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Question: Should TDS be deducted u/s 195 on sums paid to a non-resident when non-resident is non-profit organization?

A proprietory organization in India represents a US non-profit professional society. The US non-profit professional society has certification program. The certificate is issued to individual after passing 5 exams. The Indian organization collects the fee from individuals, keeps some part to meet administrative expenses and remits the balance exam fees to the US organization. The Indian organization also remits royalty fees to the US organization for reprinting study materials in India.

Under section 195, the TDS should have been deducted. However, since India has a treaty for avoidance of double taxation (ADT), and since the US organization is non-profit and exempt from paying taxes, logically there should be no need to deduct TDS.

Can any one tell if there is a rule with respect to above already or any case law? If not, is TDS deductible? If not, is there any process to be followed, e.g., applying to the Director of Income Tax (International Law) for an exmption certificate?

Answer: Better to consult a C.A.,

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