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2010 (12) TMI 345 - AT - Income TaxTax credit / Refund - The assessee a company with fiscal domicile in the United States of America, is engaged, inter alia, in the business of supply of copy righted software in connection with telecommunications project - During the relevant previous year, the assessee received gross amount of Rs. 162,77,19,401, towards supply of software, from Reliance Infocomm Limited out of which TDS has been deducted under Section 195 of the Income Tax Act, computed @ 15% under Article 12 of India US Double Taxation Avoidance Agreement, amounting to Rs. 24,41,58,046 On the basis of TDS certificate produced by assessee, in accordance with the law and as long as taxes so deducted have been paid over to the Government and certificates in respect of the same have been issued by the tax deductor Appeal is allowed by directing the AO to grant credit for tax deducted at source
Issues:
Challenge to correctness of CIT(A)'s order regarding tax credit for TDS deducted by payer, refund of the amount, and restrictions on TDS credit. Analysis: 1. The appeal concerns the correctness of the CIT(A)'s order for the assessment year 2006-07. The appellant challenged the denial of full tax credit for TDS deducted by Reliance Infocomm Limited and sought a refund. The appellant also contested the restriction on TDS credit by the CIT(A) based on certain circumstances. 2. The appellant, a US-based company engaged in software supply, received payments from Reliance Infocomm Limited. TDS amounting to Rs. 24,41,58,046 was deducted by Reliance. Despite issuing TDS certificates, Reliance claimed no taxes were deductible for copyrighted software payments. The Assessing Officer declined TDS credit to the appellant due to the refund granted to Reliance. The CIT(A) upheld this decision. 3. The Assessing Officer justified the denial of TDS credit, citing the refunded taxes to Reliance. The appellant's argument that the recipient should not be penalized for an invalid TDS certificate was rejected. The CIT(A) directed verification of TDS refunds redeposited by Reliance for granting credit. The appellant contested this decision. 4. The Tribunal analyzed the legal implications of a valid tax deduction certificate when the tax deductor receives a refund. It highlighted the legislative changes post-2007 and emphasized the rights of the person from whose income tax is deducted. Refunds to the tax deductor, not prescribed under the Act, should not impact the rights of the taxpayer holding valid TDS certificates. 5. The Tribunal noted that compliance with TDS provisions was met, and the refund to Reliance did not negate the appellant's right to TDS credit. Refunds to the tax deductor should not affect the taxpayer's entitlement to credit as per Section 199 of the Income Tax Act, 1961. 6. Referring to relevant circulars, the Tribunal emphasized that administrative actions like refunds should not curtail the statutory rights of the taxpayer. The Tribunal directed the Assessing Officer to grant due credit based on valid TDS certificates produced by the appellant, irrespective of refunds to the tax deductor. 7. The Tribunal allowed the appeal, instructing the Assessing Officer to grant TDS credit to the appellant as per law, disregarding any refunds to the tax deductor. The decision safeguarded the taxpayer's rights under the Income Tax Act, emphasizing compliance with TDS provisions and issuance of valid certificates. This comprehensive analysis covers the issues raised in the judgment, providing a detailed breakdown of the legal implications and the Tribunal's decision regarding TDS credit and refunds in the given case.
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