Bombay High Court rules holding company not liable to TDS

Bombay High Court rules holding company not liable to TDS

The petitioner had purchased shares of a Bermuda-related company

The Bombay High Court has held that the holding company is not liable to Tax Deducted at Source (TDS) under the Income Tax Act, 1961 if it did not make any payment to a non-resident individual under the transaction.

The issue came up, as the assessing officer (AO) maintained that the petitioner was required to deduct tax at source while making the payment under the IT Act. It was on the alleged purchase of shares of a company incorporated in Bermuda (a British island territory in the North Atlantic Ocean). Liable to pay tax under the IT Act, it had defaulted to deduct while making the payment.

The petitioner contended it was not liable to deduct any tax, as it had not made any payments. Since it had not breached the obligation under the IT Act, the notice was not justifiable.

Observing the matter, Justice KR Shriram said, "The obligation under the IT Act is on     a person responsible for paying to a non-resident any sum chargeable under the provisions of the Act. The person, at the time of credit of such income to the account of the payee or at the time of the payment in cash/cheque/draft/other modes, shall deduct the income tax at the rates in force."

The court further held, "When the petitioner has not made any payment and it is not the respondent's case that the petitioner had directly made any payment, the petitioner cannot be held responsible for the deduction of tax."

Justice Shriram ruled, "The respondent's argument that the petitioner had made the payment through IMAHI is also not acceptable, as there is no evidence."