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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. VIJAY PAL RAO & SHRI. S. JAYARAMAN
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee against the order of the CIT(A)-12, dt.12.02.2016, for the assessment year 2013-14.
2. The assessee is a-joint venture between Continental Engineering Corporation, a company incorporated in Taiwan, China; Soma Enterprises Ltd, a company incorporated in India and CEC International Corporation (India) P. Ltd, a company incorporated in India, having shares of 41%, 50% and 9% respectively. The JV agreement was made on 26th February, 2009 for design and construction of a specific contract for Bangalore Metro IT(IT)A.777/Bang/2016 Page - 2 Rail Project, including tender and execution. For executing the tunnel construction work, a subcontract agreement was entered on 06.04.2011 between CEC JV and one of its member, M/s Continental Engineering Corporation (hereafter, CEC). There was a survey operation u/s 133A on 09.01.2015 on the assessee. It was found that CEC had applied for a certificate under section 197 and obtained one such certificate which authorised deduction of tax at 0.5% by the assessee on the payment to CEC, the payee.
2.1 It was noted that the certificate issued under section 197 was effective from 03.09.2012 to 31.03.2013. The assessee had paid Rs.28,17,06,008/- between 01.04.2012 & 31.08.2012, the period at which the certificate u/s 197 was not effective , after deducting tax at 0.5%. In the proceedings u/ss 201(1) & 201(1A), the assessee submitted the following:
1. A part of the payment to CEC was towards adjustment of the advance given in previous rears and which had already undergone TDS.
2. M/s CEC had filed income-tax return after including the amounts received from the deductor in its return. Tax under section 201(1) should not be demanded in view of CBDT letter No. 275/201/95-JT(R) dated January 29,1997 and the decision of Apex Court in Hindustan Coca Cola Beverages Private Limited v. CIT 293 JTR 226 (SC). 3. Once certificate under section 197 was issued, it would also cover payments made prior to the date of issue of certificate under section 197.
IT(IT)A.777/Bang/2016 Page - 3 2.2 The A O considered the plea at Sl.No.1 above and made adjustment in computation of tax deductible at source. However, he noted that there was a change in law after the order of the Apex Court. He referred to the proviso inserted under section 201 by the Finance Act 2012, effective from 1.7.2012 and also to the explanatory memorandum to the Finance Act 2012, and observed that :
The proviso to section 201(1) mentions the sum paid to a resident or on the sum credited to the account of a resident. The proviso is applicable only for resident payee.
The explanatory memorandum also speaks about the resident payee only while explaining the amendment incorporating in the proviso. 3. The explanatory memorandum to Finance Act 2012, while explaining the amendment to section 40(a)(ia), notes that the beneficial provision relating to allowance of business expenditure like interest, commission, brokerage, professional fee etc. where the deductor is not considered to be an assessee in default as per proviso to section 201(1). He also noted that the beneficial provisions were proposed to be applicable only in the case of resident payee.
Section 197 provides for issue of certificate by assessing officer on an application made by a person whose income- tax is required to be deducted. The corresponding rule is Rule 28AA of the Income Tax Rules which specifically mentions that the certificate shall be valid for such period of the previous year till the date of making application. Circular 774 dated 17.03.1999 clarifies that the certificate under section 197(1) will be applicable only in IT(IT)A.777/Bang/2016 Page - 4
respect of credit or payments, as the case may be, subject to tax deduction at source, made on or after the date of such certificate.
2.3 The AO , therefore, concluded that the payments made by the assessee before the issue of the certificate under section 197(1) should have been subjected to tax deduction at source at 43.06% because that payment was in the nature of business receipts which came under the residual clause (x) of para 2(b) of Part II of Finance Act 2012. Accordingly, the AO passed an order under section 201(1) and 201(1A) on 06.02.2015 raising a total demand of Rs.7,58,08,843/-. Aggrieved, the assessee filed an appeal before the CIT (A) . The CIT (A) held that the assessee cant be deemed to be an assessee in default after payee has considered the payment received , paid taxes on it and filed return in India. Thus, he allowed the assessee’s plea. However, he did not accept the assessee’s other plea on charging of interest u/s 201(1A) , which he held as mandatory and penal in nature. Aggrieved on such order, the assessee filed this appeal with the following grounds :
3. The AR pointing out to the order giving effect to the CIT (A) order dt 18.11.2016, the relevant portion is extracted as under :
IT(IT)A.777/Bang/2016 Page - 5 “ As per OGE dt.22.02.2016, interest u/s.201(1A) was calculated as Rs.1,89,39,900/-. The same is modified as per above discussion to Rs.97,26,586/-. Since assessee has paid Rs.1,89,39,900/- as self assessment tax u/s.140A, balance amount of (Rs.1,89,39,900 – Rs.97,26,586) Rs.92,13,311/- is refundable to assessee. and submitted that the assessee is not pressing the ground no 1 above. Seeking our attention to the order u/s 143(2) , passed by the DCIT , Circle -1(1)(1), Intl. Taxation , New Delhi dt 12.01.2017 for ay 2013-14 in the case of M/s Continental Engineering Corporation (Indian Branch), wherein the AO assessed at Nil income and observed that credit for prepaid taxes (Rs.1,37,21,546/-) is allowed after verification etc and relying on the Rajasthan High Court order in CIT v Rajasthan Rajya Vidyut Prasaran in IT(IT)A.777/Bang/2016 Page - 6 287 ITR 354 and the Agra Tribunal decision in to 454/Agra/2011 for ays 2001-02 to 2007-08 dt 20.6.2014 it is submitted that levy of interest u/s 201 (1A) in its case is not warranted.
4. The relevant portion of the order from the Rajasthan High Court in CIT v Rajasthan Rajya Vidyut Prasaran in 287 ITR 354 is extracted as under :
7. After perusal of the facts of the case and relevant law as on the subject, we are of the opinion that learned Commissioner of Income- tax (Appeals) had rightly held that interest under section 201(1A) of the Act was to be deleted after due verification by the Assessing Officer from the enclosures with supporting documents. In all the cases, the recipient of the income had claimed refund, which had arisen due to tax deducted at source. Therefore, we find no infirmity in the order of the learned Commissioner of Income-tax (Appeals) and the same is hereby sustained.
When the assessee has paid more tax than the tax payable and refund is due, even tax deducted at source is counted, in such case, there is no justification for charging of interest under section 201(1A).”
The relevant portion of the order from the Agra Tribunal decision in to 454 /Agra/2011 for ays 2001-02 to 2007-08 dt 20.6.2014 is extracted as under :
“ 8. As far as levy of interest under sect ion 201(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes. Hon’ble Bombay High Court, in the case of Bennett Coleman & Co Ltd Vs ITO (157 ITR 812) has held so. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault.
IT(IT)A.777/Bang/2016 Page - 7
However, since it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. However, in a case in which the recipient of income had no tax liability embedded in such payments, there will obviously be no question of delay in realization of taxes and the provisions of section 201(1A) will not come into play at all. The computation of interest is to be redone in the light of this legal position.”
We heard the rival submissions and find merit in the assessee’s submissions, on the above facts and circumstances and the position of law as extracted above, for non levy of interest u/s 201(1A). Relying on the above decisions, this matter stands restored to the A O for fresh adjudication in accordance with law as laid above . While doing so, the AO would give due opportunity to the assessee and dispose the matter by a speaking order.
In the result, the assessee’s appeal is treated as allowed for statistical purpose. Order pronounced in the open court on 6th day of April, 2017.