QUESTION: I have some clients who make payments which are taxable to foreign companies incorporated abroad. Every company, which includes foreign company, is required to file a return under Sec. 139(1). For foreign companies, I understand that such return has to be filed as long as there is income in India, whether liable to tax or not. While this understanding is clearly inferable under Sec. 139(1), there are provisions sparing the ordeal of filing return under Sec. 115A(5), where no tax is payable on dividend, royalty or technical service in the case of foreign companies, if there is appropriate tax deduction at source. There is a similar provision under Sec. 115G in respect of long-term capital gains and Sec. 115AC in respect of income from capital gains or other income from bonds or global depository receipts purchased in foreign currency. I take it that these exceptions continue to have relevance, though they were in the statute even prior to the compulsory returns for all companies under Sec. 139(1). Would I be correct in advising my client that the exemption from filing return continue in respect of income from the specified sources, if there is adequate tax deduction at source.
ANSWER: Sec. 139(1) is a general provision. But the provisions referred by the reader are special provisions meant only for particular categories of incomes from specific sources with no further liability for the non-residents in view of adequate tax deduction at source. Rules of interpretation in such cases are that a special clause will override a general clause. The reader is, therefore, correct in advising his clients that there is no need for filing a return in such cases.
Needless to add that where there is excess deduction, a return for claiming refund is eligible. A voluntary return in such cases is also not barred in law.
In fact, where payment is to a non-resident, there may be no occasion for filing a return when there is no liability with reference to overriding provisions in the Double Tax Avoidance Agreement as ruled by the Authority for Advance Ruling in Vanenburg Group B.V. in re (2007) 289 ITR 464 (AAR). The ruling also relied upon an old decision in Chatturam v CIT (1947) 15 ITR 302 (FC) deciding that where the charging section could have no application, the machinery section like Sec. 139(1) could not possibly apply. But the safer view is to confine the exception from filing return only to the items listed in the statute.
