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Income Tax Appellate Tribunal, “L” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the Revenue is directed against the order dated 12.3.2015 passed by the learned CIT(A)-56, Mumbai and it relates to A.Y. 2012-13.
Grounds urged by the Revenue read as under : (1) "On facts and circumstances of the case and in law, the Ld. CIT(A) erred in relying on the CBDT Circular No. 551 while holding that there was no need to file a return of income for recipient of income to claim the refund of TDS. He should have appreciated that in view of CBDT Circular No. 7/2007 and section 200A of the Income-tax Act, 1961 as amended w.e.f 01.04.2010, refund of TDS could be claimed only by a deductor subject to fulfillment of certain conditions but not the deductee. He should have appreciated that a deductee could claim the refund of TDS, only as per the procedure laid down under law by way of making a claim of refund in return of income filed u/s 139."
(2) "Without prejudice to the above ground, on facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal u/s. 154 on the issue of availability of beneficial tax
2 M/s. Vodafone International Holding B.V. treatment for interest received by the assessee from the department by categorising the same as being covered under Article 11(2) of the DTAA between India and the Netherland without appreciating the fact the amount so received by the assessee actually falls within the definition of term interest as mentioned in Article 11(6) of the DTAA was itself debatable. Further, no discussion whatsoever has been made by the Ld. CIT(A) to hold that the conditions of Article 11(6) of the DTAA were satisfied in the case. The Ld CIT(A) should have appreciated that the amount of Rs 2500 Crores deposited by VIHBV on which interest of Rs 118.85 Crores was paid to it by the department on direction of Hon'ble Supreme Court was not at all in nature of any debt claim so as to qualify as "interest" under Article 11(6) of the DTAA."
(3) "Without prejudice to above grounds, Ld. CIT(A) erred in adjudicating appeal of the assessee against the order u/s. 154 on a highly debatable issue, which was not a mistake apparent from record rectifiable u/s. 154." (4) "The Appellant prays that the order of the Ld. CIT(A) be set aside on the above grounds and the order of the Assessing Officer be restored."
3. Facts relating to the issue have been narrated as under by the learned CIT(A) :- “2. The gist of the facts relevant to the present dispute are that the assessee company, through an order dated 31.05.2010 passed by the AO under sections 201(1) and 201(14) of the Income Tax Act, was treated as an 'assessee in default' under section 201 of the Act for its failure to deduct tax at source under section 195 from the payment of USD 11,206,029,859.05 made on 08.5.2007 to Hutchison Telecommunications International Limited, Cayman Islands. Through a subsequent order dated 22.10.2010 the total demand raised on the assessee in terms of the provisions of sections 201(1) and 201(14) of the Act was quantified by the AO at Rs. 11217,94,68,800. The Hon'ble Supreme Court, on an application for stay of such demand filed by the assessee before it, vide its order dated 15.11.2010 (further clarified through another order dated 26.11.2010), directed that the assessee was to deposit a sum of Rs. 2,500 crores with the Supreme Court Registry and to also furnish a bank guarantee of Rs. 8,500 crores. Liberty was granted to the Income Tax Department to withdraw the deposit of Rs. 2,500 crores on the condition that if the assessee were to succeed in its Special Leave Petition pending before the Supreme Court then such deposit was to be refunded to the assessee along with interest, the rate of which was to be decided by the Supreme Court. The said deposit was withdrawn by the Department on 12.01.2011.
3 M/s. Vodafone International Holding B.V.
The Hon'ble Supreme Court vide its final order dated 20.01.2012 reported in 341 ITR 1, while allowing the appeal filed by the assessee, upheld the contention of the assessee that it could not have been held to be an assessee in default under section 201 of the Act. The Supreme Court further directed the Department to refund the deposit of Rs. 2,500 crores made by the assessee earlier along with interest at the rate of 4 percent per annum. After the review petition filed by the Union of India was dismissed by a further order of the Supreme Court on 20.03.2012, the AO, in giving effect to the order passed by the Hon'ble Supreme Court, issued an intimation on 20.03.2012 to the assessee wherein the gross sum refundable to the assessee was quantified at Rs. 2618,85,24,590. The interest component in such figure was Rs. 118,85,24,590 and tax was found to be deductible at source by the AO on such payment of interest to the assessee at 42.024 percent. After deducting TDS so computed amounting to Rs. 49,94,65,574 the balance refund of Rs. 2568,90,59,016 was paid to the assessee.
4. Through its letter dated 03.04.2012 filed on 09.04.2012 before the AO the assessee company requested the AO to rectify the order dated 20.03.2012 issued by the AO quantifying the amount refundable to the assessee. The assessee in this letter had contended that the tax deducted at source from the interest amount payable to it was at 42.024 percent whereas the assessee being a resident of Netherlands, the applicable rate of deduction of tax at source on interest under the India-Netherlands Double Tax avoidance Agreement could only be a maximum of 10 percent. Reliance was placed by the assessee company on the Mumbai Tribunal decision in the case of Bechtel International Inc. in & 6998/2010 and the Special Bench decision of the Delhi Tribunal in the case of Clough Engineering (138 TTJ 385) to contend that the application of the rate of TDS at 42.024 percent was a mistake apparent from the records and the same may be rectified.
5. The AO through his letter dated 31.10.2012 rejected the rectification petition filed by the assessee on the grounds that -
"Your application has been perused and it has been found that the excess TDS cannot be refunded under the provisions of section 154, not being a mistake apparent from record. The refund cheque as well as the TDS Certificate has already been issued to you by this office. The-credit for the same can be taken as per law by filing the return of income.”
3. The assessee filed appeal before Ld CIT(A) challenging the above said order passed by Ld CIT(A). The first appellate authority took the view that the 4 M/s. Vodafone International Holding B.V.
deduction of tax at source by applying wrong rate of tax would constitute a mistake apparent from record and the same can be rectified u/s 154 of the Act. With regard to the observation of the AO that the assessee could claim refund only by way of filing return of income, the Ld CIT(A) took support of the Circular No.551 of 1990 dated 23.01.1990 issued by CBDT and held that the refund can be given suo moto by the AO, i.e., without the assessee having to make a claim. Accordingly he directed the AO to rectify the mistake apparent from record and to issue the correct quantum of refund to the assessee along with statutory interest payable. The revenue is aggrieved by the order passed by Ld CIT(A).
The first issue that requires to be adjudicated is whether the tax deduction of tax at source at wrong rates would constitute mistake apparent from record or not?. We have noticed that the revenue has granted interest to the assessee as per the directions of the Hon’ble Supreme Court and it is the assessing officer, who has deducted tax at source @ 42.024% from the interest amount. According to the assessee, it is required to pay tax on the interest income @ 10% as per the provisions of DTAA and accordingly it has filed a petition before the AO requesting him to correct the TDS amount, which would result in refund of excess deduction made by the AO. Accordingly it has requested the AO to issue the refund also.
The revenue has contended that the claim of the assessee results in refund of TDS amount and as per the law, the TDS refund could be claimed only by the deductor and not by the deductee. Further it is contended that the deductee (assessee herein) can claim refund of tax, only by filing return of income. In our view, the above said procedure is required to be followed only if the deductor and the deductee are different assessees. In the instant case, the deductor is the assessing officer himself and he is the authority to grant refund to the assessee also. Hence, the assessee can go to no other person than the assessing officer seeking rectification of the order as well as the refund. Since the assessee has taken the view that the AO has deducted tax at 5 M/s. Vodafone International Holding B.V.
a wrong rate, it has filed a petition before him to correct the same. If one agree for a moment that the deductor alone can claim refund of TDS amount, in the instant case, the assessing officer alone can claim refund since the AO was the deductor of tax at source. Assuming for a moment that the AO grants refund to himself, in this peculiar situation, what the AO would do with the money so refunded by him to him. He has to ultimately return the same to the assessee only. Accordingly, under this peculiar facts, we are of the view that the Ld CIT(A) was justified in holding that the deduction of tax at source at wrong rate would constitute mistake apparent from record. We also notice that the AO has not given any reason or authority to show that the rate of tax of 42.024% was correct in accordance with the law. Whereas, the assessee is taking support of the provisions of DTAA to contend that the rate of tax applicable is only 10%. Hence application of wrong law would also result in mistake apparent from record. In our view, the foregoing discussion would also show that this issue does not give rise to any debatable issue at all. Accordingly we are of the view that the Ld CIT(A) was justified in directing the AO to entertain the rectification application.
Since the assessing officer himself was the deductor of TDS and since we have held that he can rectify the order, the question of filing of return of income by the assessee for claiming the refund, in our view, does not arise at this stage and the same cannot be a ground for entertaining the rectification application.
The assessee has claimed that the tax is required to be deducted at source @ 10% as per the provisions of DTAA. The Ld CIT(A) has, while holding that the mistake pointed out by the assessee would constitute a mistake apparent from record, has also referred to the rate of 10%. We notice that the Ld CIT(A) has directed the AO to rectify the mistake. However, we notice that the assessing officer has rejected the rectification application at threshold and did not examine the claim of the assessee about the rate at which the Tax is required to be deducted. Accordingly we are of the view that the claim of the 6 M/s. Vodafone International Holding B.V.
assessee made in the rectification application needs to be examined in accordance with the law. The assessee has also not clarified as to whether it has claimed refund of excess deduction of tax, if any, by filing return of income for the year under consideration. Accordingly we modify the order of Ld CIT(A) and direct the assessing officer to dispose of the rectification petition in accordance with the law by duly considering the plea of the assessee as per the provisions of the Act and the provisions of DTAA and also after affording adequate opportunity of being heard to the assessee.
In the result, the appeal of the revenue is treated as partly allowed for statistical purposes. Order has been pronounced in the Court on 3.10.2017.