(1) Where the person responsible for making the payment makes any payment exclusive of tax, tax shall be deducted at the applicable rate on the amount computed in the following manner, namely:—

C = (100 × A)/(100-B),

Where—

C = amount computed for the purpose of deduction,

A = amount of payment without tax,

B = applicable tax rate.

(2) Where, the recipient, getting the payment without tax,—

(a) is required to furnish proof of submission of return but fails to do so; or

(b) fails to receive payment through bank transfer, in such cases, ‘B’ referred to in sub-section (1) shall be determined in accordance with the provisions of this Chapter.

(3) For the purposes of this section, “payment without tax” means any payment made by the payer to the payee on which no tax has been deducted or collected at source under any contract or arrangement.