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Nirlon Synthetic Fibres and Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1984)10ITD484(Mum.)
AppellantNirlon Synthetic Fibres and
Respondentinspecting Assistant
Excerpt:
.....was deductible to the date on which tax was actually paid.4. after this letter was received, the assessee paid rs. 7,21,065 on 18-10-1975. thereupon, by letter dated 23-12-1975, the ito directed the assessee to pay rs. 9,50,000 towards interest subject to adjustment on final determination of quantum of interest. by letter dated 12-10-1976, the ito informed the assessee that the tax deductible from payment made to non-resident company would come to rs. 27,07,517 in all and after taking note of the fact that rs. 22,21,065 had already been paid, he directed the assessee to pay the balance of rs. 4,86,452 and also to pay the balance of interest.5. the assessee paid the said balance of rs. 4,86,452 on 30-10-1976 and the ito by letter dated 7-5-1977, directed the assessee to pay the balance.....
Judgment:
1. This appeal by the assessee is directed against the order dated 12-6-1981, passed by the Commissioner (Appeals).

2. On 14-11-1968, the assessee-company had entered into an agreement with a non-resident company, viz., Zimmers A.G., West Germany, for erection of machinery for their tyre cord plant. It was provided in the said agreement that the payments to be made by the assessee to the said non-resident company would be free of taxes in India.

3. On 23-5-1972 the assessee addressed a letter to the ITO, in which the assessee drew attention to the agreement mentioned above and sought information as to what amount should be deducted at source under Section 195 of the Income-tax Act, 1961 ('the Act') while making payments to the non-resident company under the said agreement. This letter was sent under Section 195(2). Another letter dated 30-6-1972, making the same prayer was addressed to the ITO. The latter sought certain information by letter dated 9-7-1973. After receipt of the information, the ITO by letter dated 9-10-1975, informed that the assessee was liable to pay Rs. 22,21,065 under Section (sic) of the Act, in respect of gross taxable amount of Rs. 30,95,561 and after taking note of the fact that the sum of Rs. 15 lakhs had already been paid by the assessee on 30-9-1975, he directed the assessee to pay the balance of Rs. 7,21,065 immediately. He also drew attention of the assessee to the fact that the above mentioned payment was subject to payments of interest under Section 2O1(1A) of the Act and that under the said provision interest would be payable at 12 per cent per annum on Rs. 22,21,065 from the date on which the tax was deductible to the date on which tax was actually paid.

4. After this letter was received, the assessee paid Rs. 7,21,065 on 18-10-1975. Thereupon, by letter dated 23-12-1975, the ITO directed the assessee to pay Rs. 9,50,000 towards interest subject to adjustment on final determination of quantum of interest. By letter dated 12-10-1976, the ITO informed the assessee that the tax deductible from payment made to non-resident company would come to Rs. 27,07,517 in all and after taking note of the fact that Rs. 22,21,065 had already been paid, he directed the assessee to pay the balance of Rs. 4,86,452 and also to pay the balance of interest.

5. The assessee paid the said balance of Rs. 4,86,452 on 30-10-1976 and the ITO by letter dated 7-5-1977, directed the assessee to pay the balance of interest amounting to Rs. 3,88,095 under Section 201(1A).

Against this direction, the assessee filed an appeal before the Commissioner (Appeals).

6. It is to be seen that it was the case of the assessee from the very beginning that the tax was deductible under Section 195, in respect of payments made to the non-resident company. The direction that the assessee wanted from the ITO was regarding the amounts that was deductible. The ITO determined the amounts payable from time to time under Section 195 and the assessee paid those amounts. However, those amounts were paid by the assessee under Section 195 long after he had remitted the amounts to the non-resident under the agreement. Under Section 195 the assessee was required to deduct the amount before making payments to the non-resident. Since the deduction was made long after the payment to the non-resident, the assessee became liable to pay interest under Section 2O1(1A). Out of the liability of Rs. 13,38,095 towards payment of interest, the assessee paid Rs. 9,50,000 and when the balance of Rs. 3,88,095 remained to be paid, the assessee filed an appeal before the Commissioner (Appeals).

7. Before the Commissioner (Appeals), the assessee raised two grounds in the memo of appeal. The first ground was that the ITO should not have levied the interest. The second ground was that the interest levied should have been considered by the ITO as forming part of the cost of plant and machinery, for the purpose of depreciation, etc. The second ground appears to have not been pressed and that the ground does not survive as far as we are concerned.

8. At the time of hearing of the appeal before the Commissioner (Appeals), the assessee raised an additional ground in the following words : The ITO erred in treating the assessee as 'assessee in default' for not deducting tax at source . . .. The ITO ought not to have treated the assessee as 'an assessee in default', since the assessee was liable to pay income-tax as the agent for and on behalf of Zimmers A.G. under Section 163(1)(c) of the Act.

9. The Commissioner (Appeals) first dealt with the additional ground raised in the course of hearing of the appeal before him. He observed that before the ITO, the assessee had proceeded throughout on the basis that the assessee had liability under Section 195. The assessee had never disclosed before the ITO that the assessee was the agent of the non-resident and was liable to pay tax in the capacity of the agent.

The assessee paid the entire tax which was payable under Section 195 and also the major portion of the interest under Section 201(1 A). It was not open to the assessee to contend for the first time by an additional ground in the appeal that the assessee was the agent and had no liability to deduct tax under Section 195. He further observed that the question whether the assessee was an agent was a mixed question of fact and law and investigation into a question of that nature could not be made at the appellate stage. He, therefore, rejected the additional ground.

10. As regards the ground of merits, the Commissioner (Appeals) observed that the assessee had paid tax under Section 195, long after he remitted the amounts to the non-resident and as such liability to pay interest under Section 201(1A) was clearly attracted. There was no error in levy of interest under the said provision. He, therefore, rejected the said ground and dismissed the appeal.

11. In this appeal, those two grounds have again been raised on behalf of the assessee. As regards the first ground, the contention is that one of the conditions for attracting liability for deducting tax at source under Section 195 in respect of the payments made to the non-resident is that the assessee is not liable to pay income-tax thereon as the agent of the said non-resident. In the present case, the assessee came under the category of the agent of the said non-resident company, in view of the provisions of Section 163(1)(c) of the Act.

Consequently, the assessee had no liability to deduct tax at sources under Section 195, with the result that no interest under Section 201(1A) was payable. Reference was invited to Clause (4) of the agreement under which the assessee was required to make payments free of tax.

12. The learned departmental representative relied on the reasons given by the Commissioner (Appeals). He further argued that since the assessee had not been recognised as agent under Section 163(2), it could not be deemed to be an agent and as such there was no escape from liability under Section 195.

13. We have considered the rival submissions and facts on record. It cannot be disputed that the first group of sections, viz., Sections 160 to 163 of the Act and the second group of sections, viz., Sections 195 to 201 of the Act are mutually exclusive and operate on different fields. Consequently, the same person cannot be treated as an agent under Section 163 and proceeded against under Section 201 at the same time. In this view of the matter, a person who is himself liable under Section 161 read with Section 163(1)(c) to pay income-tax on payments to be made to a non-resident company as an agent of the said non-resident cannot be saddled with further obligation to deduct income-tax under Section 195 before making payment to the non-resident and be deemed to be in default under Section 201.

14. However, as ordained by Section 163(2), no person can be treated as the agent of a non-resident unless he had an opportunity of being heard as to his liability for being treated as such, with the result that until and unless one is appointed as a statutory agent in this manner, one cannot be fastened with any liability whatsoever, including payment of advance tax because doing so will amount to giving retrospective effect to these provisions which are not warranted in the absence of express provisions in that regard-CIT v. Belapur Sugar & Allied Industries Ltd. [1983] 141 ITR 404 (Bom.). Keeping in view of the provision of Section 163(2) regarding opportunity of being heard to be given to the agent as also to the provisions of Sections 246(1)(g), 246(2)(a) and 246(2)(b) of the Act regarding filing of an appeal against an order made under Section 163 treating the assessee as an agent of a non-resident, it is necessary that a written order must be passed by the taxing authorities for treating a person to be an agent of non-resident before any liability as an agent could be fastened on the said person. Besides, having regard to the scheme of the Act, the assessment for- each year is self contained and as such vicarious liability imposed by an appointment under Section 163(2) only extends to the liability of the assessment of the year for which the appointment is made and cannot extend to the liability for any other assessment year.

15. In the present case, it is an admitted position that the assessee has not been appointed as a statutory agent under Section 163(2) as far as the non-resident in question is concerned. It was never the claim of the assessee before the ITO that the assessee was the agent of the non-resident. The assessee never filed any estimate of advance tax or any return as an agent of the non-resident. The assessee accepted throughout that its liability was under Section 195, that is why the assessee made applications under Section 195(2) to the ITO. In the circumstances, it is not open to the assessee to assert at this stage that the assessee should be treated as an agent of the non-resident.

Whether on the facts of the present case, the assessee could be treated as an agent of the non-resident gives rise to a mixed question of facts and law and for determination of that question, evidence would be required to be brought on record. The question of this nature cannot be investigated at the appellate stage when at the initial stage it was never the case of the assessee that the assessee was an agent of the non-resident.

16. Section 195(1) lays down that 'any person responsible for paying to a non-resident . . . any other sum . . . chargeable under the provisions of this Act, shall, at the time of payment, unless he is himself liable to pay any income-tax thereon as an agent, deduct income-tax thereon at the rates in force'. The words 'unless he is himself liable to pay any income-tax thereon as an agent' indicate that there should have been an existing liability to pay income-tax as an agent. The assessee has never in the past accepted its liability to pay income-tax as an agent of the said non-resident. The assessee has never filed any return as an agent. The assessee has never paid any advance tax as an agent. No liability as an agent could be fastened on the assessee unless an opportunity of being heard was given under Section 163(2). No order under Section 163(2) has been passed in respect of the assessee treating the assessee as an agent. In the circumstances, it cannot be said in the present case that the assessee was liable to pay income-tax as an agent of the non-resident. Consequently, the assessee cannot escape the liability to deduct income-tax under Section 195.

17. In this connection, the decision in National Newsprint & Paper Mills Ltd. v. CIT [1961] 41 ITR 60 (MP) is very instructive. The Madhya Pradesh High Court in that case was construing the provisions of Sections 18(3B) and 43 of the Indian Income-tax Act, 1922 ('the 1922 Act') which correspond to Sections 195 and 163 of the 1961 Act. The High Court observed the expression 'unless he is himself liable to pay any income-tax . . . thereon as an agent' introduces in Sub-section (3B) an exception for the benefit of the person sought to be made liable for deduction under that sub-section. The expression does not mean that unless the person has been declared not to be an agent in accordance with Section 43, he cannot be made liable for deduction under Sub-section (3B). If the department has not treated him as an agent, it must be taken that for the purpose of Sub-section (3B) of Section 18, the person has not been made liable to pay income-tax as an agent of the non-resident. No enquiry and adjudication is necessary for determining whether a person has or Has not been treated as an agent under Section 43 before making him liable under Section 18(3B) for deduction of tax. The above principle would apply in the present case.

As already stated, the assessee has not been treated as an agent. The assessee itself had never claimed to be an agent before the ITO. In the circumstances, the assessee cannot claim that the assessee is liable to pay income-tax as an agent and that provisions of Section 195 were not applicable.

18. We hold that provisions of Section 195 were applicable and that the assessee was liable to deduct the tax at source.

19. It is an admitted position that the assessee did not deduct tax at source at the time of remittance of amount to the non-resident. There was time gap between the date of remitting the amount to the non-resident and payment of the tax under Section 195. Consequently, provisions of Section 201(1 A) were attracted. Under those provisions, the assessee was liable to pay simple interest at 12 per cent per annum on the amount of tax from the date on which such tax was deductible to the date on which such tax was actually paid. Admittedly, the interest has been calculated on the basis given in this sub-section.

Consequently, there is no error in the levy of interest.

20. The alternate submission on behalf of the assessee was that the assessee was liable to pay interest with effect from 12-10-1976 because it was on that date that the assessee came to know about its liability on receiving communication from the ITO under Section 195(2). This contention cannot be accepted. Under the scheme of Section 195, any person responsible for paying to the non-resident at the very time of payment deduct income-tax thereon (sic). The deduction of income-tax is, thus, to be made at the time of payment to the non-resident. That deduction cannot be postponed to any future date. Section 195(2) only enables the person concerned to make an application to the ITO to determine by general or special order, the appropriate proportion of the sum chargeable to tax. The said provisions expressly lays down that upon such determination the tax shall be deducted under Sub-section (1) on that proportion of the sum which is so chargeable. Thus, as far as the date on which the deduction should be made is concerned, the said date is the date of payment to the non-resident. If the person concerned wanted to ascertain the amount from the ITO under Section 195(2), it was his duty to postpone the payment to the non-resident till the ITO determined the amount under the said provision. There is nothing to Section 195(2) to indicate that the person concerned would make payments to the non-resident without deducting the tax at source under Sub-section (1). Consequently, the date from which the interest would be chargeable would be the date on which the tax was deductible and that date would be the date on which the amount was remitted to the non-resident. The alternate contention must, therefore, be rejected.

21. Reliance was placed on behalf of the assessee on the decision of the Bombay High Court in CIT v. Premier Tyres Ltd. [1982] 134 ITR 17.

The ratio of that decision is that a person who is liable to pay tax as an agent of the non-resident is not required to deduct tax under Section 195 before making payment to non-resident and such person cannot be deemed to be in default under Section 201. The ratio of this decision is not applicable to the facts of the present case. In the case before the Bombay High Court, the ITO under Section 163(2) had passed an order that the assessee was the agent of the non-resident.

Consequently, it was an admitted position in that case that the assessee was an agent of the non-resident. It was on this admitted position that the High Court held that the assessee was not liable to deduct tax under Section 195. In our case, the position is entirely different. In our case, there is no order under Section 163(2) treating the assessee as an agent of the non-resident. The assessee itself never asserted before the ITO at the relevant time that the assessee was an agent of the non-resident. The assessee by its conduct represented to the ITO that it was not the agent and that it was liable to deduct tax under Section 195. In the circumstances, the assessee was not entitled to assert a subsequent stage that the assessee was an agent of the non-resident. As already stated, the said question was a mixed question of law and fact and that question cannot be investigated at the appellate stage.

22. It may be mentioned here that it was expressly stated on behalf of the assessee that the assessee did not want the refund of tax paid under Section 195. It is only in respect of liability to pay interest that the assessee wanted to raise the above point. The said point, in our opinion, cannot be raised in the circumstances of the present case.

23. For the reasons given above, there is no ground to interfere in the orders passed by the lower authorities. The appeal fails and is dismissed.


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