2017 (10) TMI 623 - AT - Income Tax

Rectification of mistake - whether the tax deduction of tax at source at wrong rates would constitute mistake apparent from record or not? - refund claim - applicability of DTAA application - Held that - In the instant case, the deductor is the assessing officer himself and he is the authority to grant refund to the assessee also. Hence, the assessee can go to no other person than the assessing officer seeking rectification of the order as well as the refund. Since the assessee has taken the view that the AO has deducted tax at a wrong rate, it has filed a petition before him to correct the same. If one agree for a moment that the deductor alone can claim refund of TDS amount, in the instant case, the assessing officer alone can claim refund since the AO was the deductor of tax at source. Assuming for a moment that the AO grants refund to himself, in this peculiar situation, what the AO would do with the money so refunded by him to him. He has to ultimately return the same to the assessee only. Accordingly, under this peculiar facts, we are of the view that the Ld CIT(A) was justified in holding that the deduction of tax at source at wrong rate would constitute mistake apparent from record. We also notice that the AO has not given any reason or authority to show that the rate of tax of 42.024% was correct in accordance with the law. Whereas, the assessee is taking support of the provisions of DTAA to contend that the rate of tax applicable is only 10%. Hence application of wrong law would also result in mistake apparent from record. In our view, the foregoing discussion would also show that this issue does not give rise to any debatable issue at all. Accordingly we are of the view that the Ld CIT(A) was justified in directing the AO to entertain the rectification application. Since the assessing officer himself was the deductor of TDS and since we have held that he can rectify the order, the question of filing of return of income by the assessee for claiming the refund, in our view, does not arise at this stage and the same cannot be a ground for entertaining the rectification application. Assessee has claimed that the tax is required to be deducted at source @ 10% as per the provisions of DTAA. CIT(A) has, while holding that the mistake pointed out by the assessee would constitute a mistake apparent from record, has also referred to the rate of 10%. We notice that the Ld CIT(A) has directed the AO to rectify the mistake. However, we notice that the assessing officer has rejected the rectification application at threshold and did not examine the claim of the assessee about the rate at which the Tax is required to be deducted. The claim of the assessee made in the rectification application needs to be examined in accordance with the law. The assessee has also not clarified as to whether it has claimed refund of excess deduction of tax, if any, by filing return of income for the year under consideration. Accordingly we modify the order of Ld CIT(A) and direct the assessing officer to dispose of the rectification petition in accordance with the law by duly considering the plea of the assessee as per the provisions of the Act and the provisions of DTAA and also after affording adequate opportunity of being heard to the assessee. Appeal of the revenue is treated as partly allowed for statistical purposes.

Summary

Issues:
1. Whether the tax deduction at wrong rates constitutes a mistake apparent from record?
2. Can the deductee claim a refund of TDS directly without filing a return of income?
3. Was the Ld. CIT(A) justified in adjudicating the appeal on a debatable issue?

Issue 1: Tax Deduction at Wrong Rates

The case involved an appeal by the Revenue against the order passed by the CIT(A) related to the assessment year 2012-13. The Revenue contended that the CIT(A) erred in allowing the appeal under section 154 regarding the tax treatment for interest received by the assessee. The Revenue argued that the interest received by the assessee did not fall under the beneficial tax treatment as per the Double Tax Avoidance Agreement (DTAA) between India and the Netherlands. The CIT(A) held that the deduction of tax at the wrong rate would constitute a mistake apparent from the record and directed the Assessing Officer to rectify the mistake and issue the correct refund amount along with statutory interest. The Tribunal agreed with the CIT(A) that the tax deduction at the wrong rate was a mistake apparent from the record, especially since the AO did not provide any authority to support the 42.024% tax rate. The Tribunal also noted that since the AO was the deductor of TDS, the assessee could approach the AO for rectification and refund, eliminating the need for the assessee to file a return of income to claim the refund.

Issue 2: Claiming Refund of TDS by Deductee

The Revenue argued that the deductee could not claim a refund of TDS directly and that the deductor should claim the refund. However, the Tribunal noted that in this case, the Assessing Officer was the deductor of TDS, making it appropriate for the assessee to approach the AO for rectification and refund. The Tribunal emphasized that since the AO could rectify the order, the requirement for the assessee to file a return of income to claim the refund did not apply in this situation. The Tribunal held that the CIT(A) was justified in directing the AO to entertain the rectification application and consider the claim of the assessee regarding the rate at which tax should be deducted at source as per the DTAA.

Issue 3: Adjudication of Debatable Issue

The Revenue contended that the CIT(A) erred in adjudicating the appeal on a highly debatable issue that was not a mistake apparent from the record. However, the Tribunal found that the issue of tax deduction at the wrong rate was not debatable, especially considering the provisions of the DTAA. The Tribunal modified the order of the CIT(A) and directed the Assessing Officer to examine the claim of the assessee regarding the rate of tax deduction in accordance with the law and the DTAA, affording the assessee an adequate opportunity to be heard. The Tribunal partly allowed the appeal of the Revenue for statistical purposes.

In conclusion, the Tribunal upheld the decision of the CIT(A) regarding the tax deduction at the wrong rate being a mistake apparent from the record and the ability of the deductee to claim a refund directly from the Assessing Officer without filing a return of income. The Tribunal also emphasized the need for the Assessing Officer to consider the claim of the assessee regarding the rate of tax deduction as per the provisions of the DTAA and the law.