IMPORTANT POINT
The expression "any other sum chargeable under the provisions of this Act" in Section 195 of Income Tax Act would mean `sum on which income-tax is leviable. It would include cases where any sum payable to non-resident is a trading receipt which may or may not include pure income .

Headnote:Income Tax Act, 1961-Section 195-TDS-"Any other sum chargeable under the provisions of this Act"-Meaning of-It means sum on which income-tax is leviable-It would include cases where any sum payable to non-resident is a trading receipt which may or may not include pure income -Obligation to deduct tax is limited to appropriate proportion of income chargeable under the Act.
       Held : The scheme of sub-sections (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" in Section 195 of Income Tax 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 what would be the income is to be computed on the basis of various provisions of the Act including provisions for 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 is 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, may 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. (Para 8)
       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 casts an obligation to deduct appropriate tax at the rates in force. (Para 10)

JUDGMENT

Shah, J.-These appeals are filed by the Assessee against the judgment and order dated 2nd July, 1984 passed by the Andhra Pradesh High Court in deciding three income tax references partly in favour of the revenue. (Re : CIT v. Superintending Engineer, Upper Sileru1). The Court held that provisions of Section 195 relating to deduction of tax at source come into operation in respect of sums paid to a non-resident, whether or not such sum represents only income or profits if such sums are paid to non-residents during the course of regular trading operation. That finding is challenged in these appeals.

2. Before deciding the question involved, we would refer to a few facts of the matter:

The appellant-the Andhra Pradesh State Electricity Board (hereinafter referred to as "the Board") made certain payments to non-residents against the purchase of machinery and equipment and also against the work executed by the non-residents in India of erecting and commissioning the machinery and equipment. The Board entered into two separate agreements with M/s. Charmilles Engineering Works Ltd., Geneva, Switzerland, one for the purchase of Nos. 95,000 BHP Francis Turbines and another for purchase of 2 Nos. Butterfly Valves. There were two other contracts of the assembly, erection and testing and commissioning of the aforesaid equipments. The payments were made to the non-resident company for the financial year 1966-67 to 1972-73. The Board also entered into an agreement with Oerlikon Engineering Co., Zurich, Switzerland, for the purchase of 2 Nos. 60 MW generators and Indoor Switchgear for the Sileru Hydro Electric Scheme. Another contract was executed for the assembly, erection and testing and commissioning of the above equipments. The payments were made in the financial year 1966-67, 1967-68 and 1968-69. Third contract was entered by the Board with M/s. Sacheron Works Ltd., Geneva, Switzerland for the purchase and erection of 7 Nos. power transformers for the Sileru Hydro Electric Scheme. On the basis of the said contract in the financial year 1966-67, the amount was paid to the non-resident company. For the aforesaid payments, the question arose whether the Electricity Board was under an obligation to deduct tax at source from these payments under Section 195 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). These payments were made by the Electricity Board without deduction of tax at source. Owing to the failure of the Electricity Board to deduct such tax, it was deemed to be an assessee in default in respect of the tax deductible at source. Hence, Income Tax Officer passed orders determining the tax which, according to him was deductible at source under Section 195 and the Electricity Board was required to pay such amounts. Against the order of the Income Tax Officer, appeals were filed by the assessee which were allowed by the Appellate Assistant Commissioner with the observation that the words "any other sum chargeable under the provisions of this Act" occurring in Section 195 of the Act do not contemplate inclusion of trade receipts in their ambit and that Section 195 applies only to cases where the sums paid are "pure income profits". The Appellate Assistant Commissioner, therefore, allowed the appeals and set aside the orders passed by the Income Tax Officer. Against the said orders, Revenue preferred appeals before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal also dismissed the appeals filed by the Income Tax Officer on the ground that the provisions of Section 195 of the Act are not applicable to payments of sums to a non-resident, which are not "pure income profits". Thereupon, on the reference applications filed by the Commissioner of Income Tax under Section 256(1) of the Act the Tribunal referred the following question of law for the decision of the High Court for the payments made to the non-resident company:

R.C. No. 205 of 1978 :

"Whether on the facts and in the circumstances of t

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1999 Supreme(SC) 876

IMPORTANT POINTThe expression "any other sum chargeable under the provisions of this Act" in Section 195 of Income Tax Act would mean `sum on which income-tax is leviable. It would include cases where any sum payable to non-resident is a trading receipt which may or may not include pure income .

Cases Referred (1)

IMPORTANT POINT
The expression "any other sum chargeable under the provisions of this Act" in Section 195 of Income Tax Act would mean `sum on which income-tax is leviable. It would include cases where any sum payable to non-resident is a trading receipt which may or may not include pure income .