Income Tax Appellate Tribunal - Delhi
Samcor Glass Ltd. vs Assistant Commissioner Of Income Tax on 21 August, 2003
Equivalent citations: [2005]94ITD202(DELHI), (2004)82TTJ(DELHI)325
ORDER
B.R. Jain, A.M.
1. This appeal by the assessee arises from the order dt. 24th June, 2002, of the learned CIT(A)-XIII, New Delhi, by raising following grounds of appeal:
"1. That, on the facts and circumstances of the case and position in law, the learned CIT(A) has erred in sustaining the finding of the AO that it is the payee (i.e., Corning Inc.) and not the appellant (payer) who is entitled to claim the refund of excess tax which has been deducted by the payer.
2. That the learned CIT(A) has erred in concluding that the payer's right to appeal under Section 248 of IT Act, 1961 ('the Act') ceases once the TDS certificate has been issued.
3. That the order passed by the learned CIT(A) is bad in law, void ab initio."
2. Briefly, the facts are that the appellant is a joint venture company of Corning Incorporated USA (hereinafter referred to as "Corning"). The AO directed the appellant to deduct tax at source at 30 per cent on the payment of fee for technical services by rejecting application for deduction of tax at lower rate. The appellant deducted the tax @ 30 per cent on the remittances made in accordance with Section 115A of the IT Act to the non-resident. The appellant also issued a TDS certificate for Rs. 1,73,73,842 to Corning equivalent to 30 per cent of tax payment. The assessee's appeal for lower deduction of tax at source was later allowed by the learned CIT(A) and confirmed by the Tribunal in ITA No. 2335/Del/1997, dt. 5th Feb., 2002, for asst. yr. 1995-96 by holding that there is no permanent establishment of Corning in India and there is no question of taxing the income of Corning in India on a higher rate.
2.1 The AO, however, vide order dt. 18th Feb., 1999, declined to refund the difference between 20 per cent deductible and 30 per cent of tax deducted at source to the appellant for two reasons :
(a) Relief/right, if any, arising from the appellate order does not accrue or arise to the deductor M/s Samcor Glass Ltd.
(b) Relief of excess deduction can be claimed by the payee on production of appropriate evidence of not having availed itself of credit for tax deducted at source in the country of his residence i.e., USA under Indo-US Double Tax Avoidance Agreement (DTAA).
2.2 For the following reasons, the learned CIT(A) upheld the order of the AO:
(i) After the issue of TDS certificate, the appellant-company loses its claim over the money represented by the TDS certificate.
(ii) After the tax at source had been deducted and paid and a TDS certificate also issued to the payee in accordance with Section 199 of the IT Act, it is only the payee who can claim the refund and not the payer.
(iii) The validity of appeal provided under Section 248 of the Act remains upto the period the TDS certificate is not issued.
(iv) The AO is legally bound to safeguard, the interest of Revenue in the given situation and on the given facts.
3. The learned counsel for the assesses contends that the tax is imposed as per treaty and is part of Section 90 of the Act. Section 199 of the Act, however, applies to a payee where he is assessable to tax in India. Higher rate of tax was deducted under protest and a certificate of deduction was also given. There is nothing in law to prevent the deductor from issuing such certificate. According to Article 25 of DTAA, taxes paid are to be considered as income-tax. The object of DTAA is to give credit of legitimate tax chargeable and not tax deducted at source. Article 25 is subject to Article 2 of Indo-US Tax Treaty and the payee can take credit only for tax imposed under IT Act, which is 10 per cent only. Board has also issued a Circular bearing No. 769 dt. 6th Aug., 1998. Para 3 thereof states, of making a refund independent of the provisions of the IT Act to the person responsible for deducting the tax at source from the payments to non-residents. Reliance has also been placed on the decision of Hon'ble Delhi High Court in the case of Frank Beaton and Anr. v. CIT (1985) 156 ITR 16 (Del), where it has been held that in case of net of tax payment, there arises excess payment, the same belongs to the payer only. After the hearing was over, the assessee's counsel also filed a written note placing reliance on the decision of Hon'ble Supreme Court in CIT v. Shelly Products and Anr. (2003) 261 ITR 367 (SC) for the proposition that the tax paid by the assessee must be accepted as it is and in the event of tax paid being in excess of the tax liability duly computed on basis of return furnished and the rates applicable, the excess shall be refunded to the assessee, since its retention may offend Article 265 of the Constitution. Accordingly, it was contended that excess tax at source has to be returned to the appellant and authorities below have erred in denying this claim.
4. On the other hand, the learned Departmental Representative contends that Article 25 of the Treaty is also to be r/w Article 12 which speaks of royalties and fees for included services. From the nature of payment it is evident, as is borne out from authorization issued by the AO for making remittances to the non-resident, the payment could be taxed in US. Reference was also made to Article 12(2) of the Treaty which also States that such royalties and fees for included services may also be taxed in the contracting State in which they arise and as such it was contended that the appellant is not immuned from taxation thereof in India.
4.1 The learned Departmental Representative further contends that the assessee had issued TDS certificate, copy placed at p. 23 of its paper book. This certificate is in Form No. 16A and issued under Section 203 of the IT Act, 1961. The assessee has not cancelled the said certificate nor it has been brought on record that the payee has not availed benefit of the amount of such deduction of Rs. 1,73,73,849. The assessee on p. 5 of its paper book has stated that he has no access to such information. If the assessee does not have any access to such information, it amounts to failure to discharge the primary onus that rests upon him as he is the person claiming the refund and alleges that his case is suffering. Revenue cannot be expected to contact the payee for him. The plea of furnishing of indemnity bond also will not suffice as the same would need verification of taking the credit and current financial position as regards his solvency. This is beyond the scope of power of the assessing authorities.
4.2 The decision of Hon'ble Delhi High Court in Frank Beaton's case (supra), cited by the assessee in its favour is dt. 10th May, 1985, whereas the DTAA was signed between India and US on 20th Dec., 1990. The fact and circumstance of the assessee's case are also entirely different. Accordingly, the decision taken by the Hon'ble Delhi High Court does not help the assessee in any manner.
4.3 The learned Departmental Representative has also sent a reply to the written note filed by the assessee. In this reply it has been stated that the assessee's reliance upon the decision of Hon'ble Supreme Court in the case of CIT v. Shelly Products (supra), is misplaced. This case lays down the ratio that the liability to pay income-tax under Section 4 of the Act does not depend upon the assessment being framed. It arises as soon as the Finance Act comes into effect. Hence, if in a case assessment framed is held void, still the assessee is not entitled to refund of advance tax or self-assessment tax paid by it on the returned income, whereas in the case before the Tribunal the assessee has deducted tax at source from certain payments made to foreign parties and issued TDS certificates in their favour to the extent of entire deduction of tax so made. Subsequently thereto, it was held in the appeal that the tax is to be deducted at a lower rate and finality thereof is not known. The AO rightly held that the refund of tax at source could not be given to the assessee in this case as the TDS certificate already issued in favour of non-resident, which had neither been cancelled nor revised at any stage by the appellant.
4.4 The learned Departmental Representative also contends that the TDS certificate once issued is like cash in the hands of the payee. It is not the assessee's case that TDS certificate was not issued at the rate of 30 per cent nor that the payee had not availed benefit thereof or did not use the certificate in India or in his own country i.e., USA. The assessee's plea that the payment had been made net of tax will not alter the situation under the circumstance when the assessee has duly issued TDS certificate to the payee and the payer also does not deny this fact. In this view of the matter it was contended that there is no force in the pleas made by the assessee. In the event, the request of the assessee is accepted, it will deprive the State of its legitimate share of tax collected by it.
5. We have heard the parties with reference to material on record and the precedents relied upon by them. M/s Coming, a non-resident belongs to USA, a country with which India has signed a Double Taxation Avoidance Agreement (DTAA) on 20th Dec., 1990. The nature of payment made to the non-resident is technical fee for supervisory services rendered for making glass, etc. According to Article 12 of the DTAA signed by India with the US, the royalties and fees paid for included services could be taxed in either of the two countries i.e., either in India or US.
5.1 Assessee made a deduction of tax at source of Rs. 1,73,73,849 on the payment made to Corning in terms of Section 195 of the IT Act, 1961. The tax so deducted was also deposited in Government treasury on 7th Sept., 1995. A certificate under Section 203 of the IT Act for deduction of tax at source, in prescribed form was also issued on 8th Sept., 1995, The certificate also evidences that the deduction has been made in accordance with the provisions of Section 195 of the Act and tax paid to the Central Government.
5.2 In his application dt. 1st June, 1994, the appellant has stated that the agreement to render service between the appellant and Corning has been approved by the Central Government and the tax paid on such income is exempt from grossing up of income-tax under Section 10(6A) of the Act as also the appellant made payment net of tax. The Tribunal upheld the order of learned CIT(A) for applicability of lower rate of deduction of tax. The Tribunal, however, did not determine the refund payable. The appellant's claim for refund of excess deduction of tax at source, so made, has been denied by the authorities below.
5.3 Provisions of Section 195 of the Act are for tentative deduction of income-tax which is subject to regular assessment. By making the deduction of income-tax, the rights of parties are not in any manner adversely affected, more particularly when a certificate of deduction of tax at source is also stood issued to the payee. The appellant before us does not say that the certificate so issued is not in force. The appellant has neither revoked nor modified the said certificate. This was also not a conditional certificate. This certificate, therefore, remains in force and has entitled the payee to claim credit of the amount of tax deducted at source on his income accrued in India. Section 199 of the IT Act, 1961, also mandates that the amount of such deduction paid to the Central Government shall be treated as a payment of tax on behalf of the payee on whose income such deduction was made.
5.4 We are unable to agree that Section 199 has no application for giving credit to M/s Corning on the plea that it is not assessed to tax in India. In fact by operation of Article 12(2) of the treaty, the income of payee may also be taxed in India which is a contracting State in which the income for included services has accrued to it. It will, therefore, be wrong to say that such income is not assessable under the Act and payee is precluded from claiming credit on the basis of a certificate issued under Section 203 of the Act. Even under Article 25 of the treaty, the State of United States is obliged to allow credit of such amount against the U.S. tax.
5.5 The appellant also asks for refund of excess deduction on the strength, of Circular No. 769 issued by CBDT on 6th Aug., 1998. In para 1(i) of the said circular three circumstances are stated on the basis of which the Board vide para 3 of the circular took a decision that a refund may be made independent of the provisions of the IT Act to the person responsible for deducting the tax at source from payments to non-residents. These circumstances are :
(a) The contract is cancelled and no remittance is required to be made to the foreign collaborator;
(b) The remittance is duly made to the foreign collaborator, but the contract is cancelled and the foreign collaborator returns the remitted amount to the person responsible for deducting tax at source;
(c) The tax deducted at source to be in excess of tax deductible for any other reason.
5.6 The Board however is found to have clarified vide Circular No. 790, dt. 20th April, 2000, that refund shall not be issued to the deductor of tax in cases referred to in Clause (i)(c) of para 1 of Circular 769, dt. 6th Aug., 1998, The case of appellant falls in that clause and hence no benefit of refund of tax could have been given to the deductor who is appellant before us, on the basis of Circular No. 769 being relied upon by him. Since the AO was bound to follow the Board circular, he cannot be held to have committed any wrong by denying the refund to the appellant.
5.7 The judgment in Shelly Products (supra) has been rendered by the apex Court in the context of refund of tax paid by an assessee by way of advance tax and self-assessment tax in the event of his assessment being nullified in appropriate proceedings and the assessing authority does not make a fresh assessment. It was held that it has to be deemed as acceptance of the return of income furnished by the assessee and only the excess of admitted tax is liable to be refunded. This case does not have any application to the employer. The payee is also not shown to have filed the return of his income. It is rather claimed that he is outside the reach of the appellant. The facts being different, the Revenue cannot be expected to cover the lapses of the appellant and enrich him by unjust means.
5.8 In Frank Beaton and Anr. v. CIT (supra) both the employer company i.e., payer and the employee i.e., payee were non-residents. The payee was in India for some period and taxes on his salary was a responsibility of the company-payer. The AO of payee demanded higher tax on account of upward valuation of perquisites. This tax was paid by the employer when the employee was not allowed to leave the country. In writ jurisdiction this issue came before the Hon'ble Court for determining the scope of company's liability in peculiar circumstances of the case. On interpretation of the Agreement, it was found that there was no liability of the employer to pay tax on tax and as such any additional amount of tax paid by the company was held refundable to it. Any additional tax resulting from that payment, has to be paid by the employee as also assured by the counsel appearing on his behalf.
5.9 The aforesaid judgment of Frank Beaton was rendered under peculiar facts and circumstances of that case. The Hon'ble Court did not lay a straight jacket formula to make refund to the employer in each and every case of payment. In that case, employer had not issued a TDS certificate of tax collected from him. Returns of income were also filed in India by the employee and an assurance was given before the Court that the employee i.e., payee will make the payment of additional tax. All such elements are absent in the appeal before us. 5.10 The appellant-company seeks refund of that amount of TDS for which the payee is not precluded for taking credit in his assessment. In case refund is allowed to be given to the company its consequences will be adverse and prejudicial to the interest of Revenue, besides, depriving the Revenue of its legitimate share of taxes. In the overall analysis of facts and circumstances of the case and on findings arrived at we are convinced that the appellant is not the rightful person to claim refund in the amount of TDS for which a valid, certificate stands issued to the payee. The order of learned CIT(A), therefore, needs no interference. Ground raised by the assessee stands rejected.
6. There is no address on ground Nos. 2 and 3. The same are, therefore, rejected.
7. In the result, assessee's appeal stands dismissed.