“liable to tax”
The decision most relied on for liable to tax is DIT v. NGC Network Asia LLC (313 ITR 187), cited in 144 judgments on BharatTax.
Leading authorities on liable to tax
Where a duty is cast on the payer to deduct and pay tax at source under Section 195, the payee-assessee cannot be levied interest under Section 234B for failure to pay advance tax if the payer defaults on its TDS obligation. This principle may also extend to interest under Section 234C.
Club entrance fees, if incurred wholly and exclusively for business purposes, are allowable as revenue expenditure under Section 37(1). Furthermore, an order holding a deductor liable for TDS defaults under Section 201 must be preceded by an inquiry into the deductee's actual tax payment.
Income earned during the project construction stage, which has a direct nexus or is inextricably linked to the project's setting up, constitutes a capital receipt not liable to tax and reduces the project cost.
Sales tax subsidies and Industrial Promotion Assistance received under the West Bengal Incentive Scheme are capital receipts and therefore not liable to tax. The ruling clarifies the inapplicability of the Sahney Steel judgment to such subsidies.
Interest received on delayed payment or enhanced compensation awarded under compulsory acquisition is a revenue receipt and is liable to income tax.
The case is an authority regarding the conditions under which an assessee can be held liable, and orders confirmed, under Section 201(1) of the Income-tax Act for failure to deduct tax at source (TDS). It clarifies the circumstances for deeming an assessee to be in default for non-deduction or non-payment of TDS.
A subsidy or incentive provided by the government for meeting capital expenditure, to achieve a national objective or public interest, is a capital receipt and thus not liable to income tax. The nature of the subsidy is determined by applying the 'purpose test'.
Payments are liable for deduction of tax at source when they are in the nature of royalty. The withholding tax liability can be worked out by applying a proportion to the total remittance.
