Important Point – Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under provisions of Act not being income chargeable under head “Salaries”, would have to deduct tax thereon at rates in force.

S.C. Dharmadhikari, J.

1. On 8th September, 2015, a Division Bench of this Court hearing Income Tax Appeal No. 989 of 2015 and Income Tax Appeal No. 991 of 2015 was unable to agree with the view taken by another Division Bench of this Court in the case of Commissioner of Income-tax vs. Orient (Goa) Private Limited reported in 3 Vol. 325 Income Tax Reporter Pg. 554. It, therefore, came to the conclusion that judicial discipline demands that instead of taking a contrary view it should request that a larger bench be constituted so as to resolve the disagreement. It, therefore, directed the Registry to place the papers and proceedings of the two Appeals before the Hon'ble The Chief Justice so as to obtain suitable directions for placing the following question of law for opinion of a larger bench.

“Q. Whether, while dealing with the allow ability of expenditure under section 40(a)(i) of the Income Tax Act, 1961, the status of a person making the expenditure has to be a nonresident before the provision to section 172 of the Act can be invoked ?”

2. The Registry placed the papers before the Hon'ble The Acting Chief Justice on 8th October, 2015, and on 9th October, 2015, the Hon'ble The Acting Chief Justice directed constitution of this larger Bench. Accordingly, the question has been placed before us for our opinion and answer.

3. Before that question is answered it would be necessary to refer to the facts. A reference to the same is made only to appreciate the contentions of both sides. Income Tax Appeal No.989 of 2005 was filed by Commissioner of Income Tax under section 260A of the Income Tax Act, 1961, aggrieved and dissatisfied with the order of the Income Tax Appellate Tribunal, Panaji Bench, dated 11th December, 2005, passed in Income Tax Appeal Nos. 240/PN/2004 and 273/PN/2004. The Assessment Year is 1999-2000.

4. The assessee-respondent before this Court is a company engaged in the business of mining and export of processed iron ore as also in construction business.

5. The assessee filed its return of income on 31st December, 1999, declaring taxable income of Rs.6,19,82,540/-. The assessee claimed deduction u/s 80-HHC of Rs.12,78,82,552/-. The case was selected for scrutiny and notices u/s. 143(2) were issued to the assessee. Assessee, in response, filed details. The assessee declared other income at Rs.9,67,50,252/-. The main item of this is interest income on Bank deposits and others. The basic issue which arises is whether the entire interest income as claimed by the assessee could be said to be business income, to which explanation (baa) to section 80HHC, is applicable or whether the said interest income is income from other sources. The assessee also claimed income received from 'Lease income', 'income from transfer of vessels', 'Barge freight', 'proceeds from other services' and 'miscellaneous income', as gross receipts received in the course of its business and therefore there is no question of applying Explanation (baa) to it. The assessee also charged the demurrage charges under the head export expenses to profit and loss account on which no tax has been deducted during the year under consideration. The Assessing Officer held that in view of section 40(a)(i) r/w section 195, the amount paid as demurrage charges are liable for addition under section 40(a). The assessee also claimed miscellaneous expenses, which has been disallowed by the Assessing Officer. On scrutiny, the Assessing Officer passed an assessment order on 26th March, 2002, and allowed deductions under section 80HHC to the extent of Rs.8,07,35,598/-. A copy of the Assessment Order dated 26th March, 2002, is annexed as Annexure-A to the appeal paperbook. Being aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The CIT (A) by order dated 2nd August, 2008, partly allowed the assessee's appeal. A copy of the order dated 2nd August, 2004, passed by the CIT (Appeals) is annexed as Annexure-B to the a