Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether TDS Is Must While Making Payments To Non-Resident?

QUERY: X purchased a vacant site in Andhra Pradesh from Y (Non-Resident) for sale consideration of Rs. 25,00,000/-, in the Financial Year 2010-11, without deducting TDS. Whether section 195 of the Income-tax Act, 1961 would be applicable?
ANSWER: The objective of this section is to ensure that the tax on the income of non-residents and foreign companies is deducted at source, so that the department is not put to the trouble of recovering it from such persons whose connections with India, may be transient or whose assets in India, may not be sufficient to meet the tax liability.

If income is chargeable in the hands of Y (non-resident) tax has to be deducted as per the provisions of section 195 of the Act. The Supreme Court in GE India Technology Centre Pvt. Ltd. v. VIT [327 ITR 456] has held that the obligation to deduct tax at source arises only when there is a sum chargeable under the Act i.e. payment which has an element of “income” chargeable to tax in India.

However from July 1, 2012 sub-section (7) has been inserted in section 195 to provide that a person responsible for paying a non-resident in relation to a specified class of persons or cases which are notified by the Board shall make an application to the Assessing Officer to determine whether tax is to be deducted or not.
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2 comments on “Whether TDS Is Must While Making Payments To Non-Resident?
  1. CA MANOJ GUPTA says:

    it is no doubt that income from transfer of a capital asset is chargeable to tax in India under section 9(1)(i). hence in this case tax was deductible.
    Section 195(2) provides that where the person responsible for paying any such sum chargeable under the Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the assessing officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under section 195 (1) only on that proportion of the sum which is so chargeable .
    In the case of Syed Aslam Hashmi v. ITO (International Taxation) (2013) 55 SOT 441 (Bang-Trib), the Tribunal has held that under section 195 of the Act, tax is to be deducted on the entire sale consideration.
    Similar views were taken In the case of R. Prakash v. Income Tax Officer (Bang C-Trib)

  2. J srinivas says:

    Is development agreement entered into by the land owner is taxable in the Previous year of agreement or in the year of finished build up area from the builder, even the land owner not received any advance?

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