Case Law Details
FSL Projects Limited Vs DCIT (ITAT Hyderabad)
In the case of FSL Projects Limited Vs DCIT, ITAT Hyderabad directed the verification of TDS exemption certificate issued under section 195(3) of the IT Act.
The crux of the issue lay in the non-deduction of tax at source by FSL Projects Limited in payments made to IGTL Solutions (USA) and True Dial Technologies INC. The Assessing Officer deemed FSL Projects Limited as an assessee in default under section 201(1) of the Act due to the absence of tax deduction and application for exemption under section 195(3).
Despite the subsequent issuance of a certificate under section 195(3) for IGTL Solutions (USA), the CIT(A) upheld the initial order, emphasizing the timing of the exemption. The Tribunal affirmed this decision, prompting an appeal to the High Court.
The High Court, upon scrutinizing the certificate, emphasized its potential impact on the taxability of remittances to IGTL Solutions (USA). It directed the Tribunal to reevaluate the exemption’s effect on FSL Projects Limited’s liability.
Subsequently, the Tribunal acknowledged the significance of verifying the certificate’s authenticity. It ruled that if deemed genuine, the remittances to IGTL Solutions (USA) would be non-taxable concerning TDS, rendering the initial order under section 201(1A) invalid.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
Aggrieved by the order dated 27/06/2003 passed by the learned Commissioner of Income Tax (Appeals)-V, Hyderabad (“Ld. CIT(A)”), in the case of Frontline Soft Limited (“the assessee”) for the assessment year 2002-03, assessee preferred this appeal.
2. Brief facts of the case are that the assessee is engaged in the business of development of software and running a call centre. During the survey conducted on 11/12/2002 under section 133A of the Income Tax Act, 1961 (for short “the Act”), it was found that the assessee made payments to IGTL Solutions (USA) and True Dial Technologies INC, without deducting the tax at source under section 195 read with section 9(1)(vi) and (vii) of the Act. According to the learned Assessing Officer the assessee having not made any deduction of tax at source without making any application under section 192(2) of the Act before the learned Assessing Officer (TDS) and without ensuring that an application under section 195(3) of the Act was filed by the recipient to obtain necessary exemption, was liable to be treated as an assessee in default, in terms of the provisions of section 201(1) of the Act. Learned Assessing Officer also charged interest under section 201(1A) of the Act and passed the order dated 10/02/2003.
3. Assessee preferred appeal before the learned CIT(A) and pleaded that a certificate under section 195(3) of the Act was issued subsequently. Learned CIT(A), however, observed that subsequent grant of exemption under section 195(3) in the case of IGTL Solutions in February 2003 would not make any difference so far as the liability of the assessee was concerned.
4. Aggrieved, assessee carried the matter to the Tribunal in ITA No. 1080/Hyd/2003 and the Tribunal by order dated 03/08/2007, dismissed the appeal and confirmed the findings of the learned CIT(A) on merits. Assessee, therefore, filed appeal before the Hon’ble High Court, and pleaded that the certificate was obtained from the Joint Director so far as the waiver of deduction of TDS in respect of remittance is made to M/s. IGTL Solutions (USA) has not been considered, discussed, referred to either by the Commissioner of Income Tax (Appeals) or by the Tribunal.
5. Hon’ble High Court, on verification of the paper book observed that, in the paper book there is a certificate so issued under section 195(3) of the Act, granting exemption to M/s. IGTL Solutions (USA) so far as the selling of remittances without deduction of income tax at source. For the sake of completeness, we deem it just and necessary to refer to the relevant observations of the Hon’ble Apex Court hereunder,-
“7. Today, when the matter is taken up for hearing, the entire paper book that was filed before the Tribunal was made available by the learned counsel for appellant and one such document therein is the certificate so issued under section 195(3) of the Act, granting exemption to M/s IGTL solutions (USA) so far as receiving of remittances without deduction of income tax at source. If the contents of the said document is to be accepted and on verification, found to be genuine, the consequences would be that the entire remittances that have been made to M/s IGTL solutions (USA) would be non-taxable so far as TDS is concerned. Further, if the contents of the said letter stands accepted, then the action on the part of the respondent in carrying out deduction at source on the remittances made to M/s IGTL solutions (USA) would be per se bad.”
Observing so, Hon’ble High Court remitted back the matter to the Tribunal for considering the contentions raised by the assessee insofar as exemption that they have got under section 195(3) of the Act insofar as the remittances that have been made to M/s IGTL Solutions (USA) is concerned.
6. Basing on the observations of the Hon’ble High Court, learned AR urged that the consequence of the granting of the exemption under section 195(3) of the Act is that the entire remittances that have been made to M/s IGTL Solutions (USA) would be non-taxable so far as the TDS is concerned and, therefore, the order dated 10/02/2003 passed under section 201(1A) of the Act has no legs to stand. He, accordingly prayed that the appeal may be allowed and the order dated 10/02/2003 passed under section 201(1A) of the Act may be annulled.
7. Per contra, learned DR submitted that the observation of the Hon’ble High Court is that the consequence of non-deductibility of the TDS in respect of the payments made to M/s. IGTL Solutions (USA) would flow only after the alleged certificate said to have been issued under section 195(3) of the Act is verified and found to be genuine. He, therefore, prayed that the learned Assessing Officer may be directed to verify the genuineness of the certificate under section 195(3) of the Act and if it is found to be genuine, then to grant the relief as directed by the Hon’ble High Court.
8. On a careful consideration of the matter, we are of the considered opinion that it is only if the contents of the certificate issued in section 195(3) of the Act are verified and found to be correct and genuine, then the consequences would be that the remittances that have been made to M/s. IGTL Solutions (USA) would be non-taxable so far as the TDS is concerned, since if the contents of such certificate are accepted, then the action on the part of the Revenue in carrying out a deduction at source on the remittances made to M/s. IGTL Solutions (USA) would be bad.
9. In these circumstances, learned Assessing Officer is directed to cause verification of the certificate dated 10/02/2003, issued under section 195(3) of the Act and if it is found to be genuine, the consequence shall be that the entire remittances that were made to M/s. IGTL Solutions (USA) would be non-taxable so far as TDS is concerned, and the impugned order under section 201(1A) of the Act will have no legs to stand. Grounds are answered accordingly.
10. In the result, appeal of the assessee is treated allowed for statistical purposes.
Order pronounced in the open court on this the 2nd day of February, 2024.
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