- (1.) The Court: The subject matter of challenge in this appeal is a judgment and order dated 15th May 2010 by which the learned Tribunal dismissed the appeal preferred by the assessee upholding the views of the CIT (Appeals) who had upheld the views of the assessing officer refusing to allow deduction of a sum of Rs. 37,33,527/- on the ground that "the assessee did not deduct tax at source for the said expenses even till-date. Hence Rs. 37,33,527/- is added back to the total income of the assessee for the previous year relevant to Asst. Year 2005-06 as per provisions of section 40(a)(ia) of the Income-tax Act, 1961. Mr. Shome, learned senior advocate appearing for the assessee appellant drew our attention to various bills included in the paper book which were also before the learned Tribunal in order to show that the goods exported by the assessee were carried by Lufthansa Airlines. For the purpose of availing the service of the aforesaid carrier assistance of four several agents of the aforesaid carrier was taken, particulars whereof and the amount paid to them are as follows:--
(2.) Mr. Shome submitted that the appellant was under no obligation to deduct tax at source in respect of freight paid to a foreign carrier. He drew our attention in support of his contention to the judgment in the case of GE India Technology Centre (P.) Ltd. v. CIT, 2010 327 ITR 456 wherein the Apex Court opined as follows:-- ...The most important expression in section 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Income-tax Act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the recipient and the payments does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the Income-tax Act. It may be noted that section 195 contemplates not merely amounts, the whole off which are pure income payments, it also covers composite payments which have an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated October 30, 1995 the Central Board of Direct Taxes has clarified that the tax deductor can take into consideration the effect of the DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that section 195(1) is in identical terms with section 18(3B) of the 1922 Act. In CIT v. Cooper Engineering Ltd, 1968 68 ITR 457 it was pointed out that if the payment made by the resident to the non-resident was an amount which was not chargeable to tax in India, then no tax is deductible at source even though the assessee had not made an application under section 18(3B) (now section 195(2) of the Income-tax Act). The application of section 195(2) pre-supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a nonresident but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted. In such a situation, he is required to make an application to the Income-tax Officer (TDS) for determining the amount. It is only when these conditions are satisfied and an application is made to the Income-tax Officer (TDS) that the question of making an order under section 195(2) will arise. In fact, at one point of time, there was a provision in the Income-tax Act to obtain a NOC from the Department that no tax was due. That certificate was required to be given to the RBI for making remittance. It was held in the case of Czechoslovak Ocean Shipping International Joint Stock Company v. ITO, 1971 81 ITR 162 that an application for NOC cannot be said to be an application under section 195(2) of the Act. While deciding the scope of section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of section 195.
(3.) Mr. Shome also drew our attention to a judgment of the Income Tax Appellate Tribunal, Kolkata 'B' Bench, Kolkata in Taj Leather Works v. Asstt. CIT,2012 52 SOT 228 wherein the learned Tribunal opined that payment made to the issuing carrier agent on account of airfreight payable to the foreign carrier was not deductible at source under section 194(C). To be precise the view expressed by the learned Tribunal are as follows:-- 6. It is an admitted position that so far as the airfreight is concerned, it is paid to the agents on the actuals basis and that the bills and airfreight documents have been directly issued to the foreign airlines. PDP and DHL, while accepting payments for airfreight components, have acted merely as agents of the respective airlines and have not received the airfreight payments in their own right. In copies of airway bills, which have been filed before us in the paperbook, the name of these agents is shown as "Issuing carrier's agents and the city" as also the agent's code is given as "Agent's IATA code". There is thus enough material to demonstrate that the persons having received money for the airfreight have received the same in their capacity as "issuing carrier's agent" i.e. agent of the airline concerned. The airfreight payment is thus made to the foreign airlines, namely SIA, Emirates, British Airways and Lufthansa-though through the agent, i.e. PDP and DHL etc. 7. In view of the above discussions, in our considered view, the payments cannot be said to have been made to a resident company, and, accordingly, the provisions of section 194C, which apply only on the resident recipients, do not come into play.;