2011 (1) TMI 64 - AT - Income Tax

Refund TDS - order of CIT(A) wherein it was held that assessee was not to deduct tax at source on the amounts remitted to the recipient outside India refund of money paid by the assessee becomes due to it on the passing of the appellate order in appeal as per the provisions of section 240 of the IT Act - once the refund becomes due as per the provisions of this Act, the interest is payable as per the provisions of section 244A and accordingly, the assessee, entitled for the interest - error or illegality in the order of the learned CIT(A) - appeal of the revenue dismissed

Summary

Issues Involved:

1. Entitlement of the assessee to interest under section 244A of the Income Tax Act.
2. Applicability of section 195 and the deemed default under sections 201(1) and 201(1A).
3. Refund computation and the issuance of withholding tax certificates.
4. Interpretation of section 244A, specifically clause (b) and its explanation.
5. Applicability of circulars issued by the CBDT regarding tax refunds.

Issue-wise Detailed Analysis:

1. Entitlement of the Assessee to Interest under Section 244A:

The primary issue in this appeal is whether the assessee is entitled to interest under section 244A of the Income Tax Act for excess payment of tax. The CIT(A) held that the assessee is entitled to such interest, referencing the Supreme Court's decision in ITO v. Delhi Development Authority and the ITAT's decision in TATA Chemicals Ltd. v. DCIT. The revenue contended that the assessee, being a payer of tax on behalf of non-residents, is not entitled to interest under section 244A. However, the tribunal upheld the CIT(A)'s decision, confirming that the assessee is entitled to interest under section 244A.

2. Applicability of Section 195 and Deemed Default under Sections 201(1) and 201(1A):

The AO had held that the payments made by the assessee to non-residents were in the nature of "Royalty" and thus taxable in India under Explanation 2 to section 9(1)(vi). Consequently, the assessee was deemed to be in default under section 201(1) for not deducting tax at source as required under section 195. The CIT(A) found that section 195 was not applicable to the assessee, as the payments were for acquiring rights for live telecasting of sports events outside India, and thus, the assessee was not in default under section 201(1).

3. Refund Computation and Issuance of Withholding Tax Certificates:

The AO issued a demand notice for Rs. 39,230,279, which included tax and interest for non-deduction of tax at source. The assessee paid the entire demand and subsequently filed an appeal. The CIT(A) directed the AO to verify the tax residency certificates (TRCs) of non-resident content providers and allow the benefit of the Double Tax Avoidance Agreement (DTAA). The AO's order, giving effect to the CIT(A)'s decision, determined a refund of Rs. 33,584,669 but did not grant interest under section 244A.

4. Interpretation of Section 244A, Clause (b) and Its Explanation:

The revenue argued that interest under section 244A is not applicable as the assessee paid taxes as per the demand under section 156, not in excess of it. The tribunal, however, clarified that clause (b) of section 244A deals with cases where tax is paid as per the revenue authority's order and demand raised accordingly. The tribunal emphasized that the term "excess of such demand" includes the demand as reduced or increased by subsequent orders, thus entitling the assessee to interest on the refunded amount.

5. Applicability of Circulars Issued by the CBDT Regarding Tax Refunds:

The revenue referred to CBDT circulars stating that no interest is payable on refunds in cases where tax deducted at source under section 195 is found to be in excess. The tribunal distinguished these circulars, noting that they apply to voluntary payments without any demand by the AO. In the present case, the tax was paid pursuant to an order under section 195(2), and the refund became due following the CIT(A)'s appellate order. Thus, the tribunal held that the provisions of section 244A prevail over the CBDT circulars.

Conclusion:

The tribunal confirmed that the assessee is entitled to interest under section 244A on the refund of excess tax paid, as the refund resulted from an appellate order. The appeal by the revenue was dismissed, upholding the CIT(A)'s order.