2024 (3) TMI 633 - AT - Income Tax

TDS u/s 195 - assessee made payments to concerns (USA) without deducting TDS u/s 195 r.w.s. 9(1)(vi) and (vii) - Assessee in default u/s 201(1) - as per AO assessee having not made any deduction of tax at source without making any application u/s 192(2) before the AO (TDS) and without ensuring that an application under section 195(3) of the Act was filed by the recipient to obtain necessary exemption was liable to be treated as an assessee in default - assessee pleaded that a certificate u/s 195(3) was issued subsequently - HELD THAT - We are of the considered opinion that it is only if the contents of the certificate issued in section 195(3) are verified and found to be correct and genuine then the consequences would be that the remittances that have been made to M/s. IGTL Solutions (USA) would be non-taxable so far as the TDS is concerned since if the contents of such certificate are accepted then the action on the part of the Revenue in carrying out a deduction at source on the remittances made to M/s. IGTL Solutions (USA) would be bad. Thus AO is directed to cause verification of the certificate dated 10/02/2003 issued u/s 195(3)and if it is found to be genuine the consequence shall be that the entire remittances that were made to M/s. IGTL Solutions (USA) would be non-taxable so far as TDS is concerned and the impugned order u/s 201(1A) of the Act will have no legs to stand. Appeal of the assessee is treated allowed for statistical purposes.

Summary

Issues involved:
The issues involved in the judgment are related to non-deduction of tax at source under section 195 of the Income Tax Act, 1961, and the subsequent grant of exemption under section 195(3) in the case of a specific entity, leading to a dispute regarding the liability of the assessee and the validity of the order passed by the Assessing Officer.

Summary of the Judgment:

Issue 1: Non-deduction of tax at source under section 195
The assessee, engaged in software development and call center business, made payments to certain entities without deducting tax at source under section 195 of the Act. The Assessing Officer held the assessee as an assessee in default for not deducting tax and charged interest under section 201(1A) of the Act.

Issue 2: Grant of exemption under section 195(3)
The assessee contended that a certificate under section 195(3) of the Act was issued subsequently, granting exemption to one of the entities to which payments were made. The CIT(A) and the Tribunal upheld the Assessing Officer's decision. However, the High Court observed the certificate and remitted the matter back to the Tribunal for further consideration.

Judgment Details:
The High Court verified a certificate issued under section 195(3) granting exemption to the entity. The High Court directed the Tribunal to consider the exemption granted under section 195(3) concerning the remittances made to the entity in question.

The High Court's observation led the Tribunal to reconsider the matter. The Tribunal noted that if the contents of the certificate under section 195(3) were verified and found genuine, the remittances made to the entity would be non-taxable regarding TDS.

The Tribunal directed the Assessing Officer to verify the genuineness of the certificate under section 195(3). If found to be genuine, the remittances to the entity would be non-taxable for TDS purposes, rendering the previous order under section 201(1A) of the Act invalid.

In conclusion, the appeal of the assessee was allowed for statistical purposes, based on the verification and potential impact of the exemption certificate under section 195(3) on the tax liability concerning the remittances made to the specific entity.

This summary provides a detailed overview of the judgment, highlighting the issues involved and the key decisions made by the Tribunal in response to the contentions raised by the assessee regarding the exemption certificate under section 195(3) of the Income Tax Act, 1961.