Andhra HC (Pre-Telangana)
Coromandel Fertilizers Ltd. vs Income-Tax Officer And Anr. on 20 October, 1987
Equivalent citations: [1988]174ITR308(AP)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT Jeevan Reddy, J.
1. Both these writ petitions are filed by Coromandel Fertilizers Ltd., Secunderabad, questioning the order of the Income-tax Officer, F-Ward, Company Circle, Hyderabad, dated December 23, 1982. It is necessary to state a few facts to appreciate the question arising herein.
2. The petitioner entered into two agreements with a West German company, Krupp Polysius A. G., on May 18, 1981. One agreement related to the purchase and supply of machinery and the other related to the services to be rendered by the West German company. Three types of services were contemplated under the second agreement, one of which, which is relevant herein, is training of the petitioner's officers in West Germany. These agreements were approved by the Government of India in May and July, 1982. In pursuance of the second agreement, the petitioner deputed four officers to West Germany. In connection with the training imparted to them, the petitioner had to remit DM 92,530. The petitioner's case is that no income-tax is payable on the said amount, since, according to the petitioner, the services were rendered wholly outside India. Be that as it may, the petitioner applied to the Income-tax Officer on December 1, 1982, for a "no objection certificate" to enable it to transmit the said amount to the West German company without the obligation OF deducting the tax at source Discussions were held between the parties and ultimately on December 23, 1982, the Income-tax Officer passed the impugned order. Under this order, the Income-tax Officer opined that the payment in question falls within the definition of "Royalty" as given in Explanation 2 to section 9 (1) (vi) of the Income-tax Act, 1961. He also observed that clauses (ii) and (iv) of the Explanation appeared to cover the said payment and inasmuch as royalty is taxable as deemed income within the meaning of the provisions of section 9, the scope of which has been enlarged with effect from April 1, 1976, no such "no objection certificate" can be issued. In other words, he was of the opinion that the said amount is liable to tax in this country and that, therefore, the petitioner is under an obligation to deduct tax at source. The said view of the Income-tax Officer is questioned in these two writ petitions.
3. Mr. Dalvi, learned counsel for the petitioner, submitted that the petitioner has filed returns as the agent of the non-resident, viz., the West German company, for the relevant assessment years. We may mention that in the first writ petition, only one assessment year is involved, while in the other writ petition, a number of assessment years are involved. The submission is that for all the relevant assessment years, the petitioner has filed returns as the agent of the said West German company, inter alia, contending that the said amount is not liable to be taxed in this country under the Income-tax Act. learned counsel also submitted that assessments have been made treating the petitioner as the agent of the non-resident principal and that against the said assessments, he has also preferred appeals, which are now pending. Mr. Dalvi submits that once the petitioner has filed returns as the agent of the non-resident principal and it has been assessed as such, the obligation to deduct tax under section 195 of the Act does not arise. Sub-section (1) of section 195 reads as follows :
"Any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, any interest, not being 'Interest on securities', or any other sum, not being dividends, 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."
4. A reading of sub-section (1) of section 195 clearly discloses that the obligation created thereunder does not attach to an agent. The words, "unless he is himself liable to pay any income-tax thereon as an agent," clearly disclose the said intent. Of course, this does not mean that the agent is not entitled to dispute the very liability to tax just as the principal can do. What the principal can do, the agent can also do. But, so far as the present writ petitions are concerned, it is clear that the obligation under section 195 does not apply to the petitioner since he is acting as, and has been treated as, the agent of the non-resident principal. In such circumstances, the refusal to issue no objection certificate is equal unsustainable in law. In this view of the matter, we hold that the impugned order of the Income-tax Officer has been overtaken by subsequent events and that the subsequent events have made the issue raised in these writ petitions academic and of no consequence. Be that as it may, with a view to allay the apprehensions of the petitioner, it is clarified that the petitioner shall not be treated as a defaulter on account of its omission to deduct tax at source under section 195 of the Income-tax Act.
5. The writ petitions are allowed to the extent and in the manner indicated above. The appeals now pending before the Commissioner Income-tax (Appeals) preferred by the petitioner may, be disposed expeditiously. No costs.