Many people ask us, why should I take a professional opinion? Maybe legal, Accounts, taxes or compliances, my uncle’s son, though not a certified professional gives me the same advice. Why then, should I spend my hard earned money on the same advice given on his letterhead? Because, they are right, updated and most importantly accountable. If you act on the professional advice of the professional you are protected from the consequences arising out of such actions. Don’t you believe me? Let me tell you a real-life case involving a very big Indian celebrity, a former Miss World. Let me tell you the case I’m talking about? It is Aishwarya Rai Bachchan Vs Income Tax Dept.
Facts of the case:
Mrs.Bachchan made some payment to a US citizen as expenses to services rendered by her to Mrs.Bachchan. Income Tax department contended that Mrs.Bachchan has not deducted TDS on the payment and hence sent a show cause notice to her asking why she should not be considered as assessee in default under Income Tax Act (Section 201 (1)).
Mrs.Bachchan explained her reasons for not deducting TDS as follows
- Not only the payment was made outside India, even service was rendered outside India
- The payment made was not towards reimbursement of expenses but for maintenance of the website and other allied services rendered to the assessee
The department rejected the claims saying that the US citizen who was paid was not actually a service provider but was a website designer. Thus she got an only commission for designing the contents of the website of the assessee and the balance payment was forwarded to the actual service provider. Also, the department contended that website maintenance came within the meaning of “fees for technical services”. The Double taxation avoidance agreement (DTAA) between India and Bulgaria is also not applicable since the payment was made to US citizen. Hence Mrs.Bachchan was ordered to deposit the TDS along with applicable penalty.
Mrs.Bachchan’s reply to this order and its acceptance by the appellant authorities is sort of landmark with respect to the importance of Professional advice. It was submitted by the assessee that there was reasonable cause for not deducting tax at source as the assessee was under the bonafide impression that payments made to a non–resident for the services rendered outside India do not attract provisions of section 195. The reasons for entertaining such belief was due to the certificate issued by the Chartered Accountant(CA) stating that remittance is exempt from withholding tax at source.
Though the department did not accept this explanation and still claimed TDS and penalty from Mrs.Bachchan. She appealed against that order and the appellant authority held that Mrs.Bachchan had valid reasons to be of belief that TDS need not be deducted and hence she cannot be held liable for the tax she has not deducted at source. The valid reason is that she has relied on professional advice provided by her CA.
The implication of the Order
This order not only covers the CA but sets a precedent on the importance of taking a professional advice as this order can be stated by any individual/ entity who has acted on the professional advice provided to him by certified professionals and any act, rule or regulation is violated in the process the individual/ entity cannot be held responsible. Hence this is the reason you should rely on a professional advice and not your Uncle’s son because they are not just right and updated but are also accountable which makes their advice very valuable and that is the reason you pay for it so that any action you take based on this advice is insulated from all unwanted consequences.
Source: Judgement Copy