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CMA Intermediate · Direct and Indirect Taxation · Tax Deducted at Source and Tax Collected at Source

Mehta Exports Ltd. pays a sum to a non-resident and believes only part of it is chargeable to tax in the recipient's hands. Under section 395(2) of the Income-tax Act, 2025, what is the correct course?

The payer may apply to the Assessing Officer to determine the proportion of the sum chargeable to tax, and tax is then deducted only on that determined proportion. The payer cannot self-estimate, and the right is not restricted to the payee.

  1. ADeduct tax on the whole sum, since no application can be made by a payer
  2. BThe payee alone may apply, and the payer has no role
  3. CThe payer may apply to the Assessing Officer, and tax is deducted only on the proportion determined as chargeableCorrect
  4. DThe payer may deduct tax on any proportion it estimates, without application

Explanation

Section 395(2) lets the person paying the non-resident apply to the Assessing Officer, who determines the appropriate proportion chargeable to tax. Tax is then deducted only on that proportion. A payer's self-estimate is not permitted, and the application right is not limited to the payee.

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