Passing of order by the tax officer not mandatory for filing an appeal under Section 248 of the Income-tax Act, before the CIT (Appeals)

Court: Mumbai bench of the Income-tax Appellate Tribunal

Citation: Kotak Mahindra Bank Ltd. Vs. ACIT (2010-TII-ITAT-MUM-INTL)

Brief- Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Kotak Mahindra Bank Ltd. Vs. ACIT (2010-TII-ITAT-MUM-INTL) dealt with the issue of whether passing of an order by the AO is necessary for filing an appeal before the Commissioner of Income-tax (Appeals) [CIT(A)] under section 248 of the Income-tax Act, 1961 (the Act) for a declaration that no tax was deductible on such income. The Tribunal held that Section 248 of the Act does not require any order being passed by the AO as a condition precedent for filing an appeal before CIT(A) . Further, the taxpayer also fulfilled all the necessary conditions required by the provision of the Act. Therefore, the taxpayer was right in filing an appeal before the CIT (A).

Facts of the case

• · The taxpayer company, during the assessment year 2007-08 entered into an agreement with a Japanese company for the consideration of USD 150,000. While remitting the money to the Japanese company, the taxpayer deducted tax under Section 195 of the Act and paid such sum to the Government of India.
• · Subsequently, the taxpayer filed an appeal before the CIT(A) under section 248 of the Act for a declaration that it was not liable to deduct tax from the remittance. However, the CIT(A), after relying on an order of the Mumbai Tribunal in the case of Mahindra & Mahindra Ltd. v. ADIT [2007] 106 ITD 521 (Mum) , held that since the taxpayer did not file an application to AO for a nil or lower withholding certificate under Section 195(2) of the Act there was no appealable order passed by the AO. Accordingly, the CIT(A) rejected the taxpayer’s application.

Tribunal’s ruling

• · The Tribunal observed that Section 248 of the Act does not refer to any order being passed by the AO as a condition precedent for filing an appeal before CIT(A) whereas Section 246A of the Act provides for filing an application against appealable orders as mentioned in the Section.
• · Further, as per Section 195(1) of the Act the taxpayer is required to deduct tax while making payments to the non resident if the payments made are chargeable to tax under the Act. Consistent with the provision of Section 195(1) of the Act the taxpayer has deducted the tax from the remittance to the Japanese company and there is no dispute that it has been deposited with the Government. The liability of the payer does not depend upon the passing of an order by the AO.
• · Accordingly, having fulfilled the provisions of section 195(1) of the Act, it was open to the taxpayer to file an appeal under section 248 to the CIT(A) and ask for a declaration that it was not liable to make such a deduction. The right of appeal given by section 248 does not depend on the existence of any order under section 195(1). The Tribunal also distinguished the decision in the case of Mahindra & Mahindra Ltd. on the grounds that question before the Tribunal in that case was completely different.·
• · Accordingly, the Tribunal held that the taxpayer was right in filing an appeal to CIT(A) for a declaration that no tax was deductible on such income under section 248 of the Act.

Our Comments

Under section 248 of the Act a person having deducted and paid tax under section 195(1) of the Act may file an appeal before the CIT(A) for denying his liability to make such deduction and for a declaration that he is not liable to make such a deduction. For filing an appeal under section 248 of the Act the two conditions to be satisfied i.e. tax must first have been deducted and tax so deducted must then have been paid to the Government.

In the absence of the satisfaction of these two conditions, the appeal under section 248 would not be competent. The same has been laid down by the Supreme Court in the case of Raza Textiles Ltd. Vs. ITO [1973] 87 ITR 539 (SC) Accordingly, the Mumbai Tribunal has rightly rejected the tax department’s contention that and held that Section 248 of the Act does not refer to any order being passed by the AO as a condition precedent for filing an appeal before CIT(A).

NF