The Supreme Court will decide whether a non-resident company is liable to pay advance tax on fee charged by it for providing services in India.

The issue had been raised in an appeal filed by the income tax department challenging the sectoral tribunal's ruling which held that PricewaterhouseCoopers (PwC), being a non-resident firm, was not liable to pay advance tax even if the entire payment made to it by its clients in India was subject to TDS under Section 195 of the Income Tax Act.

A bench headed by Justice S H Kapadia is hearing the appeal filed by the department seeking its interference on the issue whether other statutory provisions charging interest can be applied to the assessee which had failed to pay advance tax.

The revenue department has also sought the apex court's directions on whether an assessee like PWC whose entire taxable receipts were subject to TDS was liable to pay advance tax and if the same was paid then whether interest was chargeable on it under Section 234A, 234B and 234C of the Act.

The United States-based accountancy and consultancy firm had disclosed consultancy fee aggregating to more than Rs 5.88 crore (Rs 58.8 million) during 2001-02 arising from various services rendered to its clients in India.

PwC, a limited liability partnership firm, had filed return declaring total income of Rs 5.88 crore on which the tax was worked out to be more than Rs 2.02 crore (Rs 20.2 million).

In its computation of income filed along with income return, the assessee had adjusted the amount of TDS aggregating to more than Rs 1.47 crore (Rs 14.7 million) and the shortfall of tax of Rs 66.64 lakh (Rs 6.664 million) inclusive of interest was deposited under Section 140A.

PwC had challenged the tax demand of more than Rs 2.60 crore (Rs 26 million) raised by the assessing officer (AO). However, the Commissioner of Income Tax (CIT) while deleting the additional levy of 15 per cent had directed AO to allow the same after verification of the TDS claim of Rs 1.29 crore (Rs 12.9 million) without charging interest.

Aggrieved by the order, the revenue department had moved the Income Tax Appellate Tribunal (ITAT) alleging that CIT was not justified in holding that PwC was not liable to pay advance tax when it had already paid tax of Rs 66.64 lakh in this regard. Besides, it alleged that tax was applicable on the total income of the assessee at the rate of 30 per cent against 15 per cent held by CIT as PWC was an Association of Person.

However, PwC had stated before the ITAT that it was not given an opportunity of being heard and was not liable to pay any advance tax.

While stating that it was a non-resident firm rendering consultancy services to various companies in India, PwC said that the firms were legally liable to deduct tax at source under Section 195 before making remittance to it.