2023 (7) TMI 500 - AT - Income Tax

Maintainability of appeal before CIT(A) - Refund of excess TDS deducted - withholding of taxes - assessee has deducted tax at source at higher rate of 20% in the absence of PAN of the deductee - Payment made to US based entity which admittedly was in the nature of technical services, was to deducted tax @10% u/s 115A (plus applicable surcharge education cess) - Applicable TDS rate 195 read with section 115A and Section 206AA HELD THAT - As in a conjoint reading of Section 195 and Section 248, it could be clearly inferred that the term no tax was required to be deducted will mean and include the tax deducted at source in excess of the tax deductible u/s. 195 at the rates in force. The term no tax was required to be deducted in excess of the rate as per DTAA being beneficial to the deductee assessee, then it has to be reckoned that the rates provided in the DTAA are beneficial, then benefit has to be given; and in such a situation the tax can only be deducted at the rate which is beneficial to the deducted and hence, it tantamount to denial of liability of tax or no tax which is in excess. The interpretation of Section 248 as given by the ld. CIT (A) and also as confessed before us by the ld. DR, if it is to be interpreted in such a manner, then it would lead to various anomalous situation. We hold that the deductor can challenge excess deduction u/s. 248 seeking that the rate of tax should be as per DTAA and not as per Section 206AA, if it is found that otherwise income is chargeable to tax in India and then certainly an appeal would be maintainable u/s. 248 seeking relief/refund for excess tax deducted. Thus, in our view, the word no tax was required to be deducted in Section 248 should be interpreted in such a manner so as to include claim of the deductor that no tax was required to be deducted in excess of deductible at rates in force. Section 197 provides that, assessee, here meant recipient deductee of the sum can approach the ld. AO to issue certificate for deduction of taxes at lower rate or for no deduction of tax. This Section 197 provides that the deductee or the recipient can approach to the ld. AO which here in this case deductee has not applied u/s. 197 and deductor has filed remedy of the appeal u/s. 248. Accordingly, we accept the contention of the ld. Counsel that appeal is maintainable and ld. AO is directed to apply rates in force which is the applicable rate of tax at 10% in accordance with law. Accordingly, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 248 of the Income-tax Act, 1961.
2. Permissibility of relief under Section 248 of the Act.
3. Applicability of withholding tax rates under the India-USA and India-France Double Taxation Avoidance Agreements (DTAA).

Summary:

Issue 1: Jurisdiction under Section 248 of the Income-tax Act, 1961
The learned Commissioner of Income-tax (Appeals) [CIT(A)] dismissed the assessee's appeal on the grounds that Section 248 does not confer jurisdiction to decide claims for reduced rates of tax deduction. The CIT(A) held that Section 248 only applies when a person claims that no tax was required to be deducted on such income.

Issue 2: Permissibility of relief under Section 248 of the Act
The assessee argued that the term "no tax was required to be deducted" should include cases where excess tax was deducted. The Tribunal agreed, stating that the term should be interpreted to include claims of excess tax deduction compared to the "rates in force" as per Section 195 and the relevant DTAA. The Tribunal emphasized that the provision should not render the deductor remediless if they admit liability to deduct tax but dispute the rate.

Issue 3: Applicability of withholding tax rates under the India-USA and India-France DTAA
The assessee contended that the payment to Flight Safety International Inc., USA, and Flight Safety International SARL, France, should be subject to withholding tax at the rate of 10% as per the respective DTAA, rather than the higher rate applied due to the absence of PAN. The Tribunal held that the applicable rate should indeed be 10% under the DTAA, and the excess tax deducted should be refunded.

Conclusion:
The Tribunal allowed the appeals, directing the Assessing Officer to apply the DTAA rates of 10% for tax deduction and refund the excess tax deducted. The Tribunal clarified that Section 248 should be interpreted to allow appeals for excess tax deduction and emphasized the applicability of DTAA rates over higher rates due to the absence of PAN.