Holding

Section 195 applies to any sum payable to a non‑resident that is chargeable under the Act, even if the sum includes non‑income components, and tax must be deducted on the proportion of the sum that is chargeable as income.

Summary

The Transmission Corporation of A.P. Ltd. (the assessee) paid large sums to non‑resident companies for purchase, erection and commissioning of plant equipment between 1966‑67 and 1972‑73 without deducting tax at source under Section 195 of the Income‑Tax Act, 1961. The Income‑Tax Officer levied tax under Section 195, but the Appellate Assistant Commissioner and the Income‑Tax Appellate Tribunal held that Section 195 applied only to "pure income" and not to gross trading receipts. The Andhra Pradesh High Court, on reference under Section 256(1), held that the assessee was obligated to deduct tax on any sum payable to a non‑resident that is chargeable under the Act, limited to the proportion of the sum that constitutes taxable income. The Supreme Court affirmed this view, stating that the expression "any other sum chargeable under the provisions of this Act" includes gross sums and that deduction must be made on the income‑chargeable portion. Consequently, the appeals of the assessee were dismissed.

Issues considered

Whether Section 195 of the Income‑Tax Act, 1961 applies to payments made to non‑residents that are not wholly income but constitute gross trading receipts.
Whether tax under Section 195 must be deducted on the entire gross sum or only on the proportion of the sum that is chargeable as income.

Legislation cited

Income Tax Act, 1961s. 14, s. 190, s. 191, s. 192, s. 193, s. 194-A, s. 194-B, s. 194-BB, s. 194-C, s. 194-D, s. 194-E, s. 194-EE, s. 194-F, s. 194-G, s. 194-H, s. 194-I, s. 194-J, s. 194-K, s. 195(1), s. 195(2), s. 195(3), s. 197, s. 256(1), s. 4, s. 5

Subjects

Section 195Tax Deduction at SourceNon‑residentTrading receiptIncome Tax ActGross sumProportionate deductionIndia

Judgment

A THE TRANSMISSION CORPORATION OF A.P. LTD. AND ANR.
v.
THE COMMISSIONER OF INCOME TAX, A.P.

AUGUST 17, 1999

B [D.P. WADHWA AND M.B. SHAH, JJ.]

Income Tax Act, 1961:

Sections 195(/), (2) & (3), 197, 190, 191, 194-B to 194-K, 4, 5 and
C 14-Tax deducted at source-Payments on account of erection and
commissioning of machinery and equipment in India by non-resident
companies under a contract entered into with the assessee-Payments made
without tax deducted at source-Obligation on the assessee in such
circumstances under Section 197-Held, assessee responsible for deducting
D tax in respect of the sums so paid-These deductions are subject to Section
195(2) or 195(3) or Section 197-What is deducted is the amount specified
in Sections 194-B to 194-K without there being any actual assessment-The
income is to be computed on the basis of various provisions of the Act
including provisions for the computation ofthe business income, if the payment
is trade receipt-Non-resident-Trading receipt in the hands of such non-
E resident.

Section 195(/), (2) & (3) and Section 197-0bject of-Held, these
Sections leave no doubt that the expression '"any other sum chargeable
under the provisions of this Act" would mean "sum" on which income tax
is leviable-The sum may be income or income hidden or embedded therein-
F The said provision is for tentative deductions of income tax thereon subject
to regular assessment.

Words and Phrases- "Any other sum chargeable under the provisions
of this Act"-Meaning of-Jn the context of Section 195(/) of the Income Tax
G Act, 1961. ··

Appellant-assessee made certain payments to non-residents against
the purchase of machinery and equipment and also against the work executed
by the non-residents in India for erecting and commissioning machinery and
equipment. The payments were made to the non-resident companies for the
H financial years 1966-67 to 1972-73 without deducting tax at source under
504
THE TRANSMISSION CORPORATION OF A.P. LTD. 11. C.l.T. 505
Section 195 of the Income Tax Act, 1961. Owing to such failure, the Income A
Tax Officer passed orders determining the tax which was deductible at
source under Section 195 which the appellant-assessee was required to pay.
On appeal, the Appellate Assistant Commissioner held that the expression
"any other sum chargeable under the provisions of this Act" occurring in
Section 195 did not include trade receipt and that Section 195 applies only B
to cases where the sums paid were "pure income profits". The appeal filed
before the Income Tax Appellate Tribunal by the Revenue was also dismissed.
However. Tribunal referred the question to the High Court under Section
256(1). High Court allowed the reference in favour of the Revenue. Hence
these appeals by the assessee.

Assessee contended that under Section 5 of the Act, what was taxable
c
was pure income or profit and not the gross sum which would include the
cost of materials and other expenses and hence Section 195 would not be
applicable.

Dismissing the appeals, the Court D
HELD: 1.1. In view of Section 190 of the Income Tax Act, 1961, before
a regular assessment is made, tax on income shall be payable by deduction
or collection at source or by advance payment in accordance with the other
provisions. Sections 194-A, 194-B, 194-BB, 194-C reveal the intention of
the legislature to enforce tax deduction at source even in respect of gross E
sums, the whole of which do not represent income chargeable under the Act.
Similar provisions are made in Section 194-D, Section 194-E, Section 194-
EE, Section 194-F, Section 194-G, Section 194-H, Section 194-1, Section
194-J and Section 194-K which cast an obligation to deduct tax on the person
responsible for paying such sum which may not represent income. In all
these cases, what is deducted is the amount specified in the said Sections F
without there being any actual assessment. (512-C, G-H; 513-A)

1.2. The scheme of Section 195(1 ), (2) and (3) and Section 197 leaves
no doubt that the expression "any other sum chargeable under the provisions
of this Act" would mean, "sum" on which income tax is leviable. The G
consideration would be-whether payment of sum to a non-resident is
chargeable to tax under the provisions of the Act or not. That sum may be
income or income hidden or otherwise embedded therein. If so, tax is required
to be deducted on the said sum. What would be the income is to be computed
on the basis of various provisions of the Act including provisions for
computations of the business income, ifthe payment is trade receipt. However, H
506 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.

A what is to be-deducted is income tax payable theron at the rates in force.
Under the Act, total income for the previous year would become chargeable
to tax under Section 4. Under Section 4(2) income tax has to be deducted at
source where it is so deductible under any provision of the Act. If the sum
that is to be paid to the non-resident is chargeable to tax, tax is required to
be deducted. The sum which is to be paid may be income out of different heads
B of income provided under Section 14 of the Act. The purpose of Section
195(1) is to see that the payee should deduct income tax on the sum which
is chargeable under Section 4 of the Act for levy and collection of income
tax, at the rates in force, if the amount is to be paid to a non-resident. The
said provision is for tentative deduction of income tax thereon subject to
C regular assessment and by the deduction of income tax, the rights of the
parties are not, in any manner, adversely affected. Further, the rights of the
payee or the recipient are fully safeguarded under Section 195(2) or (3) or
Section 197, income tax on such sum is to.be deducted and it is the statutory
obligation of the person responsible for paying such "sum" to deduct tax
thereon before making payment. He has to discharge the obligation of tax
D deduction at source. (513-G-H; 514-A-B-C, F, G; 515-A-B]

P.C. Ray & Co. India (P) Ltd. v. A.C. Mukherjee, ITO, (1959) 36 ITR
365 (Cal), approved. •

1.3. There is no substance in the contention of the appellant that the
E expression "any other sum chargeable under the provisions of the Act"
would not include cases where any sum payable to the non-resident is a
trading receipt which may or may not include "pure income". The language
of Section 195(1) for deduction of income tax by the payee is clear and
unambiguous and casts an obligation to deduct appropriate tax at the rates
F in force. [515-E-F)

1.4. The High Court rightly held that the assessee who made the
payments to the three non-residents was under an obligation to deduct tax
at source under Section 195 of the Act in respect of the sums paid to them
under the contracts entered into; and that the obligation of the respondent/
G assessee to deduct tax under Section 195 was limited only to the appropriate
proportion of income chargeable under theAct. [515-G-H)

C/Tv. Superintending Engineer, (1985) 152 ITR 753 (AP), approved.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 594-96 of
H 1985.
THE TRANSMISSION CORPORATION OF A.P. LTD. v. C.l.T. [SHAH, J.] 507

From the Judgment and Order dated 2.7.84 of the Andhra Pradesh High A
Court in R.C. Nos. 203-205of1978.

Ashok Grover and Rakesh K. Sharma for the Appellants.

- J. Ramamurthy, Ms. Neera Gupta, S. Wasim A. Quadri and Shail Kumar
Dwivedi for the Respondent. B
The Judgment of the Court was delivered by

SHAH, J. These appeals are filed by the Assessee against the judgment
and order dated 2nd July, 1984 passed by the Andhra Pradesh High Court in
deci~ing three income tax references partly in favour of the revenue. (Re: CIT c
v. Superintending Engineer, Upper Si/eru, (1985) 152 ITR 753. The Court held
that provisions of Section 195 relating to deduction of tax at source come into
operation in respect of sums paid to a non-resident, whether or not such sum
represents only income or profits if such sums are paid to non-residents
during the course of regular trading operation. That finding is challenged in
these appeals. D

Before deciding the question involved, we would refer to a few facts of
the matter: -
·'
The appellant-the Andhra Pradesh State Electricity Board (hereinafter
E
referred to as 'the Board') made certain payments to non-residents against the
purchase of machinery and equipment and also against th~ work executed by
the non-residents in India of erecting and commissioning the machinery and
equipment. The Board entered into two separate agreements with M/s.
Channilles Engineering Works Ltd., Geneva, Switzerland, one for the purchase
of Nos. 95,000 BHP Francis Turbines and another for purchase of 2 Nos. F
Butterfly Valves. There were two other contracts of the assembly, erection and
testing and commissioning of the aforesaid equipments. The payments were
made to the non-resident company for the financial year 1966-67 to 1972-73.
The Board also entered into an agreement with Oerlikon Engineering Co.,
Zurich, Switzerland, for the purchase of2 Nos. 60 MW generators and Indoor
Switchgear for the Sileru Hydro Electric Scheme. Another contract was executed
G
for the assembly, erection and testing and commissioning of the above
equipments. The payments were made in the financial year 1966-67, 1967-68
and 1968-69. Third contract was entered by the Board with Mis. Sacheron

- Works Ltd., Geneva, Switzerland for the purchase and erection of 7 nos.
power transformers for the Sileru Hydro Electric Scheme. On the basis of the H
508 SUPREME COURT REPORTS [1999] SUPP. 1 S.C.R.

A said contract in the ·financial year 1966-67, the amount was paid to the non-
resident company. For the aforesaid payments, the question arose whether
the Electricity Board was under an obligation to deduct tax at source from
these payments under Section 195 of the Income Tax Act, 1961 (hereinafter
referred to as 'the Act'). These payments were made by the Electricity Board
B without deduction of tax at source. Owing to the failure of the Electricity
Board to deduct such tax, it was deemed to be an assessee in default in
respect of the tax deductible at source. Hence, Income Tax Officer passed
orders determining the tax which, according to him, was deductible at source
under Section 195 and the Electricity Board was required to pay such amounts.
Against the order of the Income Tax Officer, appeals were filed by the assessee
C which were allowed by the Appellate Assistant Commissioner with the
observation that the words "any other sum chargeable under the provisions
of this Act" occurring in Section 195 of the Act do not contemplate inclusion
of trade receipts in their ambit and that Section 195 applies only to cases
where the sums paid are "pure income profits". The Appellate Assistant
D Commissioner, therefore, allowed the appeals and set aside the orders passed
by the Income Tax Officer. Against the said orders, Revenue preferred appeals
before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal
also dismissed the appeals filed by the Income Tax Officer on the ground that
the provisions of Section 195 of the Act are not applicable to payments of
sums to a non-resident, which are not "pure income profits". Thereupon, on
E the reference applications filed by the Commissioner of Income Tax under
Section 256( I) of the Act the Tribunal referred the following question of law
for the decision of the High Court for the payments made to the non-resident
company: -

R.C. No. 205 of 1978:
F
"Whether on the facts and in the circumstances of the case, the
Superintending Engineer, Civil Circle, Upper Sileru, is liable to deduct
income-tax u/s. 195 of the Income-tax Act, 1961 on the payments made
to the non-resident company for the assessment years 1966-67, 1967-
G 68, 1968-69 and 1969-70?"

Similar. questions with regard to payments made to two other non-
residents as stated above were also referred in R.C. Nos. 203 and 204 of 1978.

At the time of hearing of the matter, the High Court stated that two
H fundamental questions arose for consideration and they were: (a) whether the
THE TRANSMISSION CORPORATION OF A.P. LTD. v. C.l.T. [SHAH, J.) 509
provisions of Section 195 of the Act are applicable to cases where the sum A
paid to the non-resident does not wholly represent income; and (b) if Section
195 is applicable in such cases, whether the Income-Tax Officer could enforce
deduction of tax at source on the gross amount of trading receipts or only

-
I'

in respect of that portion of the trading receipts which may be chargeable as
income under the Act? The Court observed that the question referred to deals
with only first aspect mentioned above but the second aspect is an integral B
part of the first aspect and, therefore, it was necessary to reframe the question
in order to bring real controversy between the parties.

- Thereafter, the Court re-framed and decided the following question: -

"Whether, on the facts and in the circumstances of the case, the
Superintending Engineer, Civil Circle, Upper Sileru, is liable to deduct
C
income-tax under Section 195 of the Income-Tax Act, 1961 in respect
of payments made to non-residents viz., Mis. Charmilles Engineering
Works Ltd., Mis. Sacheron Works Ltd., and Mis. Oerlikon Engineering
Company and, if so, whether the tax deductible is liable to be D
determined on the gross sum of money paid to the non-residents?'

Dealing with the contentions raised by the assessee and interpreting

- Section 195, the High Court held that it should be borne in mind that whatever
tax is deducted at source under Section 195 from out of the gross sum is not
irretrievably lost to the recipient; it is only a provisional payment which will
be made to the Central Government to the credit of the recipient; the provisions
E

of the Act enable the recipient, whether such recipient is a resident or non-
.. resident, to file a return of income in the regular course and prove to the
satisfaction of the ITO the income chargeable under the Act. The Court
answered the reframed question as under: -
F
I. The respondent-assessee, who made the payments to the three
non-residents above referred, was under an obligation to deduct
tax at source under Section 195 of the Act in respect of the sums
paid to them under the contracts entered into.
2. The obligation of the respondent-assessee to deduct tax under G
Section 195 is limited only to the appropriate proportion of the
Income chargeable under the Act forming part of the gross sums
of money paid to the three non-residents above referred.
3. While the Income Tax Officer was correct in the determination
of tax under Section 195 in respect of the payments made to H
510 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.

A Mis. Sacheron Works Ltd., in R.C. No. 204, he was in error in
determining the tax deductible under Section 195 in respect of
the gross sums of money paid to Mis. Charmilles Engineering
Works Ltd. in RC. No. 203 and Mis. Oerlikon Engineering
Company in R.C. No. 205.

B Against the said judgment and order, the appeliant-Superintending
Engineer (assessee) has filed these appeals. At the time of hearing of these
appeals, leamea counsel for the appellant submitted that Section 195 would
be applicable where payment to non-resident is 'wholly income' chargeable to
tax as it provides that any person responsible· for paying to a non-resident
C "any sum chargeable under the provisions of this Act", shall, at the time of
payment, deduct income tax thereon at the rates in force. It is his contention.
that under the Income Tax Act, tax can be levied and collected on the income
but when the payments made to the non-resident were not entirely income,
but a trading receipt, there is no question of deduction of income tax at the
source as the section does not provide for it. He submitted that the expression
D "any other sum chargeable under the provisions of the Act" occurring in
Section 195 of the Act conveys only one meaning that tax at the source could
be deducted when the sum paid is total income 'chargeable' under Section 5
of the Act. If the payment is anything more than or other than income, it does
not answer the definition of the total income under Section 5 of the Act. The
E substance of the contention is what is taxable under the Income Tax Act is
pure income or profit and not the gross sum which would include cost of
materials and other expenses and hence Section 195 would not be applicable
in such cases.

For appreciating the contention raised by the learned Counsel, we
p would first refer to relevant parts of Sections I 90, 195(1 ), 195(2), 195(3) and
197, as they stood at the relevant time, which are as under: -

"190. {l) Notwithstanding that the regular assessment in respect
of any income is to be made in a later assessment year, the tax on such
income shall be payable by deduction at source or by advance
G payment, as the case may be, in accordance with the provisions of
this Chapter.
' -
(2) Nothing in this section shall prejudice the charge of tax on
such income under the provisions of sub-section {I) of section 4.

H 195. (I) Any person responsible for paying to a non-resident, not
THE TRANSMISSION CORPORATION OF A.P. LTD. v. C.l.T. [SHAH, J.) 51 I
being a company, or to a foreign company which is neither an Indian A
company nor a company which has made the prescribed arrangements
for the declaration and payment of dividends within India, any interest
not being 'Interest on securities' or any other sum, not being dividends,
chargeable under the provisions of this Act, shall, at the time of
payment, unless he is himself liable to pay any income-tax thereon as B
an agent, deduct income-tax thereon at the rates_ in force:

(2) Where the person responsible for paying any such sum chargeable
under this Act (other than interest including interest on securities,

... dividends and salary) to a non-resident considers that the whole of
such sum would not be income chargeable in the case ofthe recipient, C
he may make an application to the Income Tax Officer to determine,
in the prescribed manner the appropriate proportion of such sum so
chargeable, and upon such determination, tax shall be deducted under
sub-section ( 1) only on that proportion of the sum which is so
chargeable.
D
(3) Subject to rules made under sub-section (5), any person entitled
to receive any interest or other sum on which income-tax has to be
deducted under sub-section (/) may make an application in the
prescribed form to the Income Tax Officer for the grant of a certificate
authorising him to receive such interest or other sum without deduction E
oftm under that sub-section, and where any such certificate is granted,
every person responsible for paying such interest or other sum to the
.. person to whom such certificate is granted shall, so long as the
certificate is in force, make payment of such interest or other sum
without deducting tax thereon under sub-section (I).
F
I 97. Where, in the case of any income of any person other than a
company-

(a) income-tax is required to be deducted at the time of credit or, as
the case may be, at the time of payment at the rates in force under
the provisions of sections 192, 193, I 94A, 1940 and I 95, G
(b) being a non-resident, income-tax is required to be deducted at the
··' time of payment at the rates in force under the provisions of Section
194.

the Assessing Officer is satisfied that the total income of the recipient H
_,_
512 SUPREME COURT REPORTS [1999] SUPP. 1 S.C.R.

A justifies the deduction of income-tax at any lower rates or no
deduction of income-tax, as the case may be, the Income Tax Officer
shall, on an application made by the assessee in this behalf, give to
him such certificate as may be appropriate.

(2) Where any such certificate is given, the person responsible for
B paying the income shall, until such certificate is cancelled by the
Income-tax Officer, deduct inc.ome-tax at the rates specified in such
certificate or deduct no tax, as the case may be.

(2A) ...."

c Before considering Section 195, it is to be stated that the said section
is in Chapter XVII containing provisions for collection and recovery of tax.
Said chapter is divided into various parts as (A) to (F). Part A - General -
deals with deduction at source and advance payment. Section 190, inter alia,
provides that notwithstanding that the regular assessment in respect of any
D income is to be made in a later assessment year, the tax on such income shall
be payable by deduction or collection at source or by advance payment, as
the case may be, in accordance with the provisions of the Chapter. Hence,
before a regular assessment is made, tax on income shall be payable by L
deduction or collection at source or by advance payment in accordance with
E the other provisions. Section 191 provides for direct payment of income-tax
by the assessee where provision is not made under the chapters for deducting
income tax at the time of payment. Thereafter, Part (B) of the said Chapter
contains group of sections which provides for 'deduction of tax' at source.
Section 192 provides for deduction of income tax on the income chargeable
under the head "Salaries" by any person responsible for paying such salaries.
F Section 193 provides for deduction of income tax by the person responsible
for paying any income by way of'interest on securities'. Similarly, Section 194 t
provides for deduction of income-tax by the company paying 'dividends'.
r
Section l 94(A), Section 194(8), Section 194(88) provides for deduction of
income-tax on the income of interest other than interest on securities, winning
G from lotteries or crossword puzzle and winning from horse race respectively.
Even with regard to the payments to contractors and sub-contractors, specific
provision is made for deducting the tax specified on the basis of payment
thereof in cash or by issue of cheque or draft or by any other mode at the '-·
rate of I% or 2% as the case may be of such sum as income tax on income
comprised therein. Section l 94(c) reveals the intention of the Legislature to
H enforce tax deduction at source even in respect of gross sums, the whole of

~

I
THE TRANSMISSION CORPORATION OF A.P. LTD. v. C.l.T. [SHAH, J.J 513
which do not represent income chargeable under the Act. Similar provisions A
are made in Section 194(0), Section l94(E), Section l94(EE), Section 194(F),
Section l 94(G), Section l 94(H), Section 194(1), Section l 94(J) and Section
l 94(K) which cast an obligation to deduct tax on the person responsible for
paying such sum which may not represent income. In all these cases, what
is deducted is the amount specified in the said sections without their being B
any actual assessment. Thereafter, Section 195 deals with deduction of tax in
cases where payment is to be made to a non-resident which inter alia provides:-

(a) Any person responsible for paying to a non-resident, any
{ interest, or any sum, chargeable under the provisions of this Act
(other than interest on securities and salary), shall, at the time c
of payment, deduct income-tax thereon at the rates in force. Sub-
section (l) of Section 195 excludes from its operation the sum
which is to be paid as interest on securities or the sum which
is chargeable under the head "Salaries" as the deduction on
such sum would be governed by other sections, namely, sections D
192 and 193.
"'
(b) Where the person responsible for paying any sum chargeable
under the Act to a non-resident considers that the whole or
such sum would not be chargeable in the case of the recipient,
he may make an application to the Assessing Officer to determine E
"the appropriate proportion of such sums so chargeable"; upon
such determination, tax shall be deducted under sub-section (I)
only on that portion of the sum which is so chargeable.

(c) Not only this, but sub-section (3) provides that any person
entitled to receive any interest or other sum on which income-
F
tax is to be deducted under sub-section ( 1) may make an
application in the prescribed form to the Assessing Officer for
the grant of certificate authorising him to receive such interest
or other sum without deduction of tax under the sub-section.
G
(d) Further, section 197 provides that recipient can file an application
to the Assessing Officer for a certificate that the total income of
the recipient justify the deduction of income-tax at any lower
rates or no deduction of income tax and the Assessing Officer,
if satisfied, can grant such certificate as may be appropriate.
H
514 SUPREME COURT REPORTS [1999] SUPP. I S.C.R.
t-
l
A The scheme of sub-sections (1 ), (2) and (3) of Section 195 and Section
197 leaves no doubt that the expression "any other sum chargeable under the
provisions of this Act" would mean 'sum' on which income-tax is leviable. In
other words, the said sum is chargeable to tax and could be assessed to tax
under the Act. Consideration would be-whether payment of sum to non-
resident is chargeable to tax under the provisions of the Act or not? That sum
B
may be income or income hidden or otherwise embedded therein. If so, tax
is required to be deducted on the said sum. What would be the income is to
be computed on the basis of various provisions of the Act including provisions
for computation of the business income, if the payment is trade receipt.
However, what is to be deducted is income tax payable thereon at the rates ~
c in force. Under the Act, total income for the previous year would become
chargeable to tax under Section 4. Sub-section (2) of Section 4 inter alia,
provides that in respect of income chargeable, under sub-section (1), income
tax shall be deducted at source where it is so deductible under any provision ..
of the Act If the sum that is to be paid to the non-resident is chargeable to
D tax, tax is required to be deducted. The sum which is to be paid may be income
out of different heads of income provided under Section 14 of the Act, that
is to say, income from salaries, income from house property, profits and gains
of business or profession, capital gains and income from other sources. The
;--
scheme of tax deduction at source applies not only to the amoun(paid which

E
wholly bears "income" character such as salaries, dividends, interest of
securities etc., but also to gross sums, the whole of which may not be income
1
I
)
or profits of the recipient, such as payments to contractors and sub-contractors
and the payment of insurance commission. It has been contended that the
sum which may be required to be paid to the non-res,ident may only be a
trading receipt, and, may contain a fraction of sum as taxable income. It is true
F that in some cases, a trading receipt may contain a fraction of s:um as taxable
income, but in other cases such as interest, commission, transfer of rights of
patents, goodwill or drawings for plant and machinery and such other
r
transactions, it may contain large sum as taxable income under the provisions
of the Act. Whatever may be the position, if the income is from profits and
gains of business, it would be computed under the Act as provided at the
G time of regular assessment. The purpose of sub-section (1) of Section 195 is
to see that the sum which is chargeable under Section 4 of the Act for levy
and collection of income tax, the payee should deduct income tax thereon at
the rates in force, if the amount is to be paid to a non-resident. The said
\
provision is·for tentative cfeduction of income tax thereon subject to regular
H assessment and by the deduction of income-tax, rights of the parties are not,
THE TRANSMISSION CORPORATION OF A.P. LTD. v. C.I.T. [SHAH, J.) 515

in any manner, adversely affected. Further, the rights of payee or recipient are A
fully safeguarded under Sections 195(2), 195(3) and 197. Only thing which is
required to be done by them is to file an application for determination by the
Assessing Officer that such sum would not be chargeable to tax in the case
of recipient, or for determination of appropriate proportion of such sum so
chargeable, or for grant of certificate authorising recipient to receive the B
amount without deduction of tax, or deduction of income-tax at any lower
rates or no deduction. On such determination, tax at appropriate rate could
be deducted at the source. If no such application is filed income tax on such
sum is to be deducted and it is the statutory obligation of the person
responsible for paying such 'sum' to deduct tax thereon before making payment.
He has to discharge the obligation of tax deduction at source. C
The High Court of Calcutta considered and interpreted similar provision
Section 18(3B) of the Income Tax Act, 1922, in the case of Ray and Co.
(India) Private Limited v. Mukherjee, ITO, [1959] 36 ITR 365, and rightly
held:
D
"if 'chargeable under the provisions of this Act' means actually liable
to be assessed to tax, in other words, if the sum contemplated is
taxable income, a difficulty is undoubtedly created as to complying
with the provisions of the section."

The High Court further held that Section l 8(3B) contemplated not merely E
amounts, the whole of which was taxable without deduction, but amounts of
a mixed composition, a part of which only might tum out to be taxable income,
as well; and the disbursements, which were of the nature of gross revenue
receipts, were yet sums chargeable under the provisions of the Income Tax
Act and came within the ambit of Section 18(3 B) of the Act.
F
Hence, in our view there is no substance in the contention of the
learned Counsel· for the Appellant that the expression "any other sum
chargeable under the provisions of this Act" would not include cases where
any sum payable to the non-resident is a trading receipt which may or may
not include 'pure income'. The language of Section 195(1) for deduction of G
income tax by the payee is clear and unambiguous and casts an obligation
to deduct appropriate tax at the rates in force. We make it clear that the
learned counsel for the parties have not advanced any submissions with
regard to other findings given by the High Court.
••
In this view of the matter, the answers given by the High Court that (i) H
516 SUPREME COURT REPORTS [1999] SUPP. 1 S.C.R.

A the. assessee who made the payments to the three/non-residents was under
obligation to deduct tax at source under Section 195 of the Act in respect of
the sums paid to them under the contracts entered into; and (ii) the obligation
of the respondent-assessee to deduct tax under Section 195 is limited only
to appropriate proportion of income chargeable under the Act, are correct.

B In the result these appeals fail and are dismissed, accordingly with
costs.

RK.S. Appeals dismissed.

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