Sesa Resources v. ACIT (ITAT Panaji)

Note: This decision seems contrary to the decision of the Hon’ble Bombay High Court in CIT v. Gujarat Reclaim and Rubber. Further, the reliance on Explanation II to s. 195 also appears to be misplaced. The Memorandum Explaining the Provisions of the Finance Act through which the Explanation was introduced specifically states, “Section 195 of the Income-tax Act requires any person to deduct tax at source before making payments to a non-resident if the income of such non-resident is chargeable to tax in India. “Person”, here, will take its meaning from section 2 and would include all persons, whether resident or non-resident. Therefore, a non-resident person is also required to deduct tax at source before making payments to another non-resident, if the payment represents income of the payee non-resident, chargeable to tax in India. There are no other conditions specified in the Act and if the income of the payee non-resident is chargeable to tax, then tax has to be deducted at source, whether the payment is made by a resident or a non-resident…” This clearly indicates that the amendment in the Finance Act, 2012, was only to clarify that the obligation u/s 195 attaches to resident payers as well as non-resident payers. In other words, the Explanation was inserted to negate the argument being advanced in cases of payments between two non-residents that there was no obligation u/s 195. The Explanation therefore does not at all change the position insofar as payments by a resident to a non-resident are concerned: these payments fall within the scope of s. 195(1) if the payment is chargeable to tax in the hands of the recipient non-resident. The requirement of the payment being chargeable to tax in the hands of the non-resident is not diluted at all. This aspect appears to not have been considered by the ITAT.