No TDS Under Section 195 on Interest to Foreign Head Office; Rectification Under Section 154 and 244A Denied

ITAT Mumbai allowed the assessee's appeal and held that no tax was required to be deducted at source under section 195 on interest payments made by the Indian branch of a foreign bank to its overseas head office, as such payments are effectively made by a non-resident to itself. Consequently, the disallowance made through rectification under section 154 was unsustainable, and the CIT(A) erred in upholding it. ITAT further held that denial of interest under section 244A for a specified period could not be treated as a mistake apparent from the record, since only the Commissioner/Chief Commissioner can determine the excludable period.

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Issues:
Challenge to correctness of order under section 154 r.w.s. 143(3) for assessment year 2009-10.

Analysis:
The appellant challenged the order dated March 29, 2010, passed by the CIT(A) regarding the order under section 154 r.w.s. 143(3) for the assessment year 2009-10. The appellant contended that the CIT(A) should have canceled the order under section 154 dated June 27, 2008, passed by the Assessing Officer. The main issues revolved around rectification of mistakes under section 154, specifically related to two points highlighted by the revenue audit party. The first point concerned the deduction of tax at source on interest payment to the head office, while the second point dealt with the delayed claim of exemption under section 10(23G) affecting the interest under section 244A. The Assessing Officer disallowed the interest payment and reduced the interest claim under section 244A, leading to the appellant's appeal before the CIT(A). The CIT(A) upheld the Assessing Officer's decision, prompting the appellant to appeal to the ITAT Mumbai.

The ITAT Mumbai analyzed the case meticulously. Regarding the first point, the ITAT referred to a Special Bench decision and a High Court ruling, concluding that the disallowance was unsustainable in law. The ITAT found that the disallowance, even on merits, was not justified. Concerning the second point, the ITAT delved into the interpretation of section 244A and the attribution of delay in issuing refunds. The ITAT scrutinized the Assessing Officer's rationale and highlighted that the delay in proceedings leading to the refund, not just the delayed claim, should be considered. The ITAT emphasized that the delay in making the claim did not necessarily attribute the delay to the assessee, especially considering factors beyond their control. The ITAT determined that not declining the interest under section 244A for the period in question was not a mistake apparent on record within the limited scope of Section 154. Therefore, the Assessing Officer erred in passing the order under section 154.

Consequently, the ITAT reversed the action of the Commissioner (Appeals) and quashed the impugned order under section 154. As a result, all other issues raised by the assessee were deemed academic and did not require adjudication. The appeal was allowed in favor of the appellant.

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