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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI T.R. SENTHIL KUMAR & SHRI MAKARAND V. MAHADEOKAR
"ी टी.आर. से""ल कुमार, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम
। ] ] BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2022-23 Testec Asia Limited The Dy.Director of Income Tax बनाम/ United Arab Emirates Circle, International Taxation v/s. P.O. Box No.16799, Dubai, Vadodara- 390 007 United Arab Emirates – 999999 (OR) Villa 11, Street 5, Medows 1, Emirates Hill, United Arab Emirates – not listed 999999 थायी लेखा सं./PAN: AAJCT 4035 A (अपीलाथ%/ Appellant) (&' यथ%/ Respondent) Assessee by : Shri Virat Bhavsar, AR Revenue by : Shri Rignesh Das, Sr.DR सुनवाई की तारीख/Date of Hearing : 23/09/2024 घोषणा की तारीख /Date of Pronouncement: 30/09/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:
This appeal by the assessee is directed against the order dated 30.11.2023 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad (hereinafter referred to as “CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year (AY) 2022-23. The CIT(A) passed the order against Intimation order Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 passed by the Centralised Processing Centre, Bengaluru (hereinafter referred to as “CPC”) u/s 143(1) of the Act.
The assessee is a foreign company engaged in investment activities managed from out of India and is a beneficial owner of American Depository Receipts (ADRs) of Vedanta Ltd. The ADRs were held through Credit Suisse AG. In November 2021, Vedanta Ltd. announced the compulsory redemption of the ADR program. Consequently, in January 2022, Citibank NA, acting as the Depository Participant, redeemed the ADRs and withheld tax at 43.68% on the gross proceeds, amounting to Rs.57,28,565/-.
2.1. The assessee initially filed its original return of income under Section 139(1) of the Act on 05.11.2022, declaring capital gains income arising from the redemption of ADRs and offering the net capital gains to tax at Rs.13,44,540/-. Subsequently, the assessee filed a revised return under Section 139(5) of the Act on 31.12.2022, claiming TDS credit of Rs.57,28,565/-. The CPC processed the revised return under Section 143(1) of the Act on 20.02.2023, determining the total income at Rs.13,44,540/- but denied the TDS credit on the grounds that the TDS was not reflected in Form 26AS.
Aggrieved by the intimation under Section 143(1) of the Act, the assessee filed an appeal before the CIT(A). During the appellate proceedings, the assessee contended that the denial of TDS credit was unwarranted since the income had already been offered to tax, and the TDS was duly deducted by Citibank NA. The assessee submitted that the non-reflection of TDS in Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 Form 26AS was a procedural issue and did not invalidate the rightful claim of TDS credit. The assessee also relied on some judicial precedents.
4. During the course of appellate proceedings, the CIT(A) issued multiple notices to the AO for submission of a report in ITNS-51; however, no report was furnished by the AO, and the appeal was disposed of based on the material available on record. The CIT(A) observed that the assessee had offered the income arising from the redemption of ADRs to tax in India and had claimed TDS credit based on the tax withheld by Citibank NA. However, the CIT(A) emphasized that the TDS credit was not reflected in Form 26AS due to non-compliance with Rule 37BA, which mandates specific procedures for crediting TDS when income is assessable in the hands of a person other than the deductee. The CIT(A) highlighted that the tax was deducted in the name of Credit Suisse AG, the broker through which the ADRs were held, and not directly in the name of the assessee. Since the assessee was only the beneficial owner, the CIT(A) held that credit for TDS could only be allowed if the assessee complied with the procedural requirements, including filing declarations with the deductor and ensuring that the deductor reports the tax deduction in the name of the assessee.
4.1. The CIT(A) further relied on the provisions of Section 205, clarifying that while this section bars the recovery of tax directly from the deductee where tax has been deducted, it does not govern the allowance of TDS credit. The CIT(A) concluded that the assessee’s non-compliance with Rule 37BA was a sufficient basis for the denial of TDS credit and dismissed the appeal. Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 4.2. Aggrieved by the order of CIT(A) the assessee is in appeal before us with following grounds of appeal: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Validity of the Order
1. The impugned order passed by the learned Commissioner of Income Tax (Appeals) -13, Ahmedabad (CIT(A)) without providing an opportunity of personal hearing is bad in law and therefore liable to be quashed as it violates the statutory mandate of the provision of law and provision of National Faceless Appeal Scheme 2021. TDS claim not allowed u/s 143(1) of the Act 2. The learned CIT(A) erred in law and in fact in upholding the order of learned Deputy Commissioner of Income Tax, CPC, Bengaluru (“AO”) in not allowing the TDS credit of Rs.57,28,565/- while processing the ITR u/s 143(1) of the Act.
3. The learned CIT(A) erred in law and in fact in not allowing the TDS credit to the Appellant despite the fact that it is not in dispute that income from sale of ADRs is assessable in the hands of the Appellant.
The learned CIT(A) erred in law and in fact in denying the claim of TDS credit of Rs.57,28,565/- without appreciating the facts of the case in proper perspective.
5. The learned CIT(A) erred in law and in fact in denying the credit of TDS of Rs.57,28,565/- despite of the fact that the Appellant had demonstrated that in substance the requirements of the provisions of Rule 37BA of the Income Tax Rules, 1962 read with section 199 of the Act are satisfied.
6. The learned CIT(A) erred in law and in fact in not appreciating the provisions of Section 205 of the Act in proper perspective.
The learned CIT(A) erred in law and in fact in upholding the action of learned AO in enforcing the tax demand from the Appellant which is in violation to the provisions of Section 205 of the Act.
Your Appellant reserves the right to add to or to alter, amend, substitute, delete or modify all or any of the above grounds of appeal. Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23
During the course of hearing before us, the Authorised Representative (AR) of the assessee explained the facts and circumstances and stated that the assessee made formal correspondence with Credit Suisse AG and Citibank NA for to transfer the TDS credit in its name, citing its status as the real and end beneficial owner of the ADRs and placed on records the copies of the said correspondence. The AR placed an application to admit, this correspondence as additional evidence before us. The DR did not object to admission of this as additional evidence and placed reliance on the order of CIT(A). The AR also placed reliance on some judicial precedents justifying the admission of additional evidence.
We have heard the parties and perused the material available on records including additional evidence submitted by the assessee before us. The assessee, a foreign company and non-resident in India, had invested in ADRs of Vedanta Ltd. from FY 2012-13 to 2016-17. In November 2021, Vedanta Ltd. announced the redemption of these ADRs, and Citibank NA was appointed as the depository to manage the redemption process as per SEBI guidelines. Upon redemption, Vedanta Ltd. withheld tax amounting to Rs. 57,28,565 (equivalent to USD 76,493) since the assessee did not have a PAN in India at that time and could not provide the necessary information to Citibank NA before the cut-off date. The assessee subsequently obtained a PAN and filed a revised ITR in India on December 31, 2022, declaring income of Rs. 13,44,540 from the redemption of ADRs under Section 115AC of the Act. The assessee sought a refund of Rs. 55,88,730. The assessee submitted its PAN and confirmations from Credit Suisse AG to Citibank NA to facilitate the transfer of TDS credit to its PAN. Despite continuous coordination, no TDS credit was reflected in Form 26AS at the time of filing the ITR. The Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 CIT(A), while adjudicating the appeal, held that the assessee had not adequately complied with Rule 37BA of the Income Tax Rules, 1962, and had failed to take sufficient actions to ensure the transfer of TDS credit. The CIT(A) decided against the assessee, stating that the necessary steps were not taken as required by the rules.
The additional evidence includes:
1. 1. Bank Confirmation Letter from Credit Suisse AG - This confirms the broker's role in the redemption of ADRs and the onward payment of net proceeds to the assessee, establishing that the TDS credit should be attributed to the assessee, not the broker.
2. Correspondence with Citibank NA and Credit Suisse AG - This includes email communications from October 2022, showing the PAN and other relevant details were provided to Citibank NA and that requests were made to correct the attribution of TDS credit.
6.1. The admission of additional evidence in appellate proceedings is governed by Rule 29 of the Income Tax Appellate Tribunal Rules, 1963. Courts have consistently emphasised that the admission of such evidence should align with the principles of natural justice, particularly when it is crucial for the fair adjudication of a dispute. The judicial precedents relied on the assessee collectively support the notion that additional evidence, crucial for a just decision, should be admitted to uphold the principles of fairness and natural justice and are relevant and necessary to resolve the dispute fairly, admission of such evidence should not cause undue prejudice to the revenue and it was not produced earlier due to a bona fide mistake or oversight, provided it is not due to any mala fide intention. Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 6.2. The additional evidence directly addresses the CIT(A)’s observations regarding non-compliance with procedural requirements under Rule 37BA. It demonstrates that the assessee had taken proactive steps to ensure the transfer of TDS credit but faced procedural delays beyond its control. The evidence is crucial in establishing the bona fide actions of the assessee and directly impacts the determination of TDS credit entitlement, which is central to the appeal. The evidence submitted goes to the root of the matter, clarifying that the assessee was not negligent or non-compliant but was actively pursuing the transfer of TDS credit. This information was not furnished earlier due to the assessee's belief that, since the income was correctly offered to tax, the TDS credit would naturally follow. The documents are relevant as they demonstrate the procedural compliance required by Rule 37BA and counter the findings of the CIT(A) that the assessee failed to take appropriate actions.
6.3. The CIT(A) relied on the decision in the case of Prasad Raghoba Naik v. Assistant Director of Income-tax, CPC [2023] 146 Taxmann.com 471 (Panaji - ITAT) to support the denial of TDS credit to the assessee. This decision involved specific facts and legal principles that distinguish it from the current case of the assessee. The decision of prasad Raghoba Naik centred around Section 5A of the Act, which specifically applies to individuals governed by the Portuguese Civil Code in Goa. This section mandates equal apportionment of income and TDS credit between spouses. The assessee’s procedural failure involved not filing a declaration with the deductor to apportion the TDS credit between spouses as required by law. This was seen as a failure on the part of the assessee to comply with specific statutory requirements tied to Section 5A. The core issue was whether the entire TDS Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 credit could be claimed by one spouse when the law clearly mandated an equal split. The decision emphasized that allowing full credit would be contrary to Section 5A’s purpose and the legal requirement of income apportionment. In the present case the entitlement issue revolves around the right to TDS credit despite non-reflection in Form 26AS. The assessee has offered the corresponding income to tax, and the denial of credit is based on procedural grounds rather than a substantive legislative requirement like Section 5A of the Act.
6.4. We have also noted the judicial precedents relied on by the assessee before CIT(A). The CIT(A)’s approach in denying TDS credit was primarily procedural, focusing on technical compliance rather than engaging with the substantive merits of the case as outlined in the judicial precedents. The failure to address the judicial principles that procedural deficiencies should not override substantive rights and the lack of recognition of the assessee’s bona fide efforts significantly impacted the CIT(A)’s assessment. We are inclined to adopt more balanced approach, considering both the procedural requirements and the substantive rights of the assessee as emphasized in the cited precedents.
6.5. The denial of TDS credit to the assessee hinges primarily on procedural lapses, specifically the non-reflection of TDS credit in Form 26AS and the failure to comply with Rule 37BA of the Income Tax Rules, 1962. However, a critical aspect that needs to be addressed is the role of third parties—namely Citibank NA and Credit Suisse AG—in causing these procedural lapses. Citibank NA, acting as the depository for Vedanta ADRs, withheld tax at source when the ADRs were compulsorily redeemed. Due to the absence of Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 the assessee’s PAN at the time of deduction, the TDS credit was incorrectly attributed under the category "without PAN" or in the name of the broker, Credit Suisse AG, rather than the assessee, M/s. Testec Asia Limited. This misattribution led to the TDS credit not reflecting in the assessee’s Form 26AS, which is a procedural issue outside the control of the assessee. Upon obtaining a PAN, the assessee actively engaged with Citibank NA and Credit Suisse AG to correct the TDS attribution. The assessee submitted its PAN and requested that the credit be transferred correctly to its account. Despite continuous communication and submission of necessary documents, including confirmations, these procedural corrections were not completed in time to reflect in the assessee’s Form 26AS at the stage of assessment, highlighting that the delay was not due to any lack of effort on the assessee’s part.
6.6. It is a well-established principle of natural justice that a taxpayer should not suffer due to procedural lapses caused by third parties, especially when the taxpayer has acted in good faith and made all reasonable efforts to rectify the situation. It is consistently held on many judicial forums that the substance of compliance—namely, offering income to tax—should take precedence over procedural errors when assessing a taxpayer’s entitlement to TDS credit. Section 205 protects the taxpayer from being asked to pay tax again if tax has already been deducted at source. This principle supports the argument that TDS credit, once deducted, should not be denied based on procedural failures, particularly those not attributable to the taxpayer. Rule 37BA of the Income Tax Rules provides for the mechanism of TDS credit, intending to ensure that the credit is given to the person who offers the income for taxation. The primary objective of this rule is to align TDS credit Testec Asia Ltd. Vs. DIT (Intnl.Taxn.) Asst. Year : 2022-23 with the person who is the beneficial owner of the income. In this case, the assessee is the rightful owner of the income from Vedanta ADRs, and despite procedural errors by Citibank NA, the assessee has fulfilled the substantive requirements by declaring the income in its tax return. Denying credit due to procedural lapses by third parties contradicts the rule’s purpose. From revenue perspective, allowing TDS credit to the assessee where the corresponding income has been offered does not result in any revenue loss to the exchequer. The tax has been deducted and accounted for; it is merely the credit that has been procedurally misplaced due to third-party errors.
6.7. In light of the above, we hold that the denial of TDS credit based solely on procedural grounds is not justified. The assessee is entitled to the TDS credit as claimed. The order of CIT(A) is set aside. We direct the AO to grant the TDS credit accordingly and adjust the same against the tax demand raised.