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TDS u/s 195

Started by ketanvyas1975, November 17, 2014, 07:47:43 PM

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I have come across a very typical situation. A firm wants to import some material from Italy. Now, the italian seller is not providing the tax residency certificate and hence it is difficult to claim DTAA benefit. However, the transaction is that of purchase of goods on principal to principal basis and therefore i believe that the payment for import will not constitute any income of the non resident u/s 9 of the income Tax Act. Is my understanding correct? should i give 15CB certifcate on this basis without there being tax residency certificate? Kindly share your views. Thanks


Yes - basically what you're implying is that there is no 'business connection' and accordingly the remittance is not taxable as per Section 9 of the Income Tax Act.

Once it is determined that there is not tax liability as per the Income Tax Act you do not need to get in to the intricacies of DTAA and accordingly TRC will not matter.

Hope this helps.



The payment to italian firm is not liable to tax in india. hence no tax deductible under section 195


Thanks for prompt help. My confusion is regarding the concept the business connection. I feel that in case of purchase on principle to principle basis, there is no business connection and hence section 9 does not apply. Am i correct? is there any direct judicail pronouncement in this regard?

Sumit, FCA, Rjt.

business connection is not determined by nature of transaction, but it is determined by, amongst other factors, presence of the foreign entity, in india.
Now, if it happens that the foreign entity has business connection or place of business in india, and through that it carries out business in india, than situation will be tricky.
Because next question to be determined is, whether the profit arising to that foreign entity from the transaction of import of goods by your client, can be said to be "attributable" to indian location? if yes, than even in case of plain transaction of import - principal to principal basis, one will have to visit AO for determination of attribuatable profit to Biz connection / PE and accordingly determine appropriate rate of tax for Deduction.
so it will of vital importance to determine, whether the foreign entity has nay biz connection / PE in india or not. Taxability and Deductability can be looked at thereafter.