(2010) 327 ITR 456 (SC)
TDS on specified payments including non-resident remittances
Only where the sum is chargeable to tax. The obligation to withhold arises on 'any sum chargeable under the provisions of this Act', and the words cannot be read out of the section.
Must tax be withheld on every payment to a non-resident, or only where the sum is chargeable to tax in India?
The appellants made payments to non-residents — including for the purchase of software and for various other supplies and services — without deducting tax at source, taking the view that the sums were not chargeable to tax in India. The Revenue proceeded against them as assessees in default, contending that the obligation to withhold attaches to every remittance to a non-resident, and that the payer's only recourse is to apply to the Assessing Officer for a determination, failing which it must deduct and leave the recipient to claim a refund.
The Karnataka High Court decided against the taxpayers, holding that the obligation to deduct was unqualified. The matter came to the Supreme Court, where the construction of the words 'any sum chargeable under the provisions of this Act' fell for decision.
For the assessee
The section obliges deduction from 'any other sum chargeable under the provisions of this Act'. Those words qualify the obligation and cannot be ignored. If Parliament had intended deduction from every remittance, it would have said so. Requiring deduction from sums plainly outside the Indian tax net would compel withholding on, for instance, payments for goods imported on principal-to-principal terms.
For the Revenue
The scheme is designed to secure collection from non-residents who may be beyond the reach of recovery once funds have left India. The payer should deduct and, if it considers the sum not chargeable, apply for a determination; the recipient can claim a refund if too much has been withheld.
The Court held that the words 'any other sum chargeable under the provisions of this Act' are words of limitation and must be given effect. The withholding provision is integrated with the charging sections and the machinery of assessment; it is not a free-standing obligation to deduct from every remittance abroad. If the payer genuinely takes the view that no part of the payment bears tax in India, it is not obliged to deduct, though it carries the risk of being treated as an assessee in default if that view proves wrong, and it may protect itself by applying to the Assessing Officer for a determination. The Court noted that the contrary construction would produce results Parliament plainly did not intend — requiring deduction on payments for goods bought abroad and on other remittances wholly outside the Indian tax net — and would convert the provision into a mechanism for collecting tax that is not due, leaving recipients to pursue refunds. The application for a determination was held to be an option available to the payer, not a precondition of not deducting.
Foundational for every cross-border remittance and for Form 15CA and 15CB practice. The withholding provisions are consolidated in Section 393 of the IT Act 2025, and the chargeability precondition continues to govern. It underpins the outcome in Engineering Analysis and is cited in virtually every dispute about withholding on foreign payments.