Recently CBDT has issued a circular No. 3/2015 regarding clarification of "Amount no Deductible" under sub clause (1) of clause (a) of section 40 of Income-tax Act. The details of the circular is as under.
Circular 3/2015
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi
Dated 12th of February,2015
Subject:- Clarification regarding `Amount not deductible` under sub clause (1) of clause (a) of section 40 of Income-tax (`Act`)--regarding.
Section 40(a)(1) of Act stipulates that in computing the income chargeable under the head "Profits or gains of business or profession", any interest, royalties, fees for technical service or other sum chargeable under this Act either payable in India to a non-resident (not being a company)/a foreign company or payable outside India, shall not be allowed as a deduction, if there has been a failure in deduction or in payment of tax deducted in respect of such amount under Chapter XVII-B of the Act.
2. Dis-allowance regarding `other sum changeable` under section 40(a)(i)is triggered when the deductor fail to withhold tax as per provision of section 195 of the Act. Doubts have been raised about the interpretation of the term `other sum chargeable` i.e. whether this term refers to the whole sum being remitted or only the portion representing the sum chargeable to income-tax under relevant provisions of the Act.
3. Central Board of Direct Taxes has already issued Instruction No. 02/2014 dated 26.02.2014 (F.No. 500/33/2013-FTD-I) regarding deduction of tax at source under sub-section (1) of section 201 of the Act relating to payments made to non-resident in cases where no application is field by the deductor for determining the sum so chargeable under sub-section (2) of section 195 of the Act. Vide this Instruction, Board has clarified that in cases where tax is not deducted at source under section 195 of the Act, the Assessing Officer shall (1) of section 195, to ascertain the tax-liability on which the deductor shall be deemed to be an assessee in default under section 201 of the Act.
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