Shri O.K. Narayanan, Accountant Member - (1.) THESE two appeals are filed by the assessee-company. THESE two appeals arise out of the orders passed by the Income-tax Officer, Ward 5(6)(TDS), Hyderabad, under section 201. read with section 195 of the Income-tax Act, 1961, dated 16-3-1995. The Income-Lax Officer treated the assessee-company as an assessee in default for its failure to deduct tax from the payments made to non-residents during the financial years 1992-93 and 1993-94.
(2.) The assessee is a public limited company having its registered office at Hyderabad. The assessee-company has been carrying on export sales to different countries including USA. In the course of its carrying on of the business, the assessee-company had made certain remittances by way of legal charges to its Attorneys in USA and also to various non-residents towards commission against export sales. On perusal of the Annual Report and accounts of the assessee-company for the financial years 1992-93 and 1993-94, the ITO found that the above foreign remittances were made by the assessee-company without deducting income-tax at source. On confrontation from the ITO for non-deduction of income-fax the assesses contended that the remittances made by the assessee were not chargeable under the Income-tax Act and, therefore, the company was not under any legal obligation to deduct income-tax as provided in section 195 of the Income-tax Act. The ITO held that the remittances made by the assessee-company under both the heads were chargeable to income-lax in India and, therefore, the assessee was duty-bound to deduct income-tax from the remittances made by it Regarding the payments of commission made to various nonresidents, the ITO held that the payments are covered by section 5(2)(a)-He found that the remittances towards sales commission were made to the non-residents by way of DDs and TTs. The asscsscc-company purchased the DDs from State Bank of India in Hyderabad and sent the DDs to the non-residents outside India through the medium of couriers. In other cases, the assessee-company remitted the money into their bank accounts in Hyderabad and telegraphic transfers were made to the branches of the bank abroad. The ITO held that in all these cases it has to be held that the remittances were received by the non-residents in India by virtue of the deeming provisions contained in section 5(2)(a). According to the ITO, the bank and the couriers acted as agents of the non-residents and received the remittances within India on behalf of those non-residents and, therefore, these remittances are deemed to be received in India on behalf of those non-residents. In respect of the legal fees remitted to Attorneys in USA, the ITO held that the remittances shall be deemed to be income accruing or arising in India by virtue of section 9(1)(vi)(b). According to the ITO, the assessee has made the remittances to the Attorneys in USA towards fees payable for technical services and Explanation 2 provided under that section states that "technical services" include "consultancy services" also. According to the ITO, the services rendered by the attorneys in USA were in the nature of consultancy services and, therefore, the fees paid for those services will be deemed as income accruing or arising in India. Apart from the findings on merits as discussed above, the ITO also relied on the decision of the Calcutta High Court in the case of CIT v. Blackwood Hodge (India) (P.) Ltd. [1971] 81 ITR 807, where the com t has held that the order passed under section 201 of the I.T. Act is not an assessment order and, therefore, if the Income-lax Officer establishes prima facie that the assessee was liable to deduct tax at source and if the assesses does not deduct the tax so, he becomes an assessee in default and accordingly the Income-tax Officer would be justified in initiating proceedings under section 201 of the I.T. Act. On the basis of a detailed order passed by the ITO, he held that the remittances made by the assessee-company were covered by section 195 and, therefore, the company was liable to deduct tax and as lax was not deducted, the assessee was held to be an assessee in default. On the basis of the above finding, the ITO passed orders under section 201 directing the assessee-company to pay the tax as per his orders.
(3.) THE orders passed by the ITO were taken in first appeal before the Commissioner of Income-lax (Appeals)-II, Hyderabad. THE learned Commissioner (Appeals) discussed the issue at length in his order running to 12 pages and found that the ITO was justified in passing the impugned orders under section 201 of the I.T- Act. On going through the various case laws on the subject, the learned Commissioner (Appeals) held that the income derived by the Attorneys in USA by way of legal fees from the assessee was liable to be considered as an income accrued or arisen in India under the provisions of section 9(1)(vii)(h) and the nssessec-com-pany was liable to deduct tax at source therefrom under section 195 of the I.T. Act at the time of remittance. Likewise, in the case of commission payments, the learned Commissioner (Appeals) held that the commission payments were received or deemed to have been received in India by virtue of the provisions of section 5(2)(a) and they were liable to tax in India and consequently the liability to deduct tax at source was equally existing by way of a statutory obligation. THErefore, he held that the ITO was justified in treating the assessee-company as an assessee in default and thereby raising the demand as provided in section 201 of the I.T. Act. It is against the above order of the Commissioner (Appeals) that the assessee-company has filed these two appeals before the Tribunal.;