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February 2016

[2015] 64 taxmann.com 162 (AAR – New Delhi) Satyam Computer Services Ltd Date of Order: 01.12.2015

By Geeta Jani
Dhishat B. Mehta Chartered Accountants
Reading Time 2 mins
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Sections 9, 195 of the Act – Payment of penalty decreed by Foreign Court, being payment to Government, not subject to tax and hence, will not be subject to tax withholding under the Act.

Facts
The applicant was an Indian company. The shares of the Applicant were listed on Indian stock exchanges. The Applicant had also issued American depository shares which were listed on New York Stock Exchange. SEC of USA had filed complaint with US Court for violation of American Securities Law by the Applicant. The Applicant filed its consent and undertaking with SEC without admitting or denying the allegations in the complaint and agreed to pay penalty. The US Court levied civil penalty on the Applicant. The Court further decreed that “amount ordered to be paid as civil penalties pursuant to this Judgment shall be treated as penalties paid to the government for all purposes, including all tax purposes”.

The AAR examined the issue whether penalty payable pursuant to decree of US Court, which was paid to US Court/Government of USA was liable to tax withholding under the Act.

Held
Penalty pursuant to the decree of Court will not be subject to tax liability. Consequently, question of tax withholding u/s. 195 of the Act will not arise.

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