Tribunal directs verification of TDS credit claims, prevents double taxation for the assessee

The Tribunal allowed the appeals for statistical purposes, directing the Assessing Officer to verify the claims of TDS credit by the assessee and ensuring that the assessee is not required to pay tax again if already deducted at source. The Tribunal emphasized providing the assessee with an opportunity to present its case and instructed verification of tax deduction by the payer of income. The order was pronounced on 04/08/2022.

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Issues Involved:
1. Credit for Tax Deducted at Source (TDS) on gross interest payments.
2. Demand for taxes already deducted at source.
3. Verification of tax deduction by the payer of income.

Detailed Analysis:

1. Credit for Tax Deducted at Source (TDS) on Gross Interest Payments:
The Tribunal was tasked with adjudicating the grounds related to the allowance of TDS credit by borrowers on gross interest payments to M/s DZ Bank. The appeals were recalled for this limited purpose. The main contention was whether the assessee should be allowed TDS credit, including for amounts where TDS certificates were not furnished but payments were received net of taxes.

The assessee argued that Indian borrowers paid interest after deducting tax at source per Article 11 of the Double Taxation Avoidance Agreement (DTAA) between India and Germany. The income assessed in the assessee's hands represented the grossed-up amount since the tax was borne by the Indian borrowers. The assessee claimed that under section 205 of the Income Tax Act, it should not be required to pay the tax if the payer of income had deducted the tax at source.

2. Demand for Taxes Already Deducted at Source:
The Tribunal noted that the Assessing Officer had treated the representative office of DZ Bank as a permanent establishment (PE) and taxed the interest income and other fees at 40% as per the Act. However, the Tribunal held that the income, which had already been taxed under Article 11 of the Indo-German tax treaty, could not be taxed again under a different provision of the same treaty. Therefore, the demand raised for taxing the interest income of the head office in the hands of the assessee was deemed unsustainable in law.

The Tribunal emphasized that the assessee should not be called upon to pay the tax again if it had already been deducted at source, aligning with the ruling in the case of Yashpal Sahni by the Hon'ble Bombay High Court, which stated that the revenue could not recover the TDS amount from the assessee if it was already deducted by the employer, even if not deposited with the government.

3. Verification of Tax Deduction by the Payer of Income:
The Tribunal directed the Assessing Officer to verify whether the assessee had shown the interest income corresponding to the TDS in its profit and loss account and whether the tax had been deducted at source by the payer of income. The Tribunal instructed that the Assessing Officer should not insist on the demand in respect of the TDS payment to the government account, as clarified by the CBDT.

The Tribunal restored the issue to the Assessing Officer for verification, allowing the assessee to substantiate its claim of TDS with necessary documentary evidence. The Assessing Officer was also given the liberty to verify or make inquiries from the borrowers regarding the amount deducted in respect of the interest paid or credited to the assessee.

Conclusion:
The appeals were allowed for statistical purposes, with the Tribunal directing the Assessing Officer to verify the claims of TDS credit by the assessee and to ensure that the assessee is not called upon to pay the tax again if it was already deducted at source. The Tribunal emphasized the need for adequate opportunity for the assessee to present its case. The order was pronounced on 04/08/2022.

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