Readers View

It is always a pleasure reading BCAJ which is full of new views and findings.

In the April issue I read the decision in the case of Frontier Offshore on page 35 of the Journal. The conclusion drawn is that withholding tax as per section 44BB does not lead to any violation of section 40(a)(i) of the Income-tax Act. Reading of the judgment leads to opposite view, what I feel.

It is requested to please look into it and give feedback as to the correct finding. Please take this in a positive manner with no intention to counter the view of the Journal.

Authors’ response
The decision of Frontier Offshore which is digested in April 2011 issue (ITA Appeal No. 200/ Mds/2009) at page 35 has concluded that provisions of section 40(a)(i) are not applicable when the payer has deducted tax at source after taking into account presumptive computation provisions of section 44BB.

It is true that at para 7, the ITAT has rejected the contention of the taxpayer that section 40(a)(i) is not applicable to the cases of short deduction and are restricted only to the cases of absolute failure. Please note that this was only the alternative argument of the taxpayer. The ITAT has accepted the primary argument of the taxpayer to the effect that section 40(a)(i) is not applicable to the cases where TDS has been deducted after taking into account presumptive tax provision.

Also, as is clarified in the gist appearing in April 2011 issue, the earlier decision of the Madras Tribunal in the case of the same taxpayer was decided against and after elaborate discussion, the ITAT has explained as to why after the SC decision in GE India’s case, the earlier decision was no longer a good law. The ITAT has gone to the extent of observing that perpetuating error is not a heroic deed, but to correct the mistake at the right opportunity is wisdom.

Trust we have been able to satisfactorily explain the concern of the reader.

Sir,

This is with the reference to media reports to the effect that the Income-tax Department has granted tax refunds of Rs.78,000 crores to about 85 lakh assessees during the year 2010-11 and that during the first half of April, 2011, the IT Department refunded Rs.6,183 crores to 8,23,101 assessees and all the remaining refunds shall be settled during the remainder part of April, 2011. The CBDT Chairman has stated that the IT Refunds in 2010- 11 are about 70% higher than Rs.50,000 crores made in the previous year and that despite making such huge refunds, the direct tax collection will be in the range of Rs.4.5 lakh crores. The Tax Department needs to be sincerely complimented for expeditiously making such huge refunds which constitute about 20% of net collection and making life easier for the taxpayers.

To reduce such huge workload, the Tax Department needs to analyse what is causing such huge tax refunds; causing huge blockage of capital. Is it on account of excess advance tax paid or excess tax deducted at source? Or is it due to refund of tax pursuant to Appellate proceedings?

My own guess is that vast majority of such huge refunds is due to excess TDS deducted due to very low threshold limits prescribed under various TDS provisions. Now due to operation of section 206AA, most taxpayers/income-earners have obtained PAN. Therefore, there is an urgent need to revisit various TDS threshold limits and increase them substantially so that claims of refunds can go down significantly. The Department also needs to study and adopt Withholding Tax (TDS) practices followed in advanced western countries. Further, the Department need to liberalise self-declaration provisions as it is very difficult, time-consuming, inefficient and costly affair to obtain a Nil or Low TDS Certificate from the Tax Department u/s.197 of the Act.