Nilesh Shah writes:
E Mail: nilesh63@vsnl.
What the payer of the amount to a non-resident is required to do when he is in dilemma regarding tax to be deducted at source.
The payer should adopt the approach as given in section 195 & is as follows.
The provisions contained in sub-sections (1), (2) & (3) of section
195 are closely inter-connected & are complementary to each other
and, therefore, have to be read together & as a whole. The duty to
deduct tax u/s 195(1) is an essential liability cast by statute on a
person who is making payments to non-residents. A person responsible
for making payments to a non-resident, other than income chargeable
under the head salaries, has necessarily to examine the liability to
deduct tax at source. He has to satisfy himself that the payments
made by him are not such sums which are chargeable under the
provisions of the IT Act. The liability to deduct tax at source
arises only in the case of such payments where those payments are in
the nature of income chargeable under the IT Act. The provisions of
sec 195(1) may create an avoidable inconvenience in such cases where
the payments made by a person are not such amounts which are
chargeable to income tax. It is in order to avoid such inconvenience
to a person that sub-section (2) of section 195 has been provided.
Where the person making such payments to a non-resident thinks that
the payments made by him to the non-resident would not be income
chargeable in the case of the recipient,he can make an application to
the AO to determine the issue & decide whether tax is to be deducted
at source or not & if it is to be deducted, to what extent. The
facility of consulting the AO is available not only to the payer but
also to the recipient non-resident who can request for the issue of a
certificate u/s 195(3). For the purpose of deciding whether any
payment is in the nature of income chargeable or not, law provides an
opportunity to the payer to approach the AO u/s 195(2). The
consultation provided u/s 195(2) is, therefore, to be mandatorily
followed by the person making the payment to the non-resident; he is
otherwise liable to deduct tax at source under the provision of 195
If the AO does not reply to the assessee, the assessee cannot
subsequently be fastened with the liability for non-deduction of tax
The order of the AO can also be challenged.