INCOME TAX ACT, 1961

Section 195, Expln. 2

Tax deduction at source - Under section 195 - Payment made by non-resident in respect of income taxable in India - Assessee made payment before insertion of Expln. 2 to section 195

AO held non-resident assessee liable to pay interest under section 201(1A) on the ground that assessee failed to deduct tax under section 195(1) from payments made to Aviva International Holdings Ltd., UK in July, 2008 for acquiring from it 100% of equity shares in Aviva Global Services Singapore (P) Ltd., Singapore which derived value substantially from assets situate in India. Held: Explanation 2 to section 195, which imposes the tax withholding obligations on non-residents in respect of payments involving income taxable in India, was introduced by the Finance Act, 2012 though purportedly with retrospective effect from 1-4-1962. For a person to perform tax withholding obligations on the basis of an amendment in law which was enacted on a date later than the date on which tax withholding obligations were required to be performed, was expecting that person to do the impossible. When law was nowhere even on the horizon, leave aside the statute, it was wholly impossible for any person to perform the obligations imposed by such law. Assessee, therefore, could not be faulted for not deducting tax under section 195 from payments made to Aviva International Holding Ltd., UK, and therefore, no liability arose under section 201(1A).

Relied:Engineering Analysis Centre of Excellence (P) Ltd. v. CIT & Anr. (2021) 125 Taxmann.com 42 (SC) : 2021 TaxPub(DT) 1208 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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