Case Note & Summary
The petitioner, Ingram Micro Inc., a company incorporated in the USA, challenged the jurisdiction of the Income Tax Officer (International Taxation) to issue a notice under Section 201 of the Income Tax Act, 1961, and an order dated 10 December 2013, which held that the petitioner had valid jurisdiction to proceed under Section 201 and Section 201(1A) for alleged non-deduction of tax at source on the purchase of shares of a company incorporated in Bermuda. The primary ground raised by the petitioner was that it had not made any payment to anybody in respect of the share purchase, and therefore, there was no obligation to deduct tax under Section 195 of the Act. The court examined Section 195, which mandates that any person responsible for paying to a non-resident any sum chargeable under the Act shall deduct income tax at the time of credit or payment. The court held that since the petitioner did not make any payment, the condition precedent for applying Section 195 was not satisfied, and consequently, the notice under Section 201 and Section 201(1A) was not maintainable. The court allowed the petition and quashed the impugned notice and order.
Headnote
A) Income Tax - Tax Deduction at Source - Section 195 - Obligation to Deduct - The obligation to deduct tax at source under Section 195 arises only when a person is responsible for paying any sum to a non-resident. Where no payment is made, there is no liability to deduct tax, and consequently, no proceedings under Section 201 or Section 201(1A) can be initiated. (Paras 1-3)
B) Income Tax - Assessee in Default - Section 201 - Jurisdiction - The Income Tax Officer lacks jurisdiction to treat a person as an assessee in default under Section 201 if no sum has been paid or credited to a non-resident, as the condition precedent under Section 195 is not satisfied. (Paras 2-3)
Issue of Consideration
Whether the Income Tax Officer had jurisdiction to issue notice under Section 201 and Section 201(1A) of the Income Tax Act, 1961, for alleged non-deduction of tax at source on purchase of shares of a Bermuda company, when no payment was made by the petitioner to any person.
Final Decision
The court allowed the petition and quashed the notice dated 25th March 2010 and the order dated 10th December 2013, holding that the Income Tax Officer lacked jurisdiction to issue the notice under Section 201 and Section 201(1A) as no payment was made by the petitioner.
Law Points
- Obligation to deduct tax at source under Section 195 arises only upon payment or credit to a non-resident
- no liability under Section 201 if no payment is made
- Section 195 does not apply to transactions where no sum is paid or credited.
Case Details
2022 LawText (BOM) (02) 26
WRIT PETITION NO.974 OF 2014
K.R. SHRIRAM, N.J. JAMADAR
Mr. J.D. Mistri, Senior Advocate a/w. Mr. Madhur Agrawal i/b. Mr. Atul K. Jasani for petitioner; Mr. Suresh Kumar for respondents
The Income Tax Officer, (International Taxation) – TDS – 3, Mumbai & The Union of India
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Writ petition challenging jurisdiction of Income Tax Officer to issue notice under Section 201 of the Income Tax Act, 1961, for alleged non-deduction of tax at source on purchase of shares of a Bermuda company.
Remedy Sought
Petitioner sought quashing of notice dated 25th March 2010 and order dated 10th December 2013, and declaration that respondent no.1 lacked jurisdiction.
Filing Reason
Petitioner was issued a notice under Section 201 and Section 201(1A) for alleged non-deduction of tax at source on purchase of shares, despite having made no payment.
Issues
Whether the Income Tax Officer had jurisdiction to issue notice under Section 201 and Section 201(1A) when no payment was made by the petitioner to any non-resident.
Whether the obligation to deduct tax under Section 195 arises only upon payment or credit to a non-resident.
Submissions/Arguments
Petitioner argued that it did not make any payment to anybody, and therefore, there was no obligation to deduct tax under Section 195, and consequently, proceedings under Section 201 were not maintainable.
Respondents argued that the notice and order were validly issued.
Ratio Decidendi
The obligation to deduct tax at source under Section 195 of the Income Tax Act, 1961, arises only when a person is responsible for paying any sum to a non-resident. If no payment is made, there is no liability to deduct tax, and consequently, no proceedings under Section 201 or Section 201(1A) can be initiated.
Judgment Excerpts
Section 195 mandates 'any person responsible for paying to a non-resident' any sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier, to deduct income tax thereon at the rates in force.
petitioner was not liable to deduct any tax because petitioner did not make any payment to anybody and, therefore, petitioner cannot be considered to be in breach of the obligation under Section 195 of the Act and consequently, the notice under Section 201 and Section 201(1A) of the Act is not maintainable.
Procedural History
The petition was admitted on 28th July 2014. The impugned notice was dated 25th March 2010 and the impugned order was dated 10th December 2013. The court heard the matter and delivered judgment on 26th February 2022.
Acts & Sections
- Income Tax Act, 1961: 195, 201, 201(1A)
