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Facts
The assessee, State Bank of India, remitted payments to Master Card entities and Visa International Trust Ltd. The Assessing Officer treated the assessee as 'assessee in default' for failure to deduct tax at source, considering these payments as royalty. The assessee contended that the payees had discharged their tax liabilities.
Held
The Tribunal held that the assessee cannot be treated as an 'assessee in default' if the payees have discharged their tax liability. For Master Card International USA and Visa International Trust Ltd., the AO was directed to verify the payee's claim of discharged tax liability. For Master Card Singapore, the assessee cannot be treated as 'assessee in default' as long as the payee's taxability is pending before the Delhi High Court.
Key Issues
Whether the assessee can be treated as an 'assessee in default' under Section 201(1) of the Income Tax Act when the recipient has discharged its tax liability, and whether interest under Section 201(1A) is leviable.
Sections Cited
201, 201(1), 201(1A), 191, 9(1)(vi), 195, 192
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP & MS. PADMAVATHY S., AM
Year 5070/Mum/2024 2013-14 5069/Mum/2024 2014-15 5068/Mum/2024 2015-16 5067/Mum/2024 2016-17 5066/Mum/2024 2017-18 5065/Mum/2024 2018-19 State Bank of India The Asst. CIT, International Financial Reporting & Taxation Taxation, Circle-4(2)(1) 3rd Floor, Corporate Centre, Room No. 627, 6th Floor, Madam Cama Road, Nariman Point, Kautilya Bhawan, G Block BKC, Vs. Mumbai-400 021 Gilban Area, Bandra Kurla Complex, Bandra (E), Mumbai-400 051 PAN/GIR No. AAACS 8577 K (Appellant) : (Respondent) : Shri Percy Pardiwala – Sr. Advocate, Appellant by Shri Nitesh joshi & Shri Ninad Patade Respondent by : Shri Arun Kanti Datta Date of Hearing : 25.08.2025 Date of Pronouncement : 28.08.2025 O R D E R Per Saktijit Dey, VP: The captioned appeals by the assessee, arise out of separate orders passed by learned Commissioner of Income Tax (Appeals), Mumbai (‘ld.CIT(A) for short), arising out of proceedings u/s. 201/201(1A) of the Income Tax Act, 1961 (‘the Act’ for short), pertaining to assessment years (A.Y.) 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19.
The common issue arising for consideration in these appeals is whether the assessee can be treated as an ‘assessee in default’ in terms with section 201(1) of the Act and & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) fastened with the liability to discharge tax demand and interest thereon on alleged failure to deduct tax at source on payments remitted to certain entities. Facts relevant for deciding the issue are more or less common in all the years, except variance in quantum/figure.
Briefly stated, the assessee is a public sector bank in India and is stated to be the largest commercial bank in India. Information was received by the Assessing Officer (AO) indicating that in the assessment years under dispute, the assessee had remitted certain payments to the following entities: i. Master Card An entity located in United AYs. 2013-14, 2014-15 International Inc States of America (USA) and 2015-16. ii. Visa Worldwide Pte A Singapore based entity A.Ys. 2013-14 to 2015-16 Ltd Master Card Asia A Singapore based entity A.Ys. 2016-17, 2017-18 Pte Ltd. and 2018-19 4. Based on such information, the A.O. issued notice u/s. 133(6) of the Act to the assessee to ascertain the correctness of the information and also seeking information whether tax has been deducted while remitting the amounts. In response to the query raised by the A.O., the assessee furnished its reply stating that no tax has been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with the submissions of the assessee. He observed, irrespective of the fact whether the concerned entities/payees have PE in India or not, the payments made by the assessee to them, being in the nature of royalty, are taxable u/s. 9(1)(vi) of the Act as well as Article 12 of the respective Double Tax Avoidance Agreements (DTAAs). The assessee having failed to deduct tax while remitting the amounts, the A.O. treated the assessee as an & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) ‘assessee in default’ and passed orders u/s. 201(1) and 201(1A) of the Act, in all the assessment years under dispute, raising demands and interest thereon.
Though, the assessee preferred appeals against the orders passed u/s. 201(1) and 201(1A) of the Act before learned First Appellate Authority, however, it was unsuccessful. The assessee has raised multiple grounds challenging the applicability of section 201 of the Act and also raised the issue whether the assessee can be at all declared as ‘assessee in default’. However, at the time of hearing, ld. Sr. Counsel appearing for the assessee advanced certain specific arguments to deny its liability u/s. 201(1) and 201(1A) of the Act. Drawing our attention to Explanation u/s. 191 of the Act, ld. Sr. Counsel submitted, only when the payee fails to discharge its tax liability directly, the deductor can be treated as an ‘assessee in default’ u/s. 201(1) of the Act. Ld. Sr. Counsel submitted, insofar as payments made to M/s. Master Card International (USA) in A.Ys. 2013-14 to 2015-16, the assessee cannot be treated as ‘assessee in default’, since M/s. Master Card International USA has not only offered the amounts received from the assessee as ‘income’ in the respective assessment years, but has also discharged the tax liability. In this context, he drew our attention to letter dated 18.06.2019, received from M/s. Master Card International USA, copy of which is placed at pg. 16 of the paper book.
Proceeding further, he submitted, even Visa International Trust Ltd. had disputed the taxability qua remittances received from the assessee bank, but ultimately the issue has been resolved through Mutual Agreement Procedure (MAP) for all the six assessment years under dispute and the A.O. has passed orders under Rule 44G/44H r.w.s 144(3) of the Act, implementing the MAP resolution. Thus, he submitted, since the tax demand relating to remittances received from the assessee having been discharged by Visa International Trust & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) Ltd. through MAP procedure, the assessee cannot be regarded as ‘assessee in default’ in respect of such remittances.
Insofar as payments made to Master Card Singapore in A.Ys. 2016-17 to 2018-19, the ld. Counsel submitted, challenging the taxability of such remittances received, the payee has filed a Writ Petition in Hon’ble Delhi High Court and Hon’ble Delhi High Court has passed an interim order staying the assessment proceedings. Thus, he submitted, till the Writ Application is decided and the assessments are completed by the A.O., the issue regarding the taxability of the amount remitted by the assessee at the hands of Master Card Singapore, remains unresolved. Hence, in view of Explanation to section 191 of the Act, the assessee can be regarded as an ‘assessee in default’ only after the payee fails to discharge its tax liability. Thus, he submitted, as on date, the assessee cannot be fastened with demand u/s. 201(1) of the Act.
Insofar as, chargeability of interest u/s. 201(1A) of the Act is concerned, ld. Sr. Counsel submitted, such interest can be charged only upto the date of payment of tax by the payees/recipient. Hence, the A.O. can be directed to factually verify the actual date of payment of tax by the recipient and, accordingly, compute interest. In support of such contentions, ld. Sr. Counsel relied upon the decision of Hon’ble Supreme Court in case of Hindustan Coca Cola Beverage P. Ltd. Vs. CIT 163 taxmann.com 355 (SC). He also referred to Circular No. F. No. 275/201/95-IT(B) dated 29.01.1997 issued by Central Board of Direct Tax (‘CBDT’ for short).
Per contra, ld. Departmental Representative (‘ld. DR’ for short) submitted that the A.O. has held the amounts paid to M/s. Master Card USA, Visa International Trust Ltd. and Master Card Singapore as royalty. Hence, in terms with section 195 of the Act, the & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) assessee was required to deduct tax at source. He submitted, the assessee having failed to deduct tax at source while remitting the payments as per the provisions of section 201(1) of the Act, the assessee has to be treated as ‘assessee in default’ and consequences under the said provision are bound to follow. Therefore, the assessee cannot take recourse to section 191 of the Act to escape its liability to deduct tax.
We have considered rival submissions and perused the materials available on record. We have also applied our mind to the judicial precedent cited before us. Undisputedly, in the assessment years under dispute, the assessee has made certain remittances to M/s. Master Card International USA (A.Ys. 2013-14 to 2015-16), Visa International Trust Ltd. in all the assessment years and Master Card Singapore (A.Ys. 2016-17 to 2018-19). It is also a fact on record that while remitting the payments to the above mentioned entities, the assessee has not deducted tax at source. The assessee has pleaded that the non-deduction of tax at source was due to the claim of payees that they were not having PE in India, hence, the receipts, being in the nature of ‘business receipts’, are not taxable in India. On a reading of the orders passed u/s. 201(1) and 201(1A) of the Act, it is evident the A.O. has treated the receipts as ‘royalty’ both under the domestic law as well as under respective treaty provisions and taxed it on gross basis by applying the rate of 10%. Ld. Sr. Counsel for the assessee has explained the nature of transaction between the assessee and payees through the undermentioned illustration as under:
“The customer is required to make payment to the Merchant - Rs. 100 and instead swipes the card The card network company is the payment systems facilitator and provides the auto debit and auto credit facility to the card issuing bank and the acquiring bank respectively.
& others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) The card network company will auto credit Rs. 98 to the acquiring bank and will auto debit Rs. 99 to the issuing bank. The acquiring Bank will make the payment to the Merchant of Rs. 97 retaining its fees of Re 1. So, the merchant receives Rs. 3 (Rs. 100 less Rs. 97) less from the sale of its goods, The acquiring bank will get auto credit from card network company i.e., MasterCard/Visa, Rs. 98 after retaining its fees of Rs. 1. The card network company will auto debit Rs. 99 after retaining its fees of Re. 1 to the bank account of the card issuing bank. The Appellant is the card issuing Bank i.e., its bank account of SBI will be debited by Rs. 99. The Appellant will collect Rs. 100 from the customer and thus receive its fees of Re. 1.”
However, at this stage, we are not really concerned with the issue whether the assessee at all was required to deduct tax at source and other related issue including the issues as to who in the real sense of the term is the payer. The crucial issue arising for determination is whether the assessee can be declared as an ‘assessee in default’, in terms with section 201(1) of the Act, in the event of payees having discharged the tax liability on the remittances received from the assessee. In this context, it is relevant to refer to Explanation under section 191 of the Act, which reads as under:
“Explanation.—For the removal of doubts, it is hereby declared that if any person including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.”
A reading of the above Explanation makes it clear that when the payee fails to directly pay the tax on the amounts received from another entity, which is subject to deduction of tax at source, the deductor can be treated as an ‘assessee in default’, in terms with section 201(1) of the Act. The aforesaid provision assumes importance in the context of factual position brought to our notice in assessee’s case. From the materials placed before us, it is observed that M/s. Master Card International USA has confirmed to the assessee that to settle the dispute and buy piece they have discharged the tax liability on the amounts received from the assessee in A.Ys. 2013-14 to 2015-16 through MAP resolution. Similarly, Visa International Trust Ltd. has also communicated to the assessee that the tax liability on the remittances received from the assessee have been discharged through MAP. In fact, in case of Visa International Trust Ltd., the A.O. has passed an order under Rule 44G/44H, implementing the MAP resolution. That being the factual position emerging on record, prima facie, the assessee cannot be treated as an ‘assessee in default’, in respect of remittances made to M/s. Master Card International USA and Visa International Trust Ltd., as the recipients offered the income arising out of such remittances and discharged the tax liability. Insofar as payments made to M/s. Master Card Singapore, the materials placed before us demonstrate that the said entity has disputed its tax liability on remittances received from the assessee before the Authority for Advance Ruling (‘AAR’ for short). However, the AAR decided the issue against it.
Being aggrieved with the said Ruling of AAR, the payee has filed Writ Petition before Hon’ble Delhi High Court vide order dated 12.10.2018, in WP(C) No. 10944/2018, & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) the Hon’ble High Court has made the stay absolute pending disposed of the Writ Application. Thus, as on date, there is no determination of taxability on the receipts from assessee by Master Card Singapore, as assessments are still pending. Thus, in our view, till such determination takes place and Master Card Singapore, in the event of A.O. holding the income taxable, does not discharge the tax liability, then only the assessee can be treated as ‘assessee in default’ u/s. 201(1) of the Act. In case of Hindustan Coca Cola Beverage P. Ltd.(supra), the Hon’ble Supreme Court taking note of the CBDT Circular dated 29.01.1997 has held that once the A.O. is satisfied that tax due on remittances have been paid by the deductee assessee, the demand against the deductor cannot be enforced for non- deduction of tax. However, the Hon’ble Supreme Court has further held that this will not alter the liability to charge interest u/s. 201(1A) of the Act. Keeping in view the factual position discussed above and the ratio laid down by Hon’ble Supreme Court in the decision cited supra, we deem it appropriate to dispose of the appeals in the following terms:
A. Insofar as payments made to M/s. Master Card International USA, the A.O. shall factually verify assessee’s claim that M/s. Master Card International USA has discharged the tax liability on the receipts from assessee. In case, assessee’s claim is found to be correct, no further demand can be raised on the assessee, treating it as an ‘assessee in default’ u/s. 201(1) of the Act.
B. Insofar as payments made to Visa International Trust Ltd., the A.O. is directed to factually verify assessee’s claim that in case of the deductee, the dispute has been resolved under MAP and the A.O. has implemented the MAP resolution after verifying the discharge of tax liability. In case, the aforesaid claim of the assessee & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) is found to be correct, the assessee cannot be fastened with the demand u/s. 201(1) of the Act for non-deduction of tax by treating it as an ‘assessee in default’.
C. Insofar as payment made to M/s. Master Card Singapore, since A.Ys. 2015-16 to0 2018-19, since the assessment proceedings in case of the payee are stayed by Hon’ble Delhi High Court, till determination of the taxability of the receipts from assessee by Master Card, the assessee cannot be treated as an ‘assessee in default’ u/s. 201(1) of the Act. The A.O. may treat the assessee as an ‘assessee in default’ in terms with section 201(1) of the Act, in case the remittances received from the assessee are held to be taxable at the hands of the deductee and the deductee does not discharge its tax liability on such remittances.
D. Insofar as chargeability of interest u/s. 201(1A) of the Act is concerned, the A.O. has to factually verify the actual date of discharge of tax liability by the deductees and upto that date may compute interest u/s. 201(1A) of the Act. 14. However, while undertaking the aforesaid exercise, as directed, the assessee must be provided reasonable opportunity of being heard. With the aforesaid observations, the appeals are disposed of.
In the result, the appeals are allowed for statistical purpose. Order pronounced in the open court on 28.08.2025 Sd/- Sd/- (Padmavathy S.) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 28.08.2025 Roshani, Sr. PS & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,