
Special Bench (2010) 125 ITD 263 (Chennai) (SB); Supreme Court in the case
of Ishikawajma Harima Heavy Industries Ltd. Vs.DIT (2007) 288 ITR 408 (SC);
Honble High Court of Andhra Pradesh in the case of CIT V. Sundwiger EMFG
& Co. (2003) 262 ITR 110 (AP); Honble Calcutta High Court in the case of
Andrew Yule & Co. Ltd V. CIT - (1994) 207 ITR 999 (Cal.),)
d) designs and drawings simpliciter purchase held on facts not taxable in India
(refer Andhra Pradesh high court approving Vizag bench ITAT international
taxation order Nissho Iwai Corpn)

Hyd bench ITAT on TDS u/s 195 on usance interest :

disallowance u/s 40(a)(i): BENCH B, HYDERABAD M/s
Agarwal Industries Ltd., Hyderabad. Date of Pronouncement :
07/03/2014 ITA NOs. 629/Hyd/2012 and 141 & 174/H/13
18. We have heard both the parties and perused the record as well as
gone through the orders of the authorities below. The Bombay High
Court in the case of CIT Vs. Vidyut Corporation, 324 ITR 221 held that
the amount paid by the purchaser on account delay in payment of sale
price also constitutes a component of sale price and is a part of sale
consideration. 19. The coordinate bench in the case of Agarwal Impex Pvt. Ltd.
in ITA No. 735/Hyd/2011, dt. 06/01/2012 held that Interest paid on LC
facility cannot be subject to TDS.
20. The provisions of section 195 are not applicable and, therefore,
provisions of section 40(a)(ia) are not attracted for the following
reasons:i) The amount paid forms cost of purchase and not interest as
described.
ii) This is a transaction bank to bank and, therefore, provisions of
TDS are not applicable.

BENCH B, HYDERABAD M/s Agarwal Industries Ltd.,

Hyderabad. Date of Pronouncement : 07/03/2014 ITA NOs.
629/Hyd/2012 and 141 & 174/H/13
iii) The respondent does not know who is exactly the person
receiving the component of additional purchase price
(interest) for deferment of payment. Hence provisions of
section 195 are not attracted.
iv) The person receiving the amount is not chargeable to tax
in India. Hence provisions of section 195 are not attracted.
v) Even under the provisions of Double Taxation Avoidance
Agreements (DTAA) with Singapore and Indonesia this
amount paid is not liable to tax in India in the hands of the
recipient. Hence provisions of section 195 are not attracted.
vi) In any event the payer is the issuing bank in India and
not the respondent. Therefore provisions of section 195 are
not attracted.
21. In view of the above discussion, and considering the
totality of the facts and circumstances of the case, we do

ITA no. 7347/Mum./2007 Assessment Year : 200405 IN THE

INCOME TAX APPELLATE TRIBUNAL M/s. Antwerp Diamond Bank
NV L BENCH, MUMBAI (royalty u/s 9(1)(vi) amendment in Act
cannot rewrite DTAA) (also refer: 152 TTJ 145 )

18. Insofar as the reliance placed by the learned Departmental

Representative on the decisions of the Madras High Court and also
the scope of royalty as given in Explanation 4 and 5 to section
9(1)(vi) brought in statute by the Finance Act, 2012 are concerned,
we find that the same is not tenable for the reason that once the
assessee has opted for the benefit of the DTAA, then there is no
requirement for resorting to the definition and the scope of
royalty as given in section 9(1)(vi). The said amendment cannot
be read into the treaty and will not influence the definition of
royalty, as given in Article 12(3). This proposition is squarely
covered by the decision of the Bombay High Court in Siemens
Aktiongesellschaft (supra), the decision of Delhi High Court in
Nokia Network [2013] 212 Taxman 68. and DIT v/s Ericson
AB, [2012] 343 ITR 470.

Also refer Delhi high court in Intrasoft case vide order

dated 22nd November, 2013 in ITA No.1034/2009,

Mumbai ITAT in Yashraj films case (2013) 140 ITD

625/23 ITR 125 (Mum.)(Trib.)

Section 9(1)(i): Income deemed to

accrue or arise in India Business

connection Service rendered abroad
Deduction at source DTAA-India-UKPoland-Brazil-Canada-Australia
Business profit Assessee was not liable
to deduct tax at source from said
payments and Assessing Officer was not
liable to deduct tax at source, hence the
assessee cannot be treated as in default
under section 201. (Ss.9(1)(vii), 195,
201)

Mumbai ITAT in Yashraj films case (2013) 140 ITD

625/23 ITR 125 (Mum.)(Trib.)
Assessee company was engaged in business of production

of films, shooting of which was often done outside India. For

shooting films outside India, its production unit used to go
abroad and services required in connection with work of
shooting abroad were availed from various overseas
providers. The assessee made payment to five such
overseas service providers for services availed in connection
with shooting of different films. It was held that the services
rendered by overseas service providers would not fall within
ambit of technical services as given in Explanation 2 to
section 9(1)(vii) instead they were in nature of commercial
services and amount received for such services constituted
business profit. (A.Y. 2005-06 & 2006-07)

AAR in case of Endemol [2013] 40 taxmann.com 340

(AAR)(BCAJ) Jan - 2014
The applicant was engaged in the business of production of

television programmes for broadcasting and telecasting. Inter alia,

the applicant produced a reality show (the show) for which the
shooting took place in Argentina. For the purpose of the show, it
engaged an Argentinian company for providing line production
services in Argentina.
The issue raised by the applicant before the AAR was: whether the
amount paid to the Argentinian company would constitute Fees for
Technical Services [u/s 9(1)(vii)] or Royalty [u/s. 9(1)(vi)] or
business income [u/s 9(1)(i)] and at what rate tax should be
withheld from the payments?
Since the payments made by the applicant to the Argentinian
company were for production of programmes for the purpose of
broadcasting and telecasting, the services rendered would be
specifically characterised as 'work' u/s. 194C. If a particular item is
specifically characterized in a particular section of the Act, it will
override the provision in the general section. Since the services are

Other Popular Payments

Marketing Payments
Internet-Bandwidth Payments
Repair Charges (Hyd bench in 151 TTJ 126 &

VSNL Broadband)
Advertisement in Foreign Media (Mumbai
bench ITAT in Sandoz case)
Training Fees (Ahd bench in 156 TTJ 115)
Simpliciter rights payment not royalty (143 TTJ
566 321 ITR 459 etc )
Mumbai bench ITAT Siemens 152 TTJ 689Lab
testing services:
Connotation of word managerial; technical; and consultancy in 150 TTJ

801 ; 50 SOT 268 )

Other important
precedents
How DTAA are to be read: ITAT in Hindalco
reported at 94 TTJ 945
Protocol to DTAA in integral part of treaty/DTAA:
ITC Limited 82 ITD 239
Professional Services: Mumbai ITAT Graphite India
Limited 86 ITD 384 & KPMG case 2012-TII-61ITAT-MUM-INTL) (Mumbai Tribunal: Payments
towards professional fees is not royalty and

Thank You
Kapil Goel
Advocate
kapilnkgoelandco@gmail.com