GE INDIA TECHNOLOGY CENTRE PRIVATE LTD. versus COMMISSIONER OF INCOME TAX & ANR.

Citation: [2010] 10 S.C.R. 1142 · Decided: 09-09-2010 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
[2010] 10 S.C.R. 1142 
GE INDIA TECHNOLOGY CENTRE PRIVATE LTD. 
V. 
COMMISSIONER OF INCOME TAX & ANR. 
(Civil Appeal Nos. 7541-7542 of 2010) 
SEPTEMBER 09, 2010 
[S.H. KAPADIA, CJI AND K.5. PANICKER 
RADHAKRISHNAN, J.] 
Income Tax Act, 1961: 
s.195(1) - Payment to Non-resident - Liability to deduct 
tax at source - Held: The payer is bound to deduct tax at 
source (TAS) only if the tax is assessable in India -
Expression "chargeable under the provisions of the Act" in 
0 s.195(1) shows that the remittance has got to be of a trading 
receipt, the whole or part of which is liable to tax in India - On 
facts, software imported by Indian Company- Payment made 
to non-resident software supplier - Failure on part of Indian 
Company to deduct tax at source - Tribunal's view that the 
E sum paid to non-resident supplier was not royalty and the 
same did not give rise to any income taxable in India and, 
therefore, liability to deduct TAS did not arise - High Court 
held that the moment there is remittance, an obligation to 
deduct TAS arises - The view of High Court was not correct 
in the light of expression "chargeable under the provisions of 
F the Act" in s.195(1) - Since High Court did not go into merits 
of the case on the question of payment of royalty, the 
impugned order is set aside and matter remitted to High Court 
for consideration afresh - Circular No. 728 dated October 30, 
1995 issued by CBDT - Interpretation of statutes. 
G 
H 
Interpretation of statutes: 
While interpreting the provisions of the Income Tax Act 
one cannot read the charging Sections of that Act de hors the 
1142 
GE INDIA TECHNOLOGY CENTRE PRIVATE LTD. v. 
1143 
COMMISSIONER OF INCOME TAX 
machinery Sections - The Act is to be read as an integrated 
A 
Code - Income Tax Act, 1961. 
While interpreting a section one has to give weightage 
to every word used in that section. 
B 
The question which has arisen for consideration in 
the instant appeals is whether the amount paid by an 
Indian company to a non-resident software supplier 
constitute royalty which is deemed to accrue or arise in 
lndie} ,and thus,the Indian Company is liable to deduct tax 
at source under Section 195 of the Income Tax Act, 1961. 
C 
Allowing the appeal and remitting the matter to the 
High Court, the Court 
HELD: 1. Section 195 of the Income Tax Act, 1961 
imposes a statutory obligation on any person 
responsible for paying to a non-resident, any interest (not 
being interest on securities) or any other sum (not being 
dividend) chargeable under the provisions of the l.T. Act, 
to deduct income tax at the rates in force unless he is 
liable to pay income tax thereon as an agent. Payment to 
non-residents by way of royalty and payment for technical 
services rendered in India are common examples of 
sums chargeable under\ the provisions of the I. T. Act to 
which the requirement oftax deduction at source applies. 
A person paying interest or any other sum to a non-
resident is not liable to deduct tax if such sum is not 
chargeable to tax under the l.T. Act. Section 195 
contemplates not merely amounts, the whole of which 
D 
E 
F 
are pure income payments, it also covers composite 
payments which has an element of income embedded or G 
incorporated in them. Thus, where an amount is payable 
to a non-resident, the payer is under an obligation to 
deduct tax at source (TAS) in respect of such composite 
payments. The obligation to deduct TAS is, however, 
limited to the appropriate proportion of income 
H 
1144 
SUPREME COURT REPORTS 
[2010] 10 S.C.R. 
A chargeable under the Act forming part of the gross sum 
of money payable to the non-resident. This obligation 
being limited to the appropriate proportion of income 
flows from the words used in Section 195(1), namely, 
"chargeable under the provisions of the Act". CBDT had 
B also clarified by Circular No. 728 dated October 30, 1995 
that the tax deductor can take into consideration the 
effect of DTAA in respect of payment of royalties and 
technical fees while deducting TAS. [Para 7] [1150-H; 
1151-A-H; 1152-A-C] 
c 
D 
Vijay Ship Breaking Corporation and Others v. CIT 314 
ITR 309 - relied on. 
Transmission Corporation of A.P. Ltd. v. C.I. T. 239 ITR 
587 (SC) - distinguished. 
CIT v. Cooper Engineering 68 ITR 457; Czechoslovak 
Ocean Shipping International Joint Stock Company v. /TO 81 
ITR 162(Calcutta) - referred to. 
Circular No. 728 dated October 30, 1995 issued by 
E CBDT - referred to. 
2. Section 1

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