In GE India Technology Centre Private Ltd v CIT the Supreme Court held that remittances made by a resident to a non-resident are subject to withholding tax only if the payments are chargeable to tax under the Income Tax Act, 1961 (ITA). As a result, GE India Technology Centre was not liable to withholding tax at source for payments it made for software purchases from overseas suppliers.
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This judgment overturned a controversial ruling by Karnataka High Court in CIT v Samsung Electronics, which held all payments made from India were subject to withholding tax, irrespective of whether such payments were chargeable to tax, unless a certificate showing nil withholding tax was got from the tax authorities.
In its judgment the Supreme Court said accepting the income tax department’s contention of deducting tax at source for all remittances would mean “the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund”. As only the receiver of the remittance (who is the income tax payer) can obtain the refund, the payer of the remittance is left with no remedy even if what he pays comes out of his own pocket and is not chargeable to income tax.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
