Law:

Section:

Section 195, read with section 10( 6A), of the Income-tax Act, 1961 - Deduction of tax at source - Payments to non-residents - Whether in view of provisions of section 10(6A) , tax deductible at source under section 195 would be on basis of net amount payable to non-resident in Indian currency and there would be no grossing up in respect of such tax for purpose of tax deduction at source - Held, yes FACTS The petitioner had the benefit of the services of a non-resident company under an approved agreement. For the services rendered by its engineers, the petitioner had to pay U.S. Dollars 14,950 to the non-resident company. The petitioner requested the ITO to determine the tax payable on the remittance of the amount and to issue a 'no objection' certificate. The net amount payable in Indian currency was Rs. 1,64,73 8, the gross amount was worked out at Rs. 2,74,563 on which the tax demanded was Rs. 1,09,325 as per the 'no objection' certificate dated 18-5-1984. After paying the tax and remitting the amount, the petitioner sought a refund of Rs. 45,930 contending that as per section 10(6A) (inserted with effect from 1-4-1984) the grossing-up of income could not be done and that the tax payable on Rs. 1,64,738 was only Rs. 65,895. The petitioner's request for rectification under section 154 was, however, rejected by the ITO. Thereafter, the petitioner approached the Commissioner under section 264(1) but to no avail. The Commissioner held that the proceedings under section 195 pertained to the deduction of tax at source while section 10(6A) was confined to the assessment of the foreign company. According to him, these were distinct and separate issues. On writ: HELD Section 10(6A) nowhere confines its operation to assessment proceedings; there is no exclusion of its operation from other proceedings under the Act. The language of section 10 is quite simple and clear. It governs the computation of the total income of the person covered by it; a benefit which is not includible in the total income of a person necessarily implies that the said benefit is not the 'income' of the person. The construction sought to be placed by the respondents was based on a distinction…

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