Section 195 — Deduction of Tax at Source for Non-residents

Section 195 of the Income-tax Act, 1961 mandates the deduction of tax at source on payments made to non-residents. This section applies to any person responsible for paying to a non-resident any interest or any other sum chargeable under the provisions of this Act, except for salaries. The significance of this section lies in its role in ensuring tax compliance and preventing tax evasion on income accruing to non-residents from India. The statutory test involves determining the chargeability of the sum under the Act. The burden of proof is on the payer to deduct the appropriate amount of tax at source. Practically, this section is crucial for businesses and individuals making cross-border payments, as non-compliance can lead to penalties and interest. It also requires the payer to obtain a certificate from the Assessing Officer if a lower or nil deduction is applicable.

Common Litigation Flashpoints

1. Determination of chargeability of income under the Act
2. Rate of tax deduction applicable
3. Non-compliance with tax deduction and deposit timelines
4. Obtaining a certificate for lower or nil deduction

Judgments on Section 195 — Deduction of Tax at Source for Non-residents

• State, CBI vs Sashi Balasubramanian & Anr. — SC,
  Public servants cannot claim immunity under the Kar Vivad Samadhan Scheme, 1998, as the Scheme does not apply to them.
• Vodafone International Holdings B.V. vs Union of India & Anr. — SC,
  Section 9 of the Income Tax Act does not cover indirect transfers of capital assets situated in India.
• The Authority for Advance Rulings (Income Tax) and Others vs Tiger Global International II Holdings — SC,
  The DTAA between India and Mauritius allows capital gains to be taxed only in Mauritius, provided the entity holds a valid TRC.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.
• Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr. — SC,
  Payments for software do not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, and thus, no tax is deductible at source under Section 195.