1

Live WebcastTDS under sec. 195

Certification: Form 15CA, 15CB

Date: 21 October 2019

By: CA. Pramod Jain

CA. Gaurav Singhal

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Relevance as Practitioner / Deductor› Multi-dimensional perspective: Act, DTAA, precedents,

Multi-lateral Instrument

› Generally high stakes (monetarily)

› Significant cost of litigation, and (negative) publicity

› High level of scrutiny by tax authorities – Notices for reviewof Form 15CA / 15CB

› Consequences of default include nearly immediate cost(even without penal action by authorities)

› High degree of sensitivity of auditors

› Professional responsibility of certifying CA

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Objectives of Sec. 195

Regular inflow of revenue for Government

Checking of tax evasion

Collection of taxes at earliest

point of time

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Sec. 195 – OverviewSection Provisions

195(1) Scope and conditions for applicability

195(2) Application by ‘Payer’ for determining sum chargeable

S.s. (7): CBDT empowered to specify class of personsor cases (where recipient is NR) who will be mandatedto furnish such an application to AO

195(3) Application by ‘Payee’ for Lower / Nil withholding

S.s. (4): Validity of certificate issued u/s 195(3)S.s. (5): CBDT empowered to make Rules

195(6) Furnishing of information

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Sec. 195(1) – Bare Text › Sec. 195(1), as substituted by the Finance Act, 2015

“Any person responsible for paying to a non-resident, notbeing a company, or to a foreign company, any interest(not being interest referred to in sec. 194LB / 194LC /194LD) or any other sum chargeable under the provisionsof this Act (not being income chargeable under the head"Salaries") shall, at the time of credit of such income to theaccount of the payee or at the time of payment thereof incash or by the issue of a cheque or draft or by any othermode, whichever is earlier, deduct income-tax thereon atthe rates in force”

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Sec.195(1) – Scope and applicability

› Deals with TDS from sum paid / payable to Non Residents(NR) and Foreign Companies (FC)

› Applies to any sum chargeable to tax

*

* Not being interest referred to u/s 194LB or 194LC or 194LD

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Scope and Applicability› Exclusions from sec. 195

‒ Salaries

‒ Interest u/s 194LB / 194LC / 194LD

‒ Dividend (Sec. 115-O)

› Payment for personal purposes also covered

› ALL payers covered, irrespective of their status / legalcharacter. Eg. Individuals, HUF , etc.

› No monetary threshold

› Also applies to credits to a Payable a/c or Suspense a/c

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Scope and Applicability› Multi-dimensional: Requires detailed understanding of the

Act, relevant DTAA and if applicable, Multi Lateral Instrument(MLI)

› No single rate for TDS. Instead, deduction at Rate or RatesIn Force

› Payment to Agent of NR u/s 163, is also covered

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Deductor – Any person› Sec.195 is applicable extra-territorially – GVK Industries (SC)

› ‘Any person’ in context of sec. 195, would mean any personwho is a resident in India – Vodafone (SC)

› Expl. 2 to sec. 195 [Inserted by FA2012, w.r.e.f 1 Apr. 1962]“For the removal of doubts, it is hereby clarified that theobligation to comply with s.s. (1) and to make deductionthereunder applies and shall be deemed to have always appliedand extends and shall be deemed to have always extended toall persons, resident or non-resident, whether or not thenon-resident person has

(i) a resi. / place of business / business connection in India; or

(ii) any other presence in any manner whatsoever in India.”

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Foreign Company and POEM› How will sec. 195 apply to a FC that has a POEM in India –

since it will qualify as a ‘resident’

“Where more than one provision of Ch. XVII-B applies to theforeign company as resident as well as foreign company, theprovision applicable to the foreign company alone shallapply.”

- Notification dated 22 June 2018, issued under sec. 115JH

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Meaning of ‘Any sum chargeable’› Any sum chargeable to tax means:

‒ Amount that wholly bears the character of income, or

‒ Gross amount, whole of which may or may not representincome or profits of recipients

Transmission Corporation of AP Ltd. (SC)

› Sec. 195 not to apply, if sum paid is not taxable – GE India(SC)

› Deduct tax on gross amount, if not possible to compute exactincome element [unless a Lower / Nil TDS order has beenobtained] – CBDT Cir. 152 dated 27 November 1974

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Meaning of ‘Any sum chargeable’Determination of chargeability

› Under the Act

› Under the DTAA

‒ Treaty benefit not available unless NR / FC furnishes aTax Residency Certificate (TRC) obtained fromResidence State (RS)

‒ Form 10F to be furnished by NR / FC, if TRC doesn’tcontain prescribed details, such as Recipient’s status,address, nationality or country of incorporation, TIN / UIDin RS, and validity period of TRC

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DTAA vs. the Act – Common provisions

Nature Act DTAABusiness / Profession

Sec. 9(1)(i): Business Connection

Art. 5, 7 and 14: PE or Fixed Base

Salary Sec. 9(1)(ii) Art. 15Dividend Sec. 9(1)(iv), sec. 115A Art. 10Interest Sec. 9(1)(v), sec. 115A Art. 11Royalties Sec. 9(1)(vi), sec. 115A Art. 12FTS Sec. 9(1)(vii), sec. 115A Art. 12Capital Gains Sec. 9(1)(i), sec. 45 Art. 13

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Rates in force – Sec. 2(37A)(iii)› Rate or rates in force defined under sec. 2(37A): Prescribed

under the Finance Act or DTAA

› Sec. 90(2): Provisions of DTAA or the Act, whichever is morebeneficial to the Assessee

Eg. Taxpayer can benefit from beneficial clauses present inthe DTAA directly or through MFN clause in protocol:

‒ Reduced rate of tax

‒ Restrictive scope in DTAA (eg. ‘make available’ clause)

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Levy of surcharge and education cess› Rate under the Act: To be increased by surcharge and cess

› Rate in DTAA: Inclusive of surcharge and cess

‒ CIT v. K. Srinivasan 83 ITR 346 (SC)

‒ Bank of America v. DCIT 78 ITD 1 (Mum.)

‒ CIT v. Arthusa Offshore Co. 169 Taxman 484 (Utt.)

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Timing of deduction› Credit or payment, whichever is earlier

› Even when no remittance is made at all, say, only uponadjustment of dues: Raymond Ltd. (Mum.)

› TDS in cases where RBI approval is required

‒ Adverse view: TDS applies once the provision is made[United Breweries Ltd. (Kar.)]

‒ Favorable view: TDS applies only when actually paid [PfizerCorp. (Bom.)]

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Timing of deduction › TDS on Royalty: Only on actual payment

‒ Adverse view: Flakt (India) Ltd. (AAR)

‒ Favorable view: National Organics (Mum. trib.)

› Payment of Advance

‒ If NR payee follows accrual system, possible view: Nochargeable income arises so as to attract

‒ Adverse view: Flakt (India) Ltd. (AAR)

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Other aspects › TDS also applicable to Interest on tax refund; covered by

Art. 12 [Pride Foramer (Del. trib.)]

› Exchange rate

‒ RBI rate on the date on which tax is required to be deducted

‒ Rule 26: SBI TTBR

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Approach for applying sec. 195Step Remark

1 Check if covered u/s 195 Payment to NR

2 Verify factual, basic document Invoice, contract, legal status of payee, TRC, No PE, PAN, etc.

3 Characterization Profits, FTS, Royalty, Div., Intt.

4 Check taxability under the Act Sec.5, 9, 115A, 44DB, etc.

5 Check taxability as per DTAA Discussed in next slide

6 Check if order for ‘NIL’ or ‘Lower’ rate is available

Either by payer or payee (or, explore possibility of obtaining it)

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Before applying DTAA: Caution points› Validity of DTAA

‒ Entry into force and effect

‒ Latest text of the DTAA

› Access to DTAA

‒ Applicability (and definition of residence)

‒ Beneficial ownership

‒ Limitation of Benefit clause

‒ MLI

› Characterization (Alternatives and correctness)Cont’d

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Before applying DTAA: Caution points› Completeness of relevant Article

‒ Protocol

‒ MFN Clause

› Interpretation(s)

‒ Technical Explanation to DTAAs

‒ Jurisprudence (including foreign courts)

‒ OECD and UN Commentaries

‒ MLI

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Consequences of default › Deemed to be an ‘assessee in default’ under sec. 201

Proviso to sec. 201 extended to NR payee w.e.f. 1 Sep. 2019– Deductor not an ‘assessee in default’ if payee certifies

› Disallowance under sec. 40(a)(i), 58(1)(a)(ii) or 58(1)(a)(iii)

Sec. 40(a)(i) allows deduction in subsequent year of payment

› Interest under sec. 201(1A) @ 1% for failure to deduct tax,or 1.5% for failure to deposit tax after deduction

› Penalty under sec. 271C for failure to deduct tax and undersec. 221 for being an ‘assessee in default’

› Prosecution under sec. 276B: R.I. for 3 mth to 7 yr, plus fine

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Applying sec. 195(1) – Common Issues

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Sec. 206AA: In the absence of PAN› When payee has no PAN (or furnishes incorrect PAN), tax is

to be deducted at higher of following rates:

‒ Prescribed in relevant provision of the Act

‒ Rates in force

‒ 20%

› Controversy in past, on whether sec. 206AA overridesDTAAs and applied to NR

Amendment [Sec. 206AA(7) r.w. rule 37BC]: PAN notrequired for payment of interest, royalty, FTS or capital gains,if NR / FC furnishes its TRC and prescribed details (name,address, email, phone, TIN / UID)

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› Sec. 206AA not applicable for grossing up u/s 195A - BoschLtd. (Bang.)

Sec. 195A: Grossing up of tax

Particulars Amount (Rs.)Amount payable to NR (net of tax) 100

Tax rate applicable 20%

Gross-up income: 100/80(100-20) * 100 . 125

Tax payable (Rs. 125 * 20%) 25Net amount paid to NR (Rs. 125 – Rs. 25) 100

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Taxation of Reimbursements› Reimbursement: Not defined

› Dictionary meaning: ‘Pay back’ or ‘Repayment of what isalready spent’

› Not liable to tax in the absence of any income element: GE(SC)

› Circ. 715 dated 03 August 1995: No TDS if separate invoice

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Taxation of Reimbursements› Taxation of certain exp. (say, lodging, travelling) incurred

while rendering service:

− View 1 (Non-taxable): Reimbursement of OPE is incidental tomain services

− View 2 (Taxable): Reimbursement partakes the character ofservice - Cochin Refineries (Ker. HC)

› No WHT if expenditure directly incurred by service receiver

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Taxation of Reimbursements› Cost sharing:

− Certain function (HR, IT, etc.) of a group, are carried outcentrally by one entity

− Cross-charged to beneficiary entities, on pro rata basis

− Caution: Basis of allocation, no mark-up, benefit derived byother entities

› Services rendered, even if at cost are taxable: Timken (AAR)

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Taxation of ReimbursementsReimbursement v. Quid pro quo

› Something (i.e. consideration) for something i.e. a benefit /favour granted in return for something

› Element of profit is not an essential element for a receipt tobe taxable as income

› No direct nexus between cost incurred and fee charged:Danfoss (AAR)

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Taxation of ReimbursementsTest of ‘Pure reimbursement’

› Cost-to-cost basis, without any markup / profit element

› Availability of third-party invoices

› (Prior) authorization of payment by the person who finallybears the cots

› Taxability of underlying transaction, i.e. if such transactionhad been entered into directly (without interposing anintermediary), would it have been taxable in India?

Caution point: Interposing a person resident in 3rd state

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Other common issues› Applicability of TDS on ‘inter-adjustment of dues’: J.B. Boda

v. CBDT (SC)

› TDS on year-end provisions

‒ Existence of an identified payee

‒ Ascertainable amount

› If doubt on applicability of sec. 195 to a particular transaction

‒ Obtain lower / nil withholding order from AO

‒ Obtain AAR: Depending upon fact, Is time of essence?

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Application for Lower Deduction of Tax

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Application by ‘Payer’ under sec. 195(2)› Application by Payer to AO for determining appropriate

portion of sum chargeable

‒ Using e-filing utility (amendment w.e.f. 1 Nov. 2019)

‒ For determination of amount chargeable to tax

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Application by ‘Payer’ under sec. 195(2)› When the Payer considers that the entire sum payable to NR

is not chargeable to tax

› Is it obligatory to approach AO for non-withholding of tax?

‒ GE India Technology Centre (P) Ltd. (SC): Where paymentmade to NR was not chargeable to tax in India, no tax isdeductible at source even though assessee has not madean application before the Assessing Officer.

‒ Instruction no. 02/2014 of CBDT dt. 26 February 2014: If noapplication was made u/s 195(2), and payer failed to deducttax, its liability u/s 201 shall be computed on the taxableportion only (and not the whole remittance).

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Application by ‘Payer’ under sec. 195(2)› Challenge against order u/s 195(2)

‒ Appeal before CIT(A): When tax borne by payer and has beendeposited u/s 248

‒ Revision application to CIT u/s 264: BCCI (Mum.)

‒ Writ petition

› Sec. 248 not applicable if payee is not NR: Raza Textile (SC)

› No time limit for passing order u/s 195(2): Blackwood Hodge(I) P. Ltd. (Cal.),, Central Associated Pigment Ltd. (Cal)

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Application by ‘Payer’ under sec. 195(2)› Application of 195(2) can be made for nil withholding?

‒ Yes: Mangalore Refinery and Petrochemicals Ltd. (Mum)

‒ No: Czechoslovak Ocean (Cal.); Graphite Vicarb India Ltd.(Kol.); BIOCON Biopharmaceuticals Private Ltd. (Bang.)

‒ Practically, for both nil and lower withholding

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Application by ‘Payer’ under sec. 195(2)› Order u/s 195(2) is not conclusive and tax authorities can

take a contrary view during assessment proceedings: ElbeeServices Pvt. Ltd. (Bom.)

› Determination is restricted to payment to be made by Payer.Total income of payee is not under scrutiny

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Application by ‘Payee’ under sec. 195(3)› Application by NR to AO for grant of certificate to authorize

resident payer to make payment without deducting tax

› Not appealable under the Act

› Form 15C: Banking co. and Form 15D: Others

‒ Review restricted to specified receipt only

‒ Conditions under rule 29B to be satisfied

› Challenge against order u/s 195(3)

‒ Revision application before CIT u/s 264

‒ Writ petition

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Application by ‘Payee’ under sec. 195(3)Rule 29B: Conditions for application u/s 195(3)

› If the person concerned is not a Banking co.

‒ Carrying on business in India for 5 yrs. before date ofapplication (through a ‘Branch’ - As per Form 15D)

‒ Value of fixed assets in India exceed Rs. 50 Lac

› Applicant assessed to income-tax in India and hasfurnished returns of income due for all AY before application

› Not in default w.r.t. interest, penalty, fine or any other sum

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Sec. 197: Application by Payee› Application by payee to AO, for grant of certificate for Nil /

lower rate of TDS

› Prescribed Form 13

› AO to issue a certificate upon satisfaction of fact that existingtax liability of payee justify lower / nil tax deduction

› Certificate shall be valid for such period and such amountas mentioned therein, unless cancelled by AO

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Sec. 197: Application by Payee› In determining the existing and estimated liability, AO shall

consider

‒ Tax payable on estimated income

‒ Tax payable in last 3 yrs.

‒ Existing liability

‒ Advance tax / TDS / TCS of current year

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Common issues / concepts› Can the order u/s 195(2) be challenged

− Appeal can be filed before the Commissioner of Income(Appeals) [‘CIT(A)’] under Section 248 where tax is to be borneby the payer and such taxes have been deposited

− Revision application before the Commissioner of Income taxu/s 264

− Writ petition before the jurisdictional High Court

› Time limit for passing order u/s 195(2)

− No time limit: Blackwood Hodge (India) Pvt. Ltd. (Cal.), CentralAssociated Pigment Ltd. (Cal.)

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Common issues / concepts› Amendment with retrospective effect cannot create any

obligation upon payer, that did not exist at the time of creditor actual payment – Geo Connect Ltd. (Del. trib.)

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Comparison of 195(2), 195(3) and 197Particulars Sec. 195(2) Sec. 195(3) Sec. 197

Applicant Payer Payee (subject to Rule 29B)

Payee

Purpose To determineportion of income liable for TDS

To receive payment without TDS

To obtain order for nil / lower TDS

Appeal Yes, under sec. 248

No No

Revision u/s 264

Yes Yes Yes – L&T(Bom. HC)

Writ before HC

Yes Yes Yes

In all the above cases, no interest or penalty is leviable, if AO takes a subsequentcontrary view in proceedings (unlike in case of a Certificate issued in Form 15CB)

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Certification in Form 15CA and 15CB

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Certification in Form 15CA and 15CBTwin Objective (As per memorandum explaining provisions ofthe Finance Bill, 2015)

› Ensuring deduction of tax at appropriate rate from taxableremittances

› Identifying remittances on which tax was deductible butpayer failed to deduct the tax

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Relevance as Practitioner / DeductorExtracts from CBDT’s Central Action Plan 2019-20

› Ch.VII: International Taxation & Transfer Pricing

Verification of high-risk remittance data – Form 15CA/CB

Key Result Area and Target/Activities Time Frame

A International Taxation

1 High risk remittance data in form 15CA for FY 18-19 to be pushed by Systems to AO

15.08.2019

2 Verification of high-risk remittance data in form 15CA for FY 2018-19 and initiation of action by AO

31.10.2019

3 Orders u/s 201(1)/201(1A) in all appropriate cases 31.01.2020

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Relevance as Practitioner / DeductorExtracts from CBDT’s Central Action Plan 2019-20 (Cont’d)

“1. Verification of high-risk remittance data in Form 15CA/CB

...Experience gained from the verification of remittance datacarried out in the past years has highlighted the need toapply more focused and effective risk parameters in selectinghigh-risk data for verification. Equally important is the need toprocess more current information and gradually progress to astate where high-risk information is identified, processed andacted upon on a real time basis…”

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Relevance as Practitioner / DeductorExtracts from CBDT’s Central Action Plan 2019-20 (Cont’d)

“5. Enforcement Actions

…Each AO dealing with TDS work in Internationaltaxation Charge is accordingly required to carry out atleast 10 surveys / spot verifications during the year. Thefollowing indices may be useful for selecting cases for TDSsurvey:

(a) Cases where information requested in the course ofverification of 15CA / CB data is not being furnished orappears to be deliberately delayed;”

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Certification in Form 15CA and 15CB› Sec. 195(6), as substituted by the Finance Act, 2015

“(6) The person responsible for paying to a non-resident,not being a company, or to a foreign company, any sum,whether or not chargeable under the provisions of this Act,shall furnish the information relating to payment of suchsum, in such form and manner, as may be prescribed.”

› Sec. 271-I, as inserted by the Finance Act, 2015

“If a person, who is required to furnish information u/s195(6), fails to furnish such information, or furnishesinaccurate information, the AO may direct that suchperson shall pay, by way of penalty, a sum of Rs. 1 Lakh”

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Certification in Form 15CA and 15CBAnalysis of Sec. 195(6)

› Information to be furnished by the payer to a NR / FC

› Filing may be required even if the payment is not taxable,say, due to:‒ Non-accrual in India (Sec. 9)

‒ Income that has accrued in India, but has been expresslyexempted under the Act (Sec. 10)

‒ Treaty benefit (Sec. 90)

› Filing to be made in prescribed form, manner (Rule 37BB)

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Is Form 15CA and 15CB required in all cases??

• R. 37 BB (3) - Notwithstanding anything contained in sub-rule (2) [Part D of 15CA], no information is required to be furnished (15CA / 15CB) for any sum which is not chargeable under the provisions of the Act, if,—

• Remittance is made by an individual and it does not require prior approval of RBI as per the provisions of section 5 of the FEMA read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000; or

• Schedule list

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FEMA› S. 5 of FEMA Act

› Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction

› Provided that the CG, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed

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Sch. III - Foreign Exchange (CAT) Rules› Within limit of USD $250000- Private visits to any country (except Nepal & Bhutan)- Gift or donation.- Going abroad for employment- Emigration- Maintenance of close relatives abroad- Travel for business, or attending a conference or

specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment / check-up.

- Expenses in connection with medical treatment abroad

- Studies abroad

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Specified ListSl. No Purpose

code as per RBI

Nature of payment

1 S0001 Indian investment abroad -in equity capital(shares)

2 S0002 Indian investment abroad -in debt securities

3 S0003 Indian investment abroad -in branches and whollyowned subsidiaries

4 S0004 Indian investment abroad -in subsidiaries andassociates

5 S0005 Indian investment abroad -in real estate

6 S0011 Loans extended to Non-Residents

7 S0101 Advance payment against imports

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Sl.No

Purposecode asper RBI

Nature of payment

8 S0102 Payment towards imports - settlement ofinvoice

9 S0103 Imports by diplomatic missions

10 S0104 Intermediary trade

11 S0190 Imports below Rs.5,00,000 - (For use by ECDoffices)

12 SO202 Payment for operating expenses of Indianshipping companies operating abroad

13 SO208 Operating expenses of Indian Airlinescompanies operating abroad

14 S0212 Booking of passages abroad - Airlinescompanies

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Sl. No

Purpose code as per RBI

Nature of payment

15 S0301 Remittance towards business travel

16 S0302 Travel under basic travel quota (BTQ)

17 S0303 Travel for pilgrimage

18 S0304 Travel for medical treatment

19 S0305 Travel for education (including fees, hostelexpenses etc.)

20 S0401 Postal services

21 S0501 Construction of projects abroad by Indiancompanies including import of goods at projectsite

22 S0602 Freight insurance - relating to import and exportof goods

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Sl. No Purposecode as perRBI

Nature of payment

23 S1011 Payments for maintenance of offices abroad

24 S1201 Maintenance of Indian embassies abroad

25 S1202 Remittances by foreign embassies in India

26 S1301 Remittance by non-residents towards familymaintenance and savings

27 S1302 Remittance towards personal gifts anddonations

28 S1303 Remittance towards donations to religiousand charitable institutions abroad

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Sl.No

Purposecode as perRBI

Nature of payment

29 S1304 Remittance towards grants and donations toother Governments and charitable institutionsestablished by the Governments

30 S1305 Contributions or donations by theGovernment to international institutions

31 S1306 Remittance towards payment or refund oftaxes

32 S1501 Refunds or rebates or reduction in invoicevalue on account of exports

33 S1503 Payments by residents for internationalbidding.

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Form 15CA / 15CB - Decision Tree› Reporting required under rule 37BB

Payments to NR / FC

No reporting required

Liberalizedremittances

33 Specified Payments

Simplified reporting –No CA certificate

required

Taxable but < Rs. 5 L (Part A)

Taxable > Rs. 5 L With lower / nil TDS

order (Part B)

Not chargeable to tax (Part D)

Full fledged reporting with CA

Certificate

All other payments > Rs. 5 L

Part C of Form 15CA

+ Form 15CB

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Form 15CA - Four Parts

Part A• Remittance chargeable to tax• Payment < Rs. 5L• Form 15CB is not required

Part B• Remittance chargeable to tax• Payment > Rs. 5L• Order obtained under sec.

195(2), 195(3) or 197• Form 15CB is not required

Part C• Remittance chargeable to tax• Payment > 5L• Form 15CB is required

Part D• Remittance not chargeable to

tax• Form 15CB is not required

Form 15CA

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Sec. 195(6): CA certificate for remittanceDocuments one should verify before issuing Form 15CB

› For characterization of transaction‒ Agreement / Purchase order and Invoice

‒ Transaction details and correspondence‒ Technical advice (if obtained / required)‒ Any other proof of services rendered (such as copy of report

furnished by the NR / FC, etc.)

› Payee’s certificate that it has No Permanent Establishmentand / or Business Connection in India

› SBI’s TTBR certificate

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Sec. 195(6): CA certificate for remittanceDocuments one should verify before issuing Form 15CB

› If availing DTAA benefit‒ Valid Tax Residency Certificate (also required in case of

absence of PAN, for seeking protection from sec. 206AA)

‒ Form 10F (if TRC doesn’t contain prescribed details –discussed earlier)

‒ Payee’s certification of its DTAA entitlement and Beneficialownership of payments made to it

› Indemnification: Not a statutory requirement, but may beconsidered on a case-to-case basis

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› TRC received in foreign language

› TRC not available

- Available for earlier year(s), but not for current year

- TRC applied for, but not available on date of deduction

- Skaps Industries (Ahd.): DTAA benefits cannot be deniedmerely due to non-availability of TRC. When NR hassubstantiated its residential status by way of sufficient andreasonable documentary evidence, requirement of furnishingTRC would be persuasive and not mandatory

Practical Challenges

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› Validity of TRC:

- Where tax year is a calendar year

- TRC valid for multiple years

› Year in which remittance ismade, is different from that inwhich tax was deducted

- Payable / Paid

- Sec. 195 read with sec. 206AA / sec. 90

Practical Challenges

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› Countries with no TRC

› Where the Issuing Authorityis not IRS / Tax office:

- Corporate regulatory authority

- Business license as a TRC

- Certificate issued by an'Association'

- R. 37BC(2)(iv) – TIN / UniqueNo. by which Govt of thatcountry identify him as resident

Practical Challenges

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Practical Challenges› Characterization

- Inability to characterize the transaction, say, due to absence ofa valid (or sufficiently detailed) agreement, purchase order, and /or any other document

- Conflicting court decisions as regards characterization

- Composite payment

› Change in Exchange rate between date of deduction of taxand date of remittance of payment

TDS not applicable in case of exchange fluctuation betweendate of credit and remittance date - Sandvik Asia (Pune)

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Practical Challenges› Can the C.A., while issuing Form 15CB, simply rely upon

the ‘No PE certificate’ issued by Payee

› What if there is a (reported) adverse decision for the payee,albeit for a different AY, wherein it has been held to have anIndian PE

› Where payee has an Indian PE, but the remittance is notattributable to such PE – as certified by the Payee

› Issuing Form 15CB for sensitive transactions (due to itsquantum and / or complexity). Eg. remittance of purchaseprice of shares of an investment SPV, sold by a NR

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Practical Challenges› Payment is made to a country other than RS of payee

› Where the transaction price does not represent FMV as persec. 50CA of the Act

› Where banker disagrees with Classification Code selectedby C.A., and code suggested by banker could conflict withcharacterization of transaction

› Determination of ‘beneficial ownership’: TRC constitutessufficient evidence for accepting beneficial ownership (as perCircular 789, dt. 13 Apr. 2000) – Relied upon in IndostarCapital (Bom.)

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THANK YOU

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