Judgment:
These are two appeals by the assessee against the order of the Commissioner (Appeals) relating to assessment years 1996-97 and 1997-98.
The assessee is objecting in confirming that no interest was allowable to the assessee under section 244A in respect of the refund of excess tax deducted at source paid by it.
The briefly stated facts of the case are that the assessee-company is engaged in the business of manufacture of soap and occasionally imports oils from Malayasia and Singapore. The said import is funded by a suppliers credit, interest payable in respect of which is exempt from tax under section 10(15)(iv)(c), if the transaction is approved by the Central Government. During the period from December 1995 to February 1997, approvals had been granted by the Ministry of Finance after the respective due dates for payment of tax deducted at source. in the meantime, on the respective due dates, the assessee paid withholding tax before remitting the interest abroad. The approvals under section 10(15)(iv)(c) were received subsequently. When the assessee applied for refund of excess withholding tax paid, the same was denied. However, the assessee filed an appeal against the said order which was disposed off by the Commissioner (Appeals)-XXV, Mumbai vide order No.Commissioner (Appeals)/XXV/Jt. CIT(TDS)/Rg.l/188 & 2000-01, dated 16-1-2001 directing the assessing officer to issue the said refund relating to both the years. The order of the Commissioner (Appeals) has been confirmed by the Tribunal in ITA Nos. 2161 & 2162/Mum./1 vide its order dated 31-5-2004. The assessing officer has given the appeal effect of the Commissioner (Appeals) by granting the refund of TDS of Rs. 35,41,589. However, the assessing officer did not allow interest under section 244(A). Aggrieved by the same, the assessee preferred appeal before the Commissioner (Appeals). Reliance was placed on the decision of the Supreme Court in the case of ITO v. Delhi Development Authority (2001) 252 ITR 772 (SC) and the Board Circular No. 549, dated 31-10-1989. Further reliance was placed on the decision of the Gujarat High Court in the case of Vasantlal Tulsidas Agrawal v. CIT (2002) 254 ITR 255 (Guj) and also on the decision of the Supreme Court in the case of CIT v. Narendra Doshi (2002) 254 ITR 606 (SC). The Commissioner (Appeals), after considering the submissions and perusing the relevant provisions of law along with the Board Circular Nos. 769, dated 6-8-1998 and 790, dated 204-2000 found that no interest under section 244A was allowable to the assessee because the refund on account of TDS was not under the Income Tax Act and therefore, there is no provisions under the Income Tax Act to allow interest on such refunds. The case laws relied upon by the learned Counsel for the assessee were also distinguished by the Commissioner (Appeals), while rejecting the claim of the assessee for both the years.
The contentions raised before the lower authorities were reiterated by the learned Counsel for the assessee here before the Tribunal. The attention of the Bench was drawn on the relevant documents placed in the paper book. The attention of the Bench was also drawn on the provisions of sections 240 and 244A. Reliance was also placed on the decisions relisd upon by the Commissioner (Appeals). Further reliance was placed on the decisions in Tata Engg. & Locomotive Co. Ltd. v. Dy.
CIT (2005) 92 ITD 111 (Mum.) and Royal Airways Ltd. v. Addl. DIT (2005) 98 TTJ (Delhi) 665. Reliance was also placed on the decisions in 273 ITR 889 (sic) and Delhi Development Authoritys case (supra).
On the other hand, the learned Departmental Representative strongly relied on the orders of the authorities below. It was further stated that provisions of law are very clear and on the amount, which was not deposited under the provisions of law, no interest can be allowed under section 244A on such refunds. The attention of the Bench was again drawn on the Board Circular Nos. 769 and 790 along with provisions of section 244A. The learned Departmental Representative has further stated that Commissioner (Appeals) has effectively distinguished the case laws relied before him and the decisions on which further reliance placed by the learned Counsel for the assessee are distinguishable on facts as in those cases, the TDS was deducted and paid under the provisions of Income Tax Act. Therefore, the ratios of these decisions are not applicable on the facts of the present case.
In reply the learned Counsel for the assessee stated that the amount paid by the assessee was on account of TDS only and this amount was paid voluntarily, being a good citizen of the country, as the approval was awaited from the Ministry of Finance. It was further submitted that for a moment, if the approval could not have been received then the assessee would have been found an assessee in default and order under section 201 may have passed by the assessing officer. Since the assessee being a good citizen was of the view that it should not involved in any litigation, therefore, voluntarily paid the amount of TDS and the same was refunded on the directions of the Commissioner (Appeals). Accordingly, it was submitted that the amount of refund received by the assessee has to be treated as amount paid under the provisions of Income Tax. Therefore, the assessee is entitled for interest under section 244A.We have heard the rival submissions and considered them carefully. We have also perused the various case laws along with Board circulars on which the reliance was placed by the respective parties and found that the Commissioner (Appeals) was justified in rejecting the claim of the assessee. In the scheme of taxation as provided for under the Act, an assessee is allowed to pay tax by way of advance tax, self-assessment tax and regular tax. There could also be payment of tax by way of tax deducted at source by the payer on certain payments as provided for in Chapter XVII of the Income Tax Act. Section 199 provides that any deduction made in accordance with the provisions of various sections in Chapter XVII and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction is made. Thus, in a case where tax has been deducted at source, credit for the same is available to the deductee and if such tax deducted at source is found to be excessive in the assessment of the deductee, the excess amount is refunded to him. Therefore, once tax is deducted at source, it is only the deductee who is entitled to claim refund of the excess tax deducted. However, the CBDT realized that in certain cases, particularly cases involving payments to non-residents where tax liability is borne by the Indian Party, a situation may arise where the contract is cancelled of excess tax deduction is made. In such case there is no statutory provision to refund the tax deducted at source to the deductor and it may cause hardship as the tax liability is borne by them. Therefore, in order to mitigate such hardship, the Board issued Circular No. 769, dated 6-8-1990 providing for the procedure for refund of tax deducted at source under section 195 to the tax deductor. The contents of the circular which are part of order of the Commissioner (Appeals) at pages 3 and 4 are as under : "The Board has received a number of representations for granting approval for refund of excess deduction or erroneous deduction of tax at source under section 195 of the Income Tax Act. The cases referred to the Board mainly relate to circumstances where; (a) the contract is cancelled and no remittance is required to be made to the foreign collaborator; (b) the remittance is duly made to the foreign collaborator, but the contract is cancelled and the foreign collaborator returns the remitted amount to the person responsible for deducting tax at source; (c) the tax deducted at source is found to be in excess of tax deductible for any other reason; (ii) the tax is deducted at source under section 195 and paid in one assessment year and remittance to the foreign collaborator is made and/or returned to the Indian company following cancellation of the contract in another assessment year.
In all the cases mentioned above, where either the income does not accrue to the non-resident or excess tax has been deducted thereby resulting in refund being due to the Indian enterprise which deposited the tax, at present a refund can be issued only if a valid claim is made by filing a return.
In the absence of any statutory provision empowering the assessing officer to refund the tax deducted at source to the person who has deducted tax at source, the assessing officer insist on filing of the return by the person in whose case deduction was made at source. Even adjustment of the excess tax or the tax erroneously deducted under section 195 is not allowed. This has led to a lot of hardship as the nonresident in whose case the deduction has been made is either not present in the country or has no further dealings with the Indian enterprise thus making it difficult for a return to be filed by the non-resident." Accordingly, the Board decided that any type of case referred above in the circular, a refund may be made independent of the provisions of the Income Tax Act, 1961 to the person responsible for deducting the tax at source from the payment to the non-resident after taking prior approval of the Chief Commissioner concerned. It is clear from the above circular that the refund allowed to the tax deductor in the aforesaid situation is not under any statutory provisions of the Income Tax Act but made independent of the provisions of the Income Tax Act. The said circular was amended by Circular No. 790, dated 20-4-2000. In the amended circular the number of circumstances under which refund of excess TDS can be granted has been curtailed but the rationale for the refund of excess TDS has been preserved and refund of excess TDS is still provided to the deductor independent of the provisions of the Income Tax Act. In the amended circular the Board has further clarified that; "Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident. The amount paid into the Government account in such cases, is no longertax. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this circular or on the refunds already granted in accordance with Circular No. 769." We have also seen the provisions of section 244A. The relevant clause under which the assessee falls is as under : "244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely : (b) in any other case, such interest shall be calculated at the rate of (one-half per cent) for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted.
For the purposes of this clause, "date of payment of tax or penalty means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand." After going through the amended circular and the provisions of section 244A(1)(b) and Explanation and the Board circular, we find that the refund under section 244A can be allowed only in those cases where notice of demand has been issued under section 156 and the tax has been paid in excess of such demand, In the present case, undisputedly no notice of demand under section 156 was raised, therefore, no tax was paid either under the provisions of the Act or in excess. Therefore, in our considered view, no interest can be allowed where the refund amount was not paid as per the provisions of law. The contention of the assessee that being a good citizen he has paid the TDS amount may be reasonable contention; however, if the amount paid was not under the provisions of law then, in our considered view no interest is allowable under section 244A. The decision in the case of ITO v. DDA (2001) 252 ITR 772 (SC) and in the case of Vasantlal Tulsidas Agrawal v. CIT (2002) 254 ITR 255 (Guj.) have been considered by the Commissioner (Appeals) and they were found distinguishable. In the case of DDA (supra), the assessing officer held "DDA as responsible for not deducting tax under section 194A of the Income Tax Act and issued notice of demand for tax and recovery. The Appellate Tribunal set aside the order of the Income Tax Officer and directed the refund of the amount recovered from DDA. On a writ petition, the Honble Supreme Court held that the direction to refund the amount had been made in appellate proceedings before the Appellate Tribunal attracting section 240. It could not be said that the refundee would not be an assessee only for the reason that actually no assessment proceedings had taken place.
Section 201 clearly provided that if the principal officer of the company liable to deduct the income at source failed to do so, he shall be deemed to be an assessee in default in respect of the tax. Thus, the Honble Supreme Court was dealing with the situation where the respondent (DDA) was held as assessee in default in section 201 and tax collected therefrom was refunded to the respondent and interest on refund was denied on the ground that the respondent was not assessee so as to be entitled to interest under sections 244A(1A) and 244A.However, in the present case, the facts and circumstances are different. Here the appellant has deducted tax at source under section 195 and has not been held as assessee in default under section 201.
Refund of tax deducted at source is being made to the tax deductor independent of the provisions of the Act and section 244A does not cover the grant of interest in such a situation." We have also considered the decision of the Tribunal on which reliance was placed by the learned Counsel for the assessee and found that the fact involved in those cases are also different from the facts of the present case. In the case of Tata Engg. & Locomotive Co. Ltd v. Dy. CIT (2005) 92 ITD 111 (Mum.) the facts were that : "the appellant-company had deducted tax at source in terms of section 195 and paid to the Central Government. On appeal, the contention of the appellant was that it was entitled to refund of tax as it was wrongly directed by the assessing officer to deduct such tax on account of estimated local living expenses out of pocket expenses. The Commissioner (Appeals) having held that the appellant was not required to deduct tax at source on account of said expenses, observed that it was not entitled to any refund as refund could only be granted to the persons from whose payments tax was deducted and in whose hands it was deemed to be the income.
On further appeal, the revenues objection was that since under the scheme of sections 198 and 199 tax deducted is to be considered as income of the person from whose income the tax is so deducted and since on the tax being so deposited by the person denying his liability to deduct tax at source, the same is to be treated as a payment of tax on behalf of the person from whose income the deduction is made and credit is to be given to him for the amount so deducted, the refund can only be claimed by the person from whose income-tax is so deducted or paid." "Once the appellant succeeds in the appeal against deduction of tax at source in accordance with sections 195 and 200, the revenue authorities have to proceed on the basis that the appellant did not have any liability to make the impugned deduction. As a corollary to that position, a successful appellant cannot be said to be even under an obligation to issue certificate under section 203, i.e., TDS certificate. On the appellant being successful in appeal under section 248, on the facts of the instant case, the provisions of section 198 ceased to be relevant because once an income was held to be exigible to tax under the Act, the question of taxability on gross amount or net amount in the hands of recipient was wholly irrelevant and absolutely academic. As far as section 199 is concerned, the tax credit for tax deducted being given to the person from whose income deduction is made is entirely dependent on the production of certificate furnished under section 203 and when admittedly no such certificate was issued in the instant case, there could not be any question of affording any credit to the person from whose payment and noincome as is the expression employed in the statute, the tax was deducted at source." After considering the ratio of the above decision of the Tribunal relied upon by the learned Counsel for the assessee (supra), we found that the ratio of the above decision is distinguishable on the facts of the present case. In this case, the appeal of the assessee was allowed by holding that there was no liability to deduct the tax as the expenses incurred were not the income of the recipient and therefore, no certificate was issued. Accordingly, it was held by the Tribunal that once it is found that the assessee was not liable to deduct tax, therefore, the assessing officer was not right in forcing the assessee to deduct tax. Accordingly, the appeal of the assessee was allowed by directing the assessing officer to refund the tax deducted by the assessee.
"Remittances made by assessee-company to a German company for lease of aircraf ts and ancillary services were governed by article VIII of DTAA between India and Germany and could not be charged to tax in India as the latter did not have any permanent establishment in India and therefore, assessing officer was not justified in insisting upon payment of TDS by the assessee before issue of certificate under section 195." In this case, the assessing officer insisted the assessee upon payment of TDS by the assessee before issue of certificate under section 195.
The Tribunal held that the assessee was liable to make the payment of TDS. Accordingly, the appeal of was allowed and directed the assessing officer to refund the same. In the present case, the assessee was not insisted by the assessing officer to make any payment as the payment was made by the assessee its own voluntarily. Therefore, both the cases are distinguishable from the facts of the present case. The payment made by the assessee cannot be the payment on account of tax under the Income Tax Act and there is no provision under the Income Tax Act to make payment on account of interest on such payments. Therefore, provisions of section 244A cannot be held as applicable on the facts of the present case.
We have seen the Board Circular Nos. 769 and 790 and found that they are benevolent circulars and these circulars were issued by the Board to mitigate hardship faced by certain assessees who have deducted the TDS and paid to the Government account. However, on a later stage, the agreement was cancelled or the deductees were not able to refund or were not liable to file return of income. Therefore, in these circumstances the Board directed its officers to allow the refund to the assessee with the approval of the Chief Commissioner concerned. In the Circular No. 790, it was clearly clarified that interest under section 244A was not to be paid because such payments were not on account of tax.
In view of the facts and circumstances, we hold that the Commissioner (Appeals) was justified in rejecting the claim of the assessee.
Accordingly, we hold that Commissioner (Appeals) was justified in rejecting the claim of the assessee and confirmed the order of the Commissioner (Appeals) for both the years.