HYDERABAD INDUSTRIES LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE effect of section 10(6A) of the Income-tax Act, 1961, on the working of section 195 is to be considered in these writ petitions.

(2.) THE petitioner had the benefit of the services of a non-resident company under an approved agreement; the petitioner had to pay certain sums to the non-resident company for the services rendered, on its behalf, by its engineer. THE petitioner had to pay U. S. dollars 14,950 to the non-resident company; on this, the income-tax payable has to be paid by the petitioner under section 195 of the Act. THE petitioner requested the first respondent to determine the tax to be paid on remittance of the amount and to issue a non-objection certificate. THE net amount payable in terms of Indian currency was stated as Rs. 1,64,738 and the gross amount as Rs. 2,74,563; on this the tax of Rs. 1,09,825 was demanded as per no objection certificate dated May 18, 1984. After paying the tax and remitting the amount, the petitioner sought refund of Rs. 45,930, pointing out that as per section 10(6A) of the Act (which was inserted with effect from April 1, 1984), the grossing up could not be done. THE tax payable on Rs. 1,64,738 was only Rs. 65,895. As per section 195, earlier, this tax, in turn, will be grossed up to the remittance for further calculation and tax was to be computed on this grossed up sum; the idea being that the tax paid by the petitioner is actually on behalf of the non-resident and, therefore, the said amount also should be part of the amount on which the non-resident has to pay the income-tax. Under section 195, the process of grossing up would continue until the total amount due to the non-resident by the resident (like the petitioner) gets exhausted. THE net payment to the non-resident company after tax deduction is treated as Rs. 1,64,738 (the agreed sum); if so, the gross sum will be equivalent to that sum from which the tax at 40% has to be deducted to reach the net figure of Rs. 1,64,738. In other words, the net figure is 60% of the gross sum; in this manner, the gross sum payable is notionally arrived at at Rs. 2,74,563.

(3.) HENCE, two writ petitions, as to remittances under two sets of no objection certificates are involved.