Case Law Details
Tax deductor is entitled to interest on delayed refund when it is ordered to deduct tax even though no such liability exists
Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of DDIT Vs. MSM Satellite (Singapore) Pvt. Ltd. [201 1-TII-04-ITAT-Mum-INTL] (Judgement Date: 26 November 2010, Assessment Year: 2007-08) held that the taxpayer is entitled to interest on delayed refund as per section 244A of the Income-tax Act, 1961 (the Act) when it is ordered to deduct tax but subsequently it was found in appeal that no such liability exists.
Further, the Tribunal held that the word ‘assessee’ includes both the actual assessee and also deemed assessee as per the Act. Accordingly, any person can be considered as an assessee even there are no actual assessment proceedings pertaining to that person.
Facts of the case
• The taxpayer is a Singapore based company, engaged in the business of acquiring television programs, motion pictures and sports events and exhibiting the same on its television channels from Singapore. The taxpayer entered into an agreement with Global Cricket V Corporation Pvt. Ltd. (GCC) for obtaining a right to broadcast various cricket matches in various countries including India.
• The taxpayer applied to the Assessing Officer (AO) for nil withholding tax certificate under Section 195(2) of the Act. The AO directed the taxpayer to withhold tax in respect of payments made to GCC. However, the Tribunal held that the taxpayer is not liable to withhold tax at source in respect of payments made to GCC.
• The taxpayer was given refund of the taxes withheld but without any interest as per the provisions of Section 244A of the Act.
Tax department’s contentions
• The amount deducted by the taxpayer under Section 195 of the Act and deposited with the department was voluntary and not as per any assessment order or demand notice under Section 156 of the Act.
• The tax department relied upon CBDT circular no.769 dated 6 August 1998 and circular no.790 dated 20 April 2000 and 7/2007 dated 23 October 2007 issued by the Central Board of Direct Taxes and submitted that the refund has been granted to the taxpayer under these circulars and not under any provisions of the Act. Refund to the person who is responsible for deducting the tax at source is independent of the provisions of the Act and since the refund was made as per the administrative order by way of administrative measure, the same cannot be treated as refund of tax under Section 240 of the Act.
• The tax department relied upon the decision of the Mumbai tribunal decision in the case of Godrej Industries ltd v. DCIT [2007] 8 SOT 417(Mum) and the Madhya Pradesh High Court’s decision in the case of Universal Cables ltd v. CIT [2009] 26 DTR (MP) 98.
Taxpayer’s contentions
• The decisions relied upon by the tax department are distinguishable on facts since in those cases the tax was deposited voluntarily by the tax deductor and then refund was granted and accordingly the taxpayer was not entitled to get interest under Section 244A of the Act. In the taxpayer’s case the tax was paid in view of the order passed by the AO under Section 195(2) and not voluntarily.
• The taxpayer contended that the provisions of Section 240 of the Act provides that where an order is passed in appeal, or other proceedings under the Act, the AO is duty bound to refund the amount due to the taxpayer even without the taxpayer making any claim in that behalf. Once the provisions of section 240 are applicable to the amount paid by the taxpayer as tax, the provisions of section 244A applies automatically.
• Order under Section 195(2) of the Act is sufficient to raise tax demand on the taxpayer and separate notice under Section 156 of the Act is not necessary to make payment obligatory by the taxpayer.
Tribunal’s ruling
• The AO directed the taxpayer to withhold tax on payment to GCC. Therefore, the taxpayer had not withheld the payment voluntarily but in pursuance of the department’s order.
• The circulars relied on by the department dealt with various situations where the tax was deducted on the remittance made to the non-resident but finally no income had accrued to the non-resident due to the cancellation of the contract. The present case did not involve any cancellation of contract and non-accrual of income in the hands of the non-resident subsequent to the deduction of tax by the taxpayer on its own. The taxpayer had not deducted tax voluntarily but under the orders of the AO. Therefore, none of the circulars helped the case of the revenue;
• As the deduction made by the taxpayer was in pursuance of the AO’s order and the refund was made as a result of the order passed by the Commissioner of Income Tax (Appeals), the refund was granted as a result of the order passed in the appeals and thus fell under the provisions of section 240 of the Act. Since the provisions of section 240 of the Act were applicable to the amount paid by the taxpayer, the provisions of section 244A would apply automatically.
• The Tribunal relied on the Supreme Court ruling in the case of ITO v. Delhi Development Authority [2001] 1 SCC 695 (SC) wherein after perusing the definition of ‘assessee’ the Supreme Court held that it is clear that term ‘assessee’ includes actual assessees as well as deemed assessees under the provisions of the Act and accordingly, any person can be considered as an assessee even there are no actual assessment proceedings pertaining to that person.
• Accordingly, the Tribunal held that the taxpayer was entitled to interest on refund as per Section 244A of the Act.
Our Comments
This is a welcome decision by the Mumbai Tribunal where it is held that the taxpayer is entitled to interest on delayed refund as per section 244A of the Act when it is ordered to deduct tax but subsequently it was found in appeal that no such liability exists.
The Tribunal has clearly differentiated the circulars relied on by the department since those circulars dealt with voluntary deduction of tax at source. However, in the present case the taxpayer had deducted tax at source as per the order of the AO.
