Law:

Section:

Section 201 of the Income-tax Act, 1961-Deduction of tax at source-Consequences of failure to deduct-110 passed order under section 163 treating assessee as agent of a non-resident company-Whether assessee was bound to make deductions from payment made to non-resident company under section 195 and could be deemed to be assessee in default under section 201 for not making such deductions-Held, on facts, no Facts In pursuance of an agreement called the "Initial service agreement", the assessee-company made to D, a non-resident company, certain payments, aggregating Rs. 71,28,628, for services rendered by D to the assessee-company during the assessment years 1959-60 to 1962-63. The assessee-company made no deductions out of the above payments. On 25-3-1965, the ITO passed an order under section 163 treating the assessee as an agent of D for the assessment year 1962-63, after serving notice on the assessee and rejecting the objections raised by it. In respect of the other assessment years, no such orders were passed. Thereafter, on 29-5-1965, the ITO passed an order under section 201 directing the assessee to pay tax on the amount of Rs. 71,28,618 paid by it to D without deducting tax therefrom under section 195. On appeal, the AAC upheld the order of the ITO by holding that a person was excused from deducting tax at source under section 195(1) from the payment to be made to a nonresident only if he himself admitted at the relevant time that he was an agent of the non-resident. Since the assessee had initially disputed its position as an agent of D, the AAC held that it was liable to make the necessary deductions under section 195 before making the payment. In the opinion of the AAC, the assessee was deemed to be in default. On second appeal, the Tribunal held, after a scrutiny of the relevant agreement between the assessee and D, that the assessee was an agent of D and was, therefore, liable to pay tax as such agent within the meaning of section 195(1). The Tribunal added that the ITO had admitted this position so far as the assessment year 1962-63 was concerned and that it was not the suggestion of the revenue before it that the position was different in the…

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