TDS on Payments to non-resident for mobilization and demobilization services

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TDS on Payments to non-resident for mobilization and demobilization services

AIT News Network

NEW DELHI. Vide a recent ruling AIT-2008-54-ITAT; the Tribunal has ruled that the payer/assessee is duty bound to deduct tax at source for the payments made to non-residents at the appropriate rates as provided under these provisions. The payer cannot escape the liability for doing so unless a certificate from ITO is obtained for the deduction of the tax either at a rate lower than the rate as prescribed or for non-deduction of tax at source and that the duty of the payer ends here only and he is not required to examine and look into other aspects beyond this like whether the payer received the services from the non-resident to whom such payments were made or from some other person through the non-resident; whether such receipt in the hands of the recipient non-resident would be his income or part of it would be his income on which he is liable to pay tax. The payer is not expected to step into the shoes of the Assessing Officer for examining whether the receipts in the hands of the recipient is income or not whether he is liable to pay tax thereon or not.

The Tribunal ruled that:

· The payer/assessee has made payments to the non-resident for the services rendered for mobilization and demobilization of dredgers to Adani Port in India. An application u/s 195 was moved for issuing 'Nil' tax withholding certificate on which an order u/s 195(2) was passed on 4-3-2001 and 17-4-2002 wherein VOAMC i.e. the non-resident company was held to have a PE in India on the ground that it was executing the Adani contract in India as the assessee did not have the technical competence or the infrastructure to execute the aforesaid contract.

· That reimbursement of charges/payments to VOAMC were liable to tax in India.

· Though order u/s 195 dated 17-4-002 was agitated in appeal the same was dismissed in limine because the assessee had not deducted and paid the tax as per the order which was the condition precedent for entertaining an appeal u/s 248.

· The order u/s 195(2) dated 4-3-2001, as per assessee was not challenged since the assessee decided not to pay the general cost amounting to 8% of the turnover to VOAMC.

as per sub-clause (i) of clause (a) of section 40 which has been substituted by Finance Act 1988 w.e.f 1st April 1989 to extend the applicability of the clause also to the payments made to non-resident of royalty, fee for technical services or any other payment chargeable under this Act. Now, the inclusion of the words 'any another payments' in the amended provision has widened the scope of the meaning of the word payment and so the payments made by the assessee through M/s Van Oord ACZ Marine Contractors BV, Netherlands to the non-residents in respect of mobilization and demobilization charges amounting to Rs. 8,65,57,909/- under consideration is covered within the provision of section 40 (a) (i) of the Act.
Neither it is the duty nor it is desirable from the payer/assessee to examine whether any tax is deductible at source from the payments made to the non-resident. In case it feels that the tax is required to be deducted at source or required to be deducted at a lower rate then it is required to obtain such certificate u/s 195 (2) from ITO or for non-deduction of tax at source. This is a safeguard provided u/s 195 (2), 195 (3) and 197 to payer and payee because before the Assessing Officer while obtaining certificate such facts are required to be established by them.
For non-compliance of the statutory provisions of sec. 195 by the payer it would have to suffer the consequences laid down by the Legislature u/s 40(a) (i) of the IT Act.
since the payer assessee has moved an application under sub section (2) of section 195 to the Assessing Officer for obtaining a certificate for issuing 'nil' tax withholding certificate and the same having been rejected by the Assessing Officer and no appeal having been filed or the order being reversed the same has become final and for non compliance with the provisions of section 195 by the payer by not deducting tax at source the Assessing Officer was fully justified in refusing deduction claimed by the payer assessee for such payments u/s 40(a) (i) of IT Act.

(Click here for full text of Ruling AIT-2008-54-ITAT)

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