COMMISSIONER OF INCOME TAX Vs. SUPERINTENDING ENGINEER

JUDGEMENT

(1.) AT the instance of the Commissioner of Income-tax these reference were made by the Income-tax Appellate Tribunal under s. 256(1) of the I.T. Act, 1961. The question referred in all the three cases is identical and it will be convenient to deal with the same in this common judgment.

(2.) THE Andhra Pradesh State Electricity Board (for short, "the Electricity Board"), the respondent in these reference 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 of erecting and commissioning the machinery and equipment. THE question arose whether the Electricity Board was under an obligation to deduct tax at source from these payments under s. 195 of the I.T. Act, 1961 (for short "the Act"). THE payments were made by the Electricity Board without deduction of tax at source. THE ITO held that the Electricity Board was under an obligation to deduct tax at source under s. 195. Owing to the failure of the Electricity Board to deduct such tax, the Electricity Board was deemed to be an assessee in default in respect of the tax deductible at source under s. 195. Consequently, the ITO passed orders determining the tax, which according to him, was deductible at source under s. 195 and required the Electricity Board to pay such amounts. THEse facts briefly constitute the origin for the subsequent appeals to the AAC and the Income-tax Appellate Tribunal and the present reference before this court.

(3.) WE shall now briefly refer to the facts in R.C. No. 205 of 1978 as the orders of the ITO in R.C. Nos. 203 and 205 of 1978 follow the same pattern. The Electricity Board entered into an agreement with Oerliken Engineering Co., Zurich, Switzerland for the purchase of 2 Nos. 60 MW generators and Indoor Switchgear for the Sileru Hydro Electric Scheme. Another contract was also entered into with the non-resident for the assembly, erection and testing and commissioning of the above equipment at Sileru. It appears that under the erection contract, the Electricity Board paid the following sums to the non-resident company :