2023 (1) TMI 1198 - AT - Income Tax

Tribunal Directs AO in Assessee's Favor: Refund, Interest, and TDS Clarifications

M/s. Koninklijke Philips N.V C/o Deloitte Touché Tohmatsu India Pvt. Ltd., Versus Deputy Commissioner of Income Tax (IT), Circle-1 (2), Kolkata.

The Tribunal partly allowed the assessee's appeals, directing the AO to verify and recompute various issues. The CIT(A) was found to lack the power to ... Claim of interest u/s. 244A(1A) - Interest on refunds - days of delay for granting of additional interest as claimed by the assessee u/s. 244A(1A) - approval from the Pr. Commissioner or Commissioner for additional period of six months to give effect to the order - HELD THAT:- We find it proper to remit the matter on this issue to the file of Ld. AO for the limited purpose of verification of records to take note of the date on which the office of the Pr. Commissioner/Commissioner received the order of the Tribunal and if any approvals as required under the proviso to section 153(5) of the Act were obtained by the Ld. AO for the additional period of six months for giving effect to the order. AO is directed to grant additional interest as envisaged u/s. 244A(1A) of the Act by ascertaining the delay beyond three months from the end of the month in which the order of ITAT was received in the office of Pr. Commissioner/Commissioner. Further, in case, an extension was obtained by the Ld. AO for giving effect to the order of ITAT, then the delay, if any, in granting the refund will be calculated from the end of the month in which the cumulative time available to the Ld. AO for giving appeal effect expired i.e. the initial time of three months as well as the additional extended time granted by the Pr. Commissioner/Commissioner, to the date on which the actual refund was granted to the assessee. We also direct the assessee to provide all of its cooperation to the Ld. AO as and when called for in this respect. This ground of appeal for all the five years before us is allowed for statistical purposes. TDS done by the Ld. AO on the interest granted u/s. 244A(1) - taxability of interest in terms of Article 12(3)(a) of the India- Italy DTAA - Hon’ble High Court of Madras in the case of Ansaldo Energio SPA [2016 (5) TMI 945 - MADRAS HIGH COURT] has held that the interest on income tax refund is a ‘debt claim’ payable by the Revenue in terms of Article 12(3)(a) of the India-Italy Treaty and thus such interest is not taxable and no TDS ought to be done by the AO. We note that Ld. CIT(A) has wrongly interpreted this finding of the Hon’ble Madras High Court as application of ‘deeming provisions’ and, therefore, we set aside the finding of the Ld. CIT(A) on this aspect. Accordingly, we direct the Ld. AO to refund the TDS done on the interest paid to the assessee on the Income Tax refund under section 244A(1) of the Act. Thus we hold that in the present case of the assessee, the beneficial provision restricting the scope of taxability of interest in terms of Article 12(3)(a) of the India- Italy DTAA namely, non-taxability of interest on income tax refund by virtue of it being a ‘debt claim’ from the Government of India as held by the Hon’ble Madras High Court (supra) would be applicable in view of the Protocol to the India-Netherlands DTAA and, therefore, the interest in question received by the assessee u/s. 244A(1) from the Government of India will not be taxable. Consequently, no tax was required to be deducted thereon by the Ld. AO while remitting the said interest to the assessee and thus AO is directed to grant the refund of the TDS so done. This ground of appeal for all the five years is allowed. Short granting of interest u/s. 244A(1) - As contented AO has not granted interest in 244A(1) from the date of order giving effect i.e. 13.11.2019 up to the date on which actual refund was received by the assessee i.e. 02.03.2000 - As date from which the grant of interest on refund starts is not in dispute. The only dispute is in respect of whether the interest should be granted up to the date of preparation of order giving effect or it should be granted up to the date on which actual refund was received by the assessee - as per case of Small Industries Development Bank of India [2017 (9) TMI 1971 - ITAT MUMBAI] wherein it was held that assessee was justified in seeking interest u/s. 244A up to the date of receipt of the refund voucher. In our view the ground raised by the assessee for claiming interest u/s. 244A(1) up to the date on which actual refund was received i.e. 02.03.2020 is justified. Accordingly, we direct the Ld. AO to recompute the interest due to the assessee in compliance with our aforesaid decision. Accordingly, this ground of appeal for all the four years is allowed. Erroneous levy of interest u/s. 234C - erroneous adjustment of other payments against the refund determined by the Ld. AO - assessee has contended that no interest u/s. 234C of the Act is leviable in view of the fact that entire income of the assessee, who being a non-resident, was subjected to TDS - HELD THAT:- As per the provisions of section 234C of the Act, we find it proper to direct the AO to verify and ascertain that the return of income filed by the assessee was entirely subject to TDS and its tax liability on the returned income was in entirety covered by the TDS done. If found so, the interest charged u/s. 234C of the Act be deleted and the refund recomputed accordingly. Thus, this ground of appeal is allowed for statistical purposes. Ground taken for erroneous adjustment of other payments against the refund determined by Ld. AO, we direct the Ld. AO to provide the necessary details to the assessee in respect of adjustment made, for its verification and rebuttal. Based on the clarifications submitted by the assessee in respect of the other adjustments, the Ld. AO is directed to re-consider the adjustment in accordance with the provisions of law. Accordingly, this ground of appeal is allowed for statistical purposes. Issues Involved:1. Legality of the CIT(A)'s order remanding the matter to the AO for verifying the applicability of section 153(5) and granting additional interest under section 244A(1A).2. Deduction of taxes at source under section 195 on payment of interest under section 244A.3. Short granting of interest under section 244A(1) for AYs 2009-10 to 2012-13.4. Erroneous levy of interest under section 234C for AY 2010-11.5. Erroneous adjustment of other payments against the refund for AY 2010-11.Detailed Analysis:1. Legality of the CIT(A)'s Order Remanding the Matter to the AO:The assessee challenged the CIT(A)'s decision to remand the matter to the AO for verifying the applicability of section 153(5) and granting additional interest under section 244A(1A). The Tribunal noted that section 244A(1A) provides additional interest if the conditions of section 153(5) are breached, which mandates the AO to pass an order within three months from the end of the month in which the order is received by the Principal Commissioner or Commissioner. The Tribunal found that the CIT(A) did not have the power to set aside the matter to the AO under section 251 of the Act. However, since the assessee did not provide evidence of delay, the Tribunal remitted the matter back to the AO for verification of records to ascertain the delay and directed the AO to grant additional interest accordingly.2. Deduction of Taxes at Source under Section 195 on Payment of Interest under Section 244A:The assessee contended that no tax should be deducted at source on the interest payment under section 244A by virtue of the Most Favoured Nation (MFN) clause in the India-Netherlands DTAA, which should be read with the restricted scope of taxation of interest under Article 12 of the India-Italy DTAA. The Tribunal agreed with the assessee, noting that the protocol to the India-Netherlands DTAA allows importing more beneficial provisions from treaties with other OECD countries, like Italy. The Tribunal referred to the decision of the Hon'ble High Court of Madras in Ansaldo Energio SPA, which held that interest on income tax refund is a debt claim payable by revenue and thus exempt under Article 12(3)(a) of the India-Italy DTAA. Consequently, the Tribunal directed the AO to refund the TDS done on the interest paid under section 244A(1).3. Short Granting of Interest under Section 244A(1) for AYs 2009-10 to 2012-13:The assessee argued that interest under section 244A(1) should be granted up to the date of actual receipt of the refund, not just up to the date of the order granting the refund. The Tribunal referred to the decision of the ITAT Mumbai in Small Industries Development Bank of India, which held that interest under section 244A should be granted up to the date of receipt of the refund voucher. The Tribunal directed the AO to recompute the interest due to the assessee up to the date of actual receipt of the refund.4. Erroneous Levy of Interest under Section 234C for AY 2010-11:The assessee contended that no interest under section 234C is leviable as the entire income was subject to TDS. The Tribunal referred to the decision of the Hon'ble High Court of Bombay in DIT(IT) Vs. WNS Global Services (UK) Ltd., which held that no liability under section 234B and 234C arises if the entire income is subject to TDS. The Tribunal directed the AO to verify if the entire income was subject to TDS and, if so, to delete the interest charged under section 234C.5. Erroneous Adjustment of Other Payments Against the Refund for AY 2010-11:The assessee argued that the adjustment of other payments against the refund was erroneous. The Tribunal directed the AO to provide necessary details of the adjustment to the assessee for verification and rebuttal and to reconsider the adjustment based on the clarifications provided by the assessee.Conclusion:All the appeals of the assessee were partly allowed for statistical purposes, with directions for verification and recomputation by the AO as per the Tribunal's findings. The order was pronounced in the open court on 02 September 2022.