Once the refund becomes due, the interest is payable as per the provisions of section 244A of the Income Tax Act, 1961

ADIT (IT), Circle 2(2) v Taj TV Ltd.

ITAT BENCH ‘L’, MUMBAI

ITA No. 413 (MUM.) of 2008

Assessment Years: 2003-04 and 2004-05

Decided on: 28 January 2011

Order

Vijay Pal Rao, JM

This appeal by the revenue is directed against the order dated 17-10-2007 of CIT(A) -XXXI, Mumbai arising from the giving effect order passed by the Assessing Officer under section 250 for the assessment year 2003-04 only.

2. Only ground raised by the revenue in this appeal is that the CIT(A) erred in holding that the assessee is entitled to interest under section 244A of the Act in respect of excess payment of tax in response to the order of the Assessing Officer under section 201 read with sections 195, 201(1A) and 250 of the Act and directing to grant interest under section 244A.

3.1 Facts recorded by the lower authorities are that the assessee is a company registered in Mauritius and engaged in the business of telecasting sports channel known as “Ten Sports”. The assessee is a tax resident of Mauritius in terms of Article 4 of the India-Mauritius tax Treaty (treaty).

3.2 The assessee had entered into agreements with various non-residents for acquiring programming rights for telecasting sports events taking place outside India on Ten Sports channel. For some events, the rights acquired were for live telecasting while for some events the same were for delayed telecasting in India. The assessee contended that both, the events and parties with whom assessee has entered into agreements for telecasting sports events were outside India. The assessee considered the residential status in India of the parties with whom the assessee entered into agreement under the Act as “non-resident”.

3.3 The Assessing Officer held that the payments made by the assessee to the non-residents were in the nature of “Royalty” and attracts the provisions of Explanation 2 to section 9(1)(vi) of the Act which were deemed to arise in India and hence taxable in India. Therefore, the Assessing Officer was of the view that the assessee failed to deduct the tax under section 195 and was thus deemed to be a assessee in default under section 201(1). The Assessing Officer initiated the proceedings under section 201 against the assessee for non-deduction of tax at source from the payments made to the non-residents and passed an order under section 201(1)/201(1A) of the Act dated 17-3-2004. Accordingly, the Assessing Officer issued notice of demand on the assessee under section 156 of the Act for Rs. 37,464,215 under section 201(1) and interest of Rs. 1,766,064 under section 201(1A) of the Act total amounting to Rs. 39,230,279 for non-deduction of tax at source from the payments made to the non-residents.

3.4 Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A) and also paid the entire demand raised by the Assessing Officer which are as under :

3.5 The ld. CIT(A) held that the provisions of the section 195 are not applicable to the assessee, therefore the assessee was not a defaulter under section 201(1) of the Act. The ld. CIT(A) also held that the amount paid to various non-resident content providers will not be taxed in India if the same is being paid for acquiring rights for live telecast. He further held that for programming rights for delayed telecast is not liable to tax in the hands of non-resident content provider unless they have permanent establishment in India. Accordingly he directed the Assessing Officer to verify the tax residency certificate (TRC) of those non-resident content providers in respect of whom the assessee has not submitted tax residency certificate, and to allow the benefit of Double Tax Avoidance Agreement between India and the countries of non-residents content providers.

3.6 The assessee submitted the TRC certificates to the Assessing Officer except for few cases where the aggregate tax instances comes to Rs. 220,433. The assessee has recovered the tax amount from some of the non-resident content providers and issued them withholding tax certificates for Rs. 5,425,177.

3.7 The Assessing Officer has passed giving effect order dated 27-5-2005 to the order passed under section 250 and determined the refund due to the assessee as under:

3.8 The Assessing Officer has issued refund order dated 22-8-2005 with Income-tax computation form. However the DDIT did not grant interest under section 244A while computing the amount of final refund to be issued to the assessee and granted only the refund of Rs. 33,584,669 after giving effect to the order of the CIT(A).

3.9 Aggrieved by the order of the Assessing Officer for non-granting the interest under section 244A, the assessee filed an appeal before the CIT(A), who allowed the claim of the assessee by following the decision of the Hon’ble Supreme Court in the case of ITO v. Delhi Development Authority [2001] 252 ITR 772 and the order of this Tribunal in the case of TATA Chemicals Ltd. v. Dy. CIT [2007] 16 SOT 481 (Mum.) and held that the assessee is entitled for interest under section 244A in respect of the excess payment of tax in response to the order passed under section 201 read with sections 195, 201(1A) and 250 of the Act.

3.10 Before us, the learned DR has submitted that the assessee is not the payer of the tax and therefore, the provisions of section 244A are not applicable for grant of interest to the assessee. The assessee has paid the tax on behalf of the recipient of the payments. Thus, there is no provisions under the statute for refund of the tax as well as interest and the refund is made to the deductor as per the circular of CBDT. Therefore, the provisions of section 244A are not applicable when the refund is not payable under the provisions of the Act. He has referred to the provisions of section 244A and submitted that as per Explanation to clause (b) of sub-section (1)  of section 244A, the interest is payable on the amount which is excess of the demand issued under section 156. In the case in hand, the assessee paid taxes in pursuance to the order passed under section 201(1), 201(1A) read with section 195 and therefore, the payment of tax was as per the demand raised under section 156 not excess of the demand. The learned DR has forcefully contended that when there was no payment of tax in excess of the demand raised under section 156 then no interest is liable to be paid to the assessee for refund of the said tax. The next line of argument of the learned DR is that the interest under section 244A is payable only in respect of the assessment for the assessment year commencing on 1-4-1989 and subsequent years. He has referred the provisions of sub-section (4) of the section 244A and submitted that when there is no assessment on the assessee in respect of the tax paid in pursuance to the order passed under sections 201 and 201(1A), then no interest shall be payable under section 244A. The learned DR has thus submitted that the Explanation to clause (b) of sub-section (1) has not been considered in the decision relied upon by the Assessee as well as by the CIT(A). Thus, the learned DR has submitted that in view of the language of the Explanation to clause (b) of sub-section (1), the interest on the refund is payable only on the amount which is excess of the demand under section 156. He has attempted to distinguish the decision in the case of Delhi Development Authority (supra) and TATA Chemicals Ltd.’s case (supra) and submitted that in those decisions the aspect of excess of demand under section 156 as well as sub-section (4) of section 244A have not been considered and therefore, these decisions are not applicable in the case of the assessee when the assessee is not a payee of the money but only the deemed assessee under section 201, 201(1A) and the payment of tax was not in excess of demand issued under section 156. Moreover, there was no assessment on the assessee resulting the demand under section 156 and payment of tax. The learned DR has forcefully contended that the Legislature their wisdom has provided under the Explanation that the interest is payable on the refund of the amount which is excess of the demand under section 156 and only in respect of the assessment for the assessment commencing on 1-4-1989 and subsequent years.

3.11 On the other hand, the learned AR has submitted that the Explanation to clause (b) to subsection

(1) of section 244A is not for determining the amount on which the interest is payable but clarifies the date from which the interest is payable. Further, the term used in the Explanation as excess of such demand refers to the amount which becomes excess in pursuance to the subsequent orders. The learned AR has referred the clause (b) as well as Explanation and submitted that clause (b) and Explanation is only regarding the period for which the interest is payable on refund.

3.12 The learned AR has tried to explain that if the assessee paid the demand in instalments then only that part of the payment of the tax which is found as excess will be considered and the date on which such part of demand is paid is relevant for the calculation of interest and not from the any other date on which the assessee has paid the tax but which was not in excess. He has relied upon the decision of the Hon’ble Supreme Court in the case of Delhi Development Authority (supra) and submitted that the order under section 201(1A) is an order of assessment. He has further contended that section 2(7) of the Income-tax Act defines the term ‘assessee’ which includes actual assessee as well as the deemed assessee. Therefore, the assessee was treated as deemed assessee while passing the order under section 201, 201(1A) and demand was raised under section 156. Thus, there was an assessment on the assessee as per sub-section (4) of section 244A of Act. He has also relied upon the decision of this Tribunal in the case of TATA Chemicals Ltd.’s case (supra) and submitted that the case of the assessee is covered by the decisions of the Hon’ble Supreme Court in the case of Delhi Development Authority (supra) and TATA Chemicals Ltd.’s case (supra).

3.13 We have considered the rival contentions and relevant record. We have also given our thought to the various case laws relied upon by either parties as well as the relevant provisions of the Act. We find that the assessee company made payments during the financial years relevant to the assessment years under consideration. At the threshold we note that in the earlier year i.e., for the assessment year 2003-04, the assessee was treated as assessee in default for deduction of TDS by an order dated 19-2-2004 passed under section 201(1) and 201(1A) of the Act and the said issue for the assessment years 2003-04, 2006-07 and 2008-09 was subsequently decided by this Tribunal in favour of the assessee vide order dated 25-6-2010 in Set Satellite (Singapore) Pte. Ltd. v. Addl. DIT (International Taxation) [2010] 132 TTJ (Mum.) 459. Therefore, in the meantime, the assessee moved an application under section 195(2) before the Assessing Officer for certificate in respect of payment to be made to the GCC is not taxable in India. The Asstt. Directors of Income-tax (International Taxation) vide its order dated 27-4-2007 passed under section 195 of the Income-tax Act directed the assessee to withhold tax at the rate of 10.96 per cent on the payment to GCC. Accordingly, the assessee withheld the payment not voluntarily but in pursuance to the order of the ADIT of Income-tax (International Taxation) under section 195. So far as the circulars referred by the learned DR are concerned the Board has clarified the refund to be made to the person responsible for deducting the tax at source in the cases where (a ) after the deposit of tax deducted at source under section 195, 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 deduction tax at sources, (c ) the tax deducted at source is found to be in excess of tax deductible for any other reason; and (d) in the cases where the tax is deducted at sources under section 195 and paid in one assessment year and remittance to the foreign collaborator is made and/or refunded to the Indian company following cancellation of the contract in another assessment year. Thus, in the cases where the income does not accrued to the non-resident the amount deducted as tax under section 195 and paid to the credit of the Government belongs to the deductor. Under these circumstances, the Board has found that since the refund was to be given only on a claim being made by the non-residence whereas the income were not income as accrued to the non-residence due to the cancellation of the contract, the Amount  deposited to the credit of the Government account under section 195 cannot be said to be taxed and accordingly decided that this amount can be refunded to the deductor of the tax with the prior approval of the Chief Commissioner of Income-tax concerned. Thus, the circular referred and relied upon by the learned DR deals with the situation where the tax deducted on the remittance made to the non-resident but finally no income has accrued to the non-residence due to the cancellation of the contract.

3.14 In this case, the assessee paid the taxes in pursuance to the orders under section 201, 201(1A) whereby the assessee was treated as the assessee is in default. The assessee challenged the said order before the CIT(A), who held vide order dated 25-1-2005 that the provisions of section 195 of the Act were not applicable to the assessee, therefore, the assessee was not in default under section 201, 201(1A) of the Act. The said order of the CIT(A) has been accepted by the revenue and was not challenged. Thus, the refund became due to the assessee as a result of the order passed by the CIT(A) dated 25-1-2005. The dispute arises regarding the payment of interest under section 244A. The learned DR has assailed the impugned order of the CIT(A) on three counts (i) that the assessee has not paid any tax and the tax has been paid on behalf of the payee, (ii) he has stressed the term used in the Explanation to clause ( b) of sub-section (1) of section 244A as “tax paid in excess of such (demand)” and submitted that the assessee paid the tax only as per the demand under section 156, therefore no interest is payable under section 244A and (iii) the learned DR contended that there was no assessment in the case of the present assessee resulting the payment of tax; and consequently the refund.

3.15 As far as the first contention of the learned DR that the appellant before us is not an assessee in respect of the tax paid and he has paid tax on behalf of the other assessee is concerned. The Hon’ble Supreme Court in the case of Delhi Development Authority (supra) has considered this contention of the department at page 775 and then page 776 of the report:

“It is submitted that sub-section (1A) of section 244 will not be applicable since the payment of tax was not made in pursuance of any order or assessment. This contention in our view has no force. It would not be necessary that in all cases, before payment is made, there must always be an actual order of assessment. Tax is payable in advance as well”

“In the case in hand, as indicated earlier, the direction to refund the amount has been made in appellate proceedings before the Tribunal. The amount is to be refunded to the assessee. It cannot be said that the ‘refundee’ will not be an assessee only for the reason that actually no assessment proceeding had taken place. It would be pertinent to refer to the provision contained under section 201 of the Income-tax Act which clearly provides that if the principal officer or the company liable to deduct the income-tax at source fails to do so, he shall be deemed to be assessee in default in respect of the tax. The definition of the word ‘assessee’ as contained under clause (7) of section 2 of the Act reads as under:

“2(7) ‘assessee’ means a person by whom any tax or any other sum of money is payable under this Act, and includes…

(a)every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount refund due to him or to such other person;

(b)every person who is deemed to be an assessee under any provision of this Act;

(c)every person who is deemed to be an assessee in default under any provision of this Act.”

From the above provision, it is clear that term ‘assessee’ includes actual assessees as well as deemed assessees under the provision of the Act. It is therefore not correct to contend that unless there are actual assessment proceedings pertaining to any person, he cannot be considered to be an assessee. In the present case the D.D.A. was considered to be liable to deduct the tax at source. It failed to do so. Hence, the order under section 201(1) and 201(1A) was passed raising the demand and the amount of tax was paid. The order of refund was passed in appellate proceedings under the Act attracting section 240 of the Act. Certain decisions were cited at the Bar to show the meaning of the words ‘assessee’ and ‘assessment’ and different stages of the assessment proceedings, need not be dealt with in view of the clear definition of the word ‘assessee’ under the Act as quoted above.”

Thus it is clear from the decision of the Hon’ble Supreme Court (supra) that the term assessee includes deemed assessee. Therefore, “deemed assessee in default” held under section 201(1) of the Act falls under the definition of assessee and provisions of section 244A are applicable. As per section 240 the refund of any amount due to the assessee as a result of any order passed in an appeal or other proceedings under this Act, the refund of the said amount is the amount which becomes due to the assessee under this Act. Therefore, the refund resulted by the order passed by the CIT(A) is very much covered under the provisions of section 244A.

3.16 As regards the Explanation to clause (b) of sub-section (1) is concerned we deem fit and proper to quote clause (b) and Explanation 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 :—

(a) ** ** **

(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.

Explanation.—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.”

Clause (b) provides that the interest on the excess payment of tax in the case which are not covered under (a). In other words clause (b) deals with the cases where refund does not becomes due out of any amount collected under section 206C or paid by way of Advance Tax under section 199 but the cases where the tax is paid as per the order of the revenue authority and demand raised accordingly. Thus, if the contention of the learned DR is accepted and interpretation to Explanation to clause (b) is given in the manner as contended by the learned DR then no interest shall be payable in any of the cases falling under clause (b) sub-section (1) because in the cases where the tax is paid as per the original demand raised under section 156 then even the said demand is reduced by subsequent order(s) as prescribed under sub-section (3) of section 244A and consequently refund becomes due as the demand was not found as per law, no interest shall be payable. Thus if the contention of the learned DR is accepted then despite the refund of the amount in pursuance to the subsequent orders no interest shall be payable under section 244A which in our view is not the intention of the Legislature under section 244A. The expression “excess of such demand” as contained in Explanation to clause (b) means and includes the demand as reduced or increased as a result of subsequent order under this Act. Therefore, the payment of tax or penalty becomes excess or short as a result of any order passed in an appeal or other proceedings under this Act as referred in section 240 of the Act or an order inter alia section 250 or 254 as per sub-section (3) of section 244A, the interest shall be increased or reduced accordingly. In a case, where the interest is reduced, the Assessing Officer shall serve a notice of demand on the assessee in a prescribed form specifying the amount of excess interest paid and requiring him to pay such amount. Such notice of demand shall be deemed to be a notice under section 156. We quote sub-section (3) of section 244A as under:

“244A. Interest on refunds.—(1)** ** **

** ** **

(3) Where, as a result of an order under sub-section (3) of section 115WE or section 11SWF or section 115WG or sub-section (3) of section 143 or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly”

Therefore, if the interpretation sought by the learned DR if given to clause (b) and Explanation thereto, it will lead to absurdity.

3.17 As regards the assessment referred in sub-section (4) of section 244A is concerned, the hon’ble Supreme Court in the case of Delhi Development Authority (supra) held that it cannot be said that the “refundee” will not be an assessee only for the reason that actually no assessment proceeding had taken place. It would be pertinent to refer to the provision contained under section 201 of the Income-tax Act which clearly provides that if the principal officer or the company liable to deduct the income-tax at source fails to do so, he shall be deemed to be assessee in default in respect of the tax. The term “assessee” includes actual assessees as well as deemed assessees under the provision of the Act. It is therefore not correct to contend that unless there are  actual assessment proceedings pertaining to any person, he cannot be considered to be an assessee. Thus once the order under section 201 has been passed against the assessee, the department cannot take the plea of no assessment. Accordingly, we do not find any merit in the contention of ld. D.R.

3.18 In the case of TATA Chemicals Ltd. (supra) in paragraphs from 20 to 26 the Mumbai Benches of this Tribunal has held as under:

“20. In the facts and circumstances of the present case; the refund becomes due to the assessee pursuant to the order of CIT(A) wherein it was held that ‘assessee was not to deduct tax at source on the amounts remitted to the recipient outside India. The refund of money paid by the assessee becomes due to it on the passing of the appellate order in appeal as per the provisions of section 240 of the Income-tax Act. The assessee is not to make any claim in this regard for the issue of refund as per the provisions of section 240 of the Act, which provides that refund is automatically due to the assessee after the order is passed in appeal or any other proceedings under the Act. Section 244A(1) of the Act further provides that in addition to refund of any amount becoming due to the assessee under the Act, the assessee is also entitled to receive interest on such refunds which have become due to the assessee under the Act. The refund in the present case was determined on account of the order giving effect to the appeal order passed by the CIT(A).

21. Clause (a) to section 244A(1) covers the instances of payment of sums of money by way of advance tax or TDS. Clause (b) to section 244A(1) of the Act covers all other cases wherein refund has become due to the assessee. The phrase used in clause (b) to section 244A(1) of the Act is in any other case. The Explanation to clause (b) to section 244A(1) further provides that ‘date of payment of tax or penalty’ means the date on which the amount of tax or penalty specified in the Notice of Demand issued under section 156 is paid. The Explanation attached to the main section does not in any way obliterate the meaning of the section. A reference was made to the decision of Hon’ble Supreme Court in S. Sundaram Pillai v. V.R. Pattabiraman AIR 1985 SC 582 in Grindwell Norton Ltd.’s case (supra), which in turn had held that “the word ‘itself’ shows that it is”. Applying the principles of Hon’ble Supreme Court in S. Sundaram Pillai’s case (supra) it was held in Grindwell Norton Ltd.’s case (supra), that ‘where the assessee had claimed interest on excess payment of selfassessment tax under section 140A of the Income-tax Act, the interest on such refunds due to the assessee was payable’.

22. In the facts of the present case, the payment of tax is made pursuant to order under section 195(2) of the Act passed by the Assessing Officer. Section 156 of the Act talks of service of a notice of demand in the prescribed form, where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act. The order in the present case has been passed under section 195(2) of the Act for which notice of demand is to be issued under section 156 of the Act, which very categorically provides that where any tax, interest, penalty or any other sum is payable, because of ‘any order passed under the Act’. The order under section 195(2) of the Act has been passed under the provisions of the Act and any notice of demand for the said amount due pursuant to order passed under section 195(2) is bound to be issued under section 156 of the Income-tax Act.

23. The provisions of clause (b) of section 244A(1) of the Act very categorically provides that interest on any refund arising because of payment of tax ‘in any other case’, which shall include the payment made by the assessee pursuant to order under section 195(2) of the Income-tax Act by which the Assessing Officer requisitioned the assessee to deduct the tax and deposit the same in treasury before remitting the amounts due to the recipients outside India. Accordingly, the assessee is entitled to receive interest under section 244A(1)(b) of the Income-tax Act deposited pursuant to order passed under section 195(2) of the Act which in turn have become due to the assessee because of the order passed in appeal against the said order under section 195(2) of the Income-tax Act.

24. Reference was made to the Circulars issued by the Board wherein approval was sought for grant of refund of excess deduction or erroneous deduction of tax at source under section 195 of the Act. The cases under consideration related to circumstances where:

(i)after the deposit of TDS under section 195,

(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 TDS 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.

25. The Board by way of Circular No. 769, dt. 6th Aug., 1998 and Circular No. 790, dt. 20^th April, 2000 provided that the assessee shall be entitled to refund of such payments made under section 195 of the Act, but, ‘the amount paid into the Government account in such cases, is no longer tax’. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this circular or earlier circular.

26. The circumstances mentioned in the circular are different from the facts and circumstances of the case before us. In the circumstances referred to in the Circular, the tax was deposited by the persons on their own and voluntarily, without any demand being made by the Assessing Officer or any other authority under the Act. But, in the facts of the present case, the amount was paid pursuant to an order passed by Assessing Officer under the provisions of section 195(2) of the Income-tax Act, against which the assessee filed an appeal before the CIT(A). In the order giving appeal effect to the order of CIT(A), refund became due to the assessee which in fact arises because of the provisions of section 240 of the Income-tax Act. The provisions of the Act prevail over the instructions issued by the Board by way of CBDT circulars, which in any case are not applicable to the facts of the present case. Their Lordships of Hon’ble Supreme Court in Sandvik Asia Ltd.’s case (supra) had held that where excess amount of tax is collected from assessee, the revenue must compensate assessee and the compensation in this case is by way of interest under section 244A of the Act for the period when the amount was withheld. Accordingly, we direct the Assessing Officer to allow the interest under section 244A(1)(b) of the Income-tax Act on the amount due to the assessee pursuant to the order passed giving effect to CIT(A)’s order appeal. Thus, the ground Nos. 1, 2 and 3 raised by the assessee are allowed”.

3.19 In view of the decisions of the Hon’ble Supreme Court in the case of Delhi Development Authority (supra) and the decision of a co-ordinate Bench of this Tribunal in the case of Tata Chemicals Ltd. (supra), we hold that once the refund becomes due as per the provisions of this Act, the interest is payable as per the provisions of section 244A and accordingly, the assessee is entitled for the interest. Hence, we do not find any error or illegality in the order of the learned CIT(A). We confirm the same.

4. The appeal of the revenue is dismissed.