CIT vs. Swaraj Mazda Ltd (P&H High Court)

DATE: (Date of pronouncement)
DATE: April 6, 2011 (Date of publication)

Click here to download the judgement (swaraj_mazda_195_201_TDS.pdf)

If s. 195(2) certificate not withdrawn, assessee not in s. 201 TDS default

The assessee made payment of “daily allowance” to a Japanese company on account of the stay of Japanese engineers without deduction of tax at source. The AO held that the payment was assessable to tax as “fees for technical services” and that the assessee was liable u/s 201 for failure to deduct tax at source. Apart from the merits that the payment was not taxable as FTS, the assessee argued that it was not liable to deduct tax at source as the AO had issued a ‘No Objection Certificate” u/s 195(2). The Tribunal accepted the assessee’s plea. On appeal by the department to the High Court, HELD dismissing the appeal:

The AO had issued a certificate u/s 195(2) authorizing the remittance without deduction of tax at source. As this certificate was not cancelled u/s 195(4), the assessee was not required to deduct tax at source and could not be treated as assessee in default. The issue whether the payments were taxable or not need not be gone into

Note: Jaipur Udyog vs. CIT 155 ITR 476(Raj) which takes the same view referred to
2 comments on “CIT vs. Swaraj Mazda Ltd (P&H High Court)
  1. vswami says:

    As commonly observed, there have been an increasingly large number of cases of this kind lately reported. They, by and large, give rise to more than one highly intriguing and disturbing questions; such as these:-
    1. Why any such point of dispute, as in Swaraj’s case, comes to be considered /adjudged as involving a ‘question of law’ (pure and simple) and so permitted to be taken beyond the stage of ITAT?
    2. Why the tax authorities, despite the unequivocally and more than abundantly clear provisions of the applicable section(s) – (herein it is – section 195) – considered it at all prudent, or justified, in keeping on litigating in such matters?
    In other words, do not these instances bear out the reality that, a litigation of this kind is basically misconceived and requires to be abhorred; hence, the authorities themselves have to, by way of self-discipline, refrain from indulging in mindlessly prolonging all such disputes?
    3. Section 195(4) no doubt envisages a certificate issued u/s 195 (2) ceasing to remain in force in the two circumstances specified. However, so far as one is aware or could gather, there seems to be no clear cut guidance, much less any common experience in this regard. For that matter, in one’s view, it is not at all clear as to when exactly, or why, the force of a certificate once granted can justifiably be terminated or cancelled, without offending the principle of natural justice?
    These are aspects, which seem to call for a serious deliberation by one and all truly concerned. That is warranted in line with the current thinking and steps taken, though belatedly, in the direction of saving the taxpaying public from the hardship flowing as a result of the authorities acting in a ‘cavalier’ fashion. More so because that, in turn, leads to inconclusive litigation- at besides a significant cost to the exchequer, also impact and impair the desired smooth functioning of the legal system itself.

  2. vswami says:


    The court has rested its decision, quite rightly so, on the only ground- though not specifically addressed-, that the certificate granted U/S 195(2) was in force, hence there was no case for the Revenue to treat the Respondent as an assessee-in-default. Consequently, the court has refused to give its opinion on the two questions turning on ‘merits’ actually referred.
    It can be said that, in its magnanimity, the court has tacitly taken a very liberal / mild view of the whole matter. In that, it has refrained from taking a serious or adverse view of the abject failure on the part of the Revenue in giving any thought as to what really was a proper, or primarily essential question, if not the only one, to be framed for reference to court. Of course, if it were to have been the only or primary question raised then, for reasons brought out in my previous Post, there was every possibility of a reference to court having been refused.
    In one’s strong conviction, as is supported by the court’s judgment itself, the proper question, perhaps the solitary question clinching the dispute that could have been raised, was that turning on section 195.
    On the flip side, one remains wondering whether had, even at the first two stages of appeal, the decision been handed out on the same ground as mentioned herein above, would not the court proceedings have possibly been avoided /averted!

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