Vildirect: IncomeTax-caselaws-1990-VIL-535-DEL-DT

1990-VIL-535-DEL-DT

Equivalent Citation: [1990] 185 ITR 540, 84 CTR 91, 53 TAXMANN 135

DELHI HIGH COURT

Date: 30.03.1990

JK. SYNTHETICS LIMITED

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

Judge(s) : R. N. PYNE., D. P. WADHWA

JUDGMENT

The judgment of the court was delivered by

WADHWA J.-By order dated March 23, 1990, we dismissed this petition in limne and stated that we would give our reasons later.

The petitioner, a public limited company, challenged the order dated March 7, 1989, of the respondent whereby it dismissed an application of the petitioner for exemption from TDS (tax deduction at source) on interest payable by the petitioner to its foreign supplier of raw material. The petitioner claimed exemption under section 10(15)(iv)(c) of the Income-tax Act, 1961 (for short "the Act"). The respondent held that in view of the proviso to sub-section (2) of section 195 of the Act, such a certificate could not be granted.

The case of the petitioner is that it imported certain spin finish oil from Japan costing US $ 68850. One of the terms of repayment of the supply price was that the petitioner had to pay interest at the rate of 9.3125% on the value of imports. The Japanese supplier sent an invoice dated September 12, 1988, for the interest payable by the petitioner for a period of 166 days and amounting to US$2956.49. The due date for repayment of the supply price and the interest was March 10, 1989. According to the petitioner, the interest component of the remittance was exempt from payment of income-tax in India as per the provisions of section 10(15)(iv)(c) of the Act. Reference is also made to a circular issued by the Central Board of Direct Taxes bearing No. F. No. 21/221-64-IT(A-1) dated August 24, 1964, prescribing the form for obtaining tax exemption in respect of interest remittance to foreign supplier of raw material. The petitioner, therefore, made an application for exemption for remittance of interest amount in the form prescribed being Form No. 'B'. The petitioner stated that the interest remittance fell for exemption under the aforesaid provision of the Act and as such no tax was deductible at source by the petitioner before, effecting the interest remittance. It is also stated that the foreign supplier had no agent in India and as such no tax at source was required to be deducted in view of the provisions of the Act and the Central Board of Direct Taxes Circular referred to above. This application by the petitioner was made on February 24 ,1989.

The respondent wrote on March 7, 1989, as under:

"In view of the proviso to sub-section (2) of section 195 of the Income-tax Act, 1961, the request made by you for the grant of certificate cannot be acceded to."

This order, as noted above, is impugned in the present writ petition.

On the filing of the writ petition, this court, on March 10, 1989, issued notice to the respondent to show cause as to why rule nisi be not issued and, at the same time, on an application of the petitioner, directed that, on its depositing an amount of Rs. 1,50,000 with the Registrar of this court, the petitioner would be allowed to remit an amount equivalent to US$2956.49 to the foreign supplier without deducting or depositing any tax on the interest amount. It was also ordered that this exemption of tax would be subject to further orders of the court. This interim order was made as it was apprehended by the petitioner that since there was no tax liability and that if the amount was deposited with the Income-tax Department, it would be difficult for the petitioner to get back the amount and further, that there was no agent of the foreign supplier to claim this amount.

We find there is no infirmity in the impugned order made by the respondent. The application for grant of certificate could not have been made under any other provision of law in the Act except sub-section (2) of section 195 of the Act. Reference in this connection may be made to Division Bench decision of this court in CIT v. Jay Engineering Works Ltd. [1984] 149 ITR 425. Sub-section (2) of section 195 and the proviso thereto may be set out as under :

" (2) Where the person responsible for paying any such sum chargeable under this Act other than interest on securities, dividend and salary to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable:

Provided that this sub-section shall not apply to any payment to foreign company by way of interest referred to in clause (v), or royalty referred to in clause (vi), or fees for technical services referred to in clause (vii) of sub-section (1) of section 9."

Now, section 9 ( 1 ) (v) of the Act is as follows :

"9(1) The following incomes shall be deemed to accrue or arise in India- . . .

(v) income by way of interest payable by (a) the Government; or

(b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India;"

It will, thus, at once be seen that the subject interest amount would be income which shall be deemed to accrue or arise in India. That being so, proviso to sub-section (2) of section 195 of the Act would make that subsection inapplicable in the case of the petitioner. The respondent was, therefore, right in declining to grant any exemption certificate to the petitioner as prayed by it.

It was pointed out by Mr. Jain, senior standing counsel for the Income-tax Department, that under section 160 read with section 163 of the Act, the petitioner could be regarded as an agent in relation to a non-resident and could submit a return of income as a representative assessee and, in case it succeeds, it will be entitled to the refund of the tax deducted at source and deposited to the credit of the Central Government as required under section 200 of the Act.

Since the writ petition has been dismissed, we will direct that the amount of Rs. 1,50,000 as deposited by the petitioner in this court be paid to the respondent. We will make it clear that the petitioner will not suffer any liability on account of the fact that the amount in question was deposited in this court and not to the credit of the Central Government as required under the Act.

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