TDS Liability On Payment To Non Residents

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: Under the Indian Income-tax Act, a payer of income needs to deduct tax at source at the rates prescribed under the Income-tax Act, 1961 (‘the Act’) while making payments to non-residents. Section 195 of the Act provides that tax should be deducted at the time of credit of the amount to the account of the non-resident payee or at the time of making actual payment, which ever is earlier. Many times, a controversy arises as to the point of time at which tax was required to be deducted by an assessee, viz., whether at the time of credit of the income to the account of the non-resident payee or at the time of making actual payment or at the time when the income really accrued to the non-resident payee et al.

Recently, this interesting and the relevant issue was the subject matter of consideration before the Income-tax Appellate Tribunal, Delhi Bench in the case of CJ International Hotels Ltd. v. ITO (TDS) reported in 79 ITD 506. The assessee company, which owned a hotel known as Le-Meridien Hotel, entered into a ‘Franchise Agreement’ with Slociete Des Hotels Meridien, France, on 16th September, 1991, for the purpose of being affiliated with their chain of hotels and to benefit from the use of Meridien trade name, service mark, and service name, as well as its marketing and reservation network.

Under Clause 7.2 of the Franchise Agreement, the assessee company was to pay franchise fees, as compensation for the basic services rendered by the French company, @ 1 per cent of the room sales of the hotel.