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Part C : Tribunal & AAR International Tax Decisions
15 Lucent Technologies GRL LLC v. DCIT
ITA No. 6353/Mum./2009
Article 12 of India-US DTAA, S. 195, S. 200 of Income-tax Act
(ITA)
A.Y. : 2006-07. Dated : 31-12-2010
- Credit for taxes
withheld cannot be denied to the taxpayer on the basis of subsequent grant of
refund to tax deductor (against indemnity bond), when all obligations under
provisions of ITA relating to tax deduction and issue of TDS certificate, etc.
have been duly complied with.
- Lawful
implications of validly issued TDS certificates cannot be declined on the
ground that payer has been refunded taxes that were deposited with Government.
Facts :
The taxpayer, resident of USA, was in the business of supply
of copyrighted software for a telecommunication project. The taxpayer received
consideration from R Info (payer) for supply of software. The consideration
received was after deduction of tax. To illustrate, from supply consideration of
Rs.100, taxpayer received Rs.85 after deduction of tax @15%. The tax deduction
was pursuant to the AO’s order which directed that the remittance should be made
after deduction of tax.
The payer deposited TDS with the Government and also issued
TDS certificate to the taxpayer.
However, being aggrieved with AO order directing TDS, the
payer filed an appeal before the CIT(A). The payer was refunded the amount that
it had deducted and deposited while making remittance to the taxpayer. The CIT(A)
decided the issue in favour of the payer. It appears, refund to the payer was
granted against indemnity bond to the effect that taxes refunded would be
re-deposited with the Government.
The taxpayer claimed credit for the taxes withheld on the
basis of TDS certificates issued by the payer. On inquiry from the AO of the
taxpayer, the payer stated that it has executed an indemnity bond to the effect
that the taxes refunded to it will be re-deposited with the Government.
The AO of the taxpayer, however, held that since tax has been
refunded to the payer, the TDS certificates were not valid and hence no credit
for TDS could be granted to the taxpayer.
The AO also observed that since no confirmation of TDS being
re-deposited was made, credit of taxes would not be available to the taxpayer.
The CIT(A) also confirmed the stand taken by the AO, but directed him to verify
whether the TDS refunded to payer has been re-deposited by it with the
Government.
Aggrieved by the CIT(A) order, the taxpayer went in appeal
before the ITAT.
Held :
The ITAT rejected contention of the tax authority and held
that :
- Since the taxes have been deducted from the payment made to the taxpayer
and the taxpayer is also in receipt of the appropriate TDS certificates,
credit for TDS cannot be declined on the basis of an administrative action
of refund, which is neither envisaged by the provisions of the Act, nor in
the control of the taxpayer.
Refund of taxes to the payer is a matter that has to be dealt with by Tax
Authorities who must have protected their interests effectively while
granting refund; and by now the payer may even have re-deposited the monies.
But the taxpayer (recipient of income from which tax is deducted and to whom
valid TDS certificate is issued) is generally not expected to get into these
aspects of the matter.
- All the requirements for grant of TDS credit such as deduction of tax
u/s.195, fulfilment of obligations by tax deductor u/s.200 and issue of TDS
certificate were duly complied with. Fairness of these procedures had also
not been questioned by the Tax Authority.
- Refund of tax to a tax deductor is not prescribed under the scheme of the
ITA and is an administrative exercise. Such exercise cannot take away,
curtail or otherwise dilute the rights of the person from whose income taxes
are so deducted and to whom such certificate is issued.
- The Tax Authority is bound to grant credit of taxes to the taxpayer on the
basis of original TDS certificates produced by the taxpayer and in
accordance with the provisions of the ITA.
- This ruling shall, in no way dilute the remedies that the Tax Authority
may pursue qua the tax deductor, for recovery of taxes that were
inappropriately refunded to them.
