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

CIVIL APPEAL No. 594/1985Supreme Court1999 INSC 33617 August 1999Bench: 2 JudgesAuthor: D.P. WADHWA, M.B. SHAH THE TRANSMISSION CORPORATION OF A.P. LTD. AND ANR.13 pages
AI SummaryDismissed

What were the facts?

The assessee, Transmission Corporation of A.P. Ltd., made payments to non-resident companies for the purchase of machinery and equipment, and for the erection and commissioning of such equipment in India. These payments, made for financial years 1966-67 to 1972-73, were made without deducting tax at source as required by Section 195 of the Income Tax Act, 1961. Consequently, the Income Tax Officer passed orders determining the tax deductible at source. The Appellate Assistant Commissioner held that Section 195 did not apply to trade receipts, only to 'pure income'. The Income Tax Appellate Tribunal dismissed the Revenue's appeal. The Revenue referred the question to the High Court, which allowed the reference in favour of the Revenue. The assessee then filed these appeals.

What did the Supreme Court hold?

The Supreme Court held that the expression 'any other sum chargeable under the provisions of this Act' in Section 195(1) clearly includes sums that are leviable to income tax, whether they represent pure income or income embedded within a larger sum, such as a trade receipt. The Court reasoned that Section 190 of the Act mandates tax payment by deduction at source before regular assessment. Provisions like Sections 194-B to 194-K, and by extension Section 195, demonstrate a legislative intent to enforce tax deduction at source even on gross sums, not all of which may represent income. The purpose of Section 195(1) is to ensure that tax is deducted on sums chargeable under Section 4, at the rates in force, for tentative deduction subject to regular assessment. The rights of the payee are safeguarded under Sections 195(2), 195(3), and 197. The Court upheld the High Court's finding that the assessee was obligated to deduct tax at source under Section 195, limited to the appropriate proportion of income chargeable under the Act. The appeals were dismissed.

What were the issues?

1. Whether the expression 'any other sum chargeable under the provisions of this Act' in Section 195(1) of the Income Tax Act, 1961, includes trade receipts, even if they contain only a portion of taxable income? Assessee's contention: The assessee argued that under Section 5 of the Act, only pure income or profit is taxable, not the gross sum which includes costs. Therefore, Section 195, which deals with deduction of tax on sums chargeable, should not apply to gross payments that include costs. Revenue's contention: The Revenue contended that Section 195 applies to any sum paid to a non-resident that is chargeable to tax, irrespective of whether it is a pure income or a trade receipt containing embedded income. The High Court supported this view.

Which sections of the Income-tax Act were involved?

Section 195,Section 190,Section 5,Section 194-B,Section 194-C,Section 194-D,Section 194-E,Section 194-EE,Section 194-F,Section 194-G,Section 194-H,Section 194-I,Section 194-J,Section 194-K,Section 197,Section 4,Section 14

AI-generated summary — verify with the full judgment below

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 of the 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

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