The question so far not raised by the Income-Tax department is whether TDS should be deducted for payment made to issue managers/underwriters/advisors (all NRIs connected with the issues) for services rendered by them. None of the companies had either deducted TDS u/s 195(1) or obtained a certificate from the department u/s 195(2). On the query initiated by the I-T department, it was estimated that for an amount of $7,200 to $7,500 million, TDS was not deducted. Back of envelope calculations indicate that TDS of Rs 290 crore or $70 million has not been deducted.

The key question is whether the payment made can be treated as fees for technical services or not? I-T department took the view that it did and as a result cumulatively collected Rs 100 crore from SBI, L&T, Indian Rayon, Hindalco, Telco, Bombay Dyeing, M&M, Crompton Greaves, Raymond and Bajaj Auto. The appeal was permitted only against payment of tax. As of now, all companies are in appeal at the level of first appellate level, if CIT (A) can be called that. What constitutes fees for technical services is the first key question? Department relied on the Supreme Court judgement in the case of Oberoi Hotels Pvt Ltd(231 ITR 148) delivered in 1998 that anything specialised is technical.

The other question was whether it is necessary for NRIs to visit India to render services? If not, then can for the services rendered abroad, the tax liability arise? The view taken by the department was that it is not necessary to be in India to render services. The contention was supported by the Andhra Pradesh high court judgement delivered in the case of GVK Industries (228 ITR 564).

A point that was raised was that u/s 195(2) ex-parte order can not be passed. The department took the view that the word used in S 195(1) "shall" which is obligatory in nature and hence TDS has to be deducted. If this is not done, the benefit of Sec 195 (2) can't be claimed.

Though the matter is in appeal, a judgement delivered by the Supreme Court in the case of Transmission Corporation of AP Ltd (239 ITR 587) may prove to be beneficial to the department. It was held that the scheme of TDS also applies to gross sums, the whole of which may not be income or the profit of the recipient. Even the trading recipient is not exempted from the purview of the TDS.

It was held that whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the regular time of assessment. The purpose of sub section (1) of Sec 195is to see that sum which is chargeable under Sec 4 of the Act, for levy and collection of I-T ,the payer should deduct Income-Tax thereon at the rates in force, if the amount is to be a non resident.

The said provision is for tentative deduction of I-T thereon subject to regular assessment and by the deduction of tax, the rights of parties are not, in any manner affected. Simply stated, it means that refund can always be claimed though how to get is a major problem.

Another case relating to TDS that is in appeal with CIT (A) is that of Jet Airways. The company had an arrangement with Malaysian Airlines Systems (MAS) for taking aircraft engines on lease.

The payment of lease rentals was considered to be non-taxable i.e., no TDS was deducted. The first question was whether MAS has a PE in India. At least at CIT (A) level it is held that it had.

The contention of Jet Airways is that aircraft engine is not an equipment but tool. However, by relying on the interpretation of term `make available' in Jisco's case in terms of Indo Malaysian DTAA, tax was levied on Business Profits. The company has preferred an appeal.