Short Overview: As title in goods passed from foreign suppliers to assessee outside India at the part of shipment, no income had accrued to foreign parties in India in terms of section 5 and section 9. Therefore, section 195 did not apply to payments made to them.

Assessee entered into a consortium agreement with two foreign companies and one Indian company for rendering services with respect to construction of water storage and installation of ski lift and comprehensive maintenance for three years. The foreign parties were to supply various equipment and Indian party was to install that equipment. AO held that since assessee had made payment to the foreign parties directly and it would be chargeable to tax in their own hands and payment made to them was subject to deduction of tax under section 195.

It is held that assessee had furnished bills raised by foreign parties had also been paid by the assessee. The bills had also been raised by those parties on assessee itself, and payments were also made as advances through letter of credits. On perusal of various bills, it was apparent that goods had been shipped by those parties from outside India and title in goods had passed from suppliers to assessee outside India at the port of shipment. AO failed to show as to how income of foreign parties who supplied equipment was chargeable to tax in India. In view of this, it was apparent that no income had accrued to foreign parties in India in terms of section 5 and section 9, therefore, section 195 did not apply to payments.

Decision: In assessee’s favour.