Law:

Section:

Section 195, read with section 163, of the Income-tax Act, 1961 [Corresponding to section 18(3B), read with section 43 of the Indian Income-tax Act, 1922] - Deduction of tax at source - Payment to non-resident - Whether it is not necessary that status of a person sought to be made liable for deduction under section 18(3B) of 1922 Act should first be determined in accordance with section 43 of 1922 Act before seeing whether other requisites of section 18(3B) of 1922 Act are or are not satisfied - Held, yes - Whether procedure laid down in section 43 of 1922 Act has to be followed only if department desires to impose substantive liability on agent in respect of non-resident assessee's income - Held, yes Words and phrases : Expression "unless he is himself liable to pay any income-tax and super-tax thereon as an agent" as occurring in section 18(3B) of the Indian Income-tax Act, 1922. FACTS The assessee-mills engaged in the production and manufacture of paper, entered into an agreement with a foreign company for the purchase of paper making machinery. Under the agreement, the foreign company selling the machinery agreed to depute, one of its engineers 'B' for the setting up and erection of the machinery on certain terms of remuneration and benefits such as air passage, boarding and lodging expenses, etc. The assessee paid certain amount to foreign company through the State Bank of India for services rendered by 'B'. 'B' had to obtain a clearance certificate under section 46A before leaving India. When he applied for the certificate to the ITO, enquiries commenced about the terms and nature of engagement of 'B' and of the payment made to him. The ITO entered into correspondence with 'B' and the assessee about this and ultimately informed the assessee that they were liable to deduct income-tax and super-tax under section 18(2B) or 18(3B). In reply, the assessee informed the ITO that the amount paid for the services rendered by 'B' did not come under the head "salaries" and section 18(2B) had no applicability; that if the amount paid to the foreign company was taxable under the Indian Income-tax Act, then it would stand as a guarantor for the payment of the tax…

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