Tax Deduction at Source

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 December 2009 If a company has a branch in US and it hired a branch office from an individual of US and it is to pay rent to him

? whether we will deduct tax or not

Pls give answer with the the Provision of Double Taxation Agreement with the Full procedure i.e. Rate of Tax etc.

Sunil

Sunil (Expert)
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19 December 2009 As per recent judgement of the Karnataka High Court in Samsung case, the person paying the income to the non resident is not to determine the taxability of the income in the hands of the non resident as per provisions of IT Act or DTAA. The person has to deduct and pay even for import of goods and the payee has to file returns and claim refund as per provision of the DTAA. However, if payee obtains certificate u/s 197 from the AO for nil or lower rate of TDS, then you can apply the same.

Therefore,unless the Income Tax Act does not specify a lower rate, you have to deduct TDS at 30% + cess for individuals and 40% + 2.5% surcharge + cess for other than domestic companies. The non TDS of surcharge and cess is not applicable for section 195. If the DTAA specifies thatincome is not taxable or tax rate is lower, the payee can file a return and claim refund.

This is exactly what the judgement spells out even though the ITD did not pray for such all this. If you are an assessee in Karnataka, this judgement is binding on you. In case not it is still a risk not to follow it unless an appeal is filed and stay is obtained against this judgement. Therefore for any payment, even if you go and stay in hotel or pay for car hire abroad or import of goods for resale, you have to deduct TDS. It is upto the payee to file returns and claim refunds in India or claim relief in his taxes in the foreign country where he is resident.