INCOME TAX
INSTRUCTION NO. 2/2014
DATED 26-2-2014
Section 195 of the Income-tax Act (hereafter referred to as ' the Act') provides that any person, responsible for paying to a non-resident not being a company or to a foreign company, any sum chargeable under the provisions of this Act, shall at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier, deduct income-tax thereon at the rates in force. Section 201 of the Act inter alia provides that any person who is required to deduct tax in accordance with the provisions of the Act, does not do so, shall be deemed to be an assessee in default and shall also be liable to pay simple interest at the specified rate.
2. References were received from field officers on the issue of deduction of tax at source under section 195 of the Income-Tax Act, 1961 in the tight of the decisions of the Supreme Court of India in the case of GE India Technology (P.) Ltd. v. CIT [2010] 7 taxmann.com 18/193 Taxman 234/327 ITR 156 (SC) and Transmission Corporation of AP Ltd. and another v. CIT [1999] 105 Taxman 742/239 ITR 587 (SC) and the decision of the Madras High Court in CIT v. Chennai Metropolitan Water tax Cases Appeals Nos.500-501 of 2005, [2011] 14 taxmann.com 73/202 Taxman 454/[2012] 348 ITR 530 (Mad.) with a request for clarification as to whether the tax is to be deducted under sub-section (1) of section 195 on the whole sum being remitted to a non-resident or only the portion representing the sum chargeable to tax, particularly if no application has been made undo sub-section (2) of section 195 of the Act to determine the sum.
3. The matter has been examined in the Board and accordingly, in exercise of powers vested under Section 119 of the Act, the Board hereby directs that in a case where the assessee fails to deduct tax under section 195 of the Act, the Assessing Officer shall determine the appropriate proportion of the sum chargeable to tax as mentioned in sub-section (1) of section 195 to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201 of the Act, and the appropriate proportion of the sum will depend on the facts and circumstances of each case taking into account nature of remittances, income component therein or any other fact relevant to determine such appropriate proportion.
4. The undersigned is directed to state that the above position may be brought to the notice of all officers concerned.
[F.NO.500/33/2013-FTD-I]