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Smart & Easy TDS Software for Preparing TDS Returns

TDSMAN Blog - Smart & Easy TDS Software for Preparing TDS Returns

Payment of interest on refund under section 244A of excess TDS deposited under section 195 of the Income tax Act, 1961

The Income Tax (I-T) department will now add interest amount to a delayed refund made on excess tax deducted at source (TDS) cuts and will also not litigate with the deductor on this issue in the future.

The Central Board of Direct Taxes (CBDT) has issued a circular  in this regard to the assessing officers of the I-T department based on a 2014 Supreme Court order, where the apex court had made it clear that the taxman is “bound” to pay an interest on refund made under the TDS category.

The issued circular has been given below:

Circular No. 11/2016

 

F.No.279/Misc./M-140/2015-ITJ

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

 

New Delhi, 26th April, 2016

 

Subject:- Payment of interest on refund under section 244A of excess TDS deposited under section 195 of the Income tax Act, 1961- reg.

The procedure for refund of tax deducted at source under section 195 of the Income tax Act, 1961, to the person deducting the tax is delineated in CBDT Circular No. 7/2007 dated 23.10 .2007. Circular No. 7/2007 states that no interest under section 244A of the Act, is admissible on refunds to be granted in accordance with the circular or on the refunds already granted in accordance with Circular No. 769 or Circular 790 dated 20.4.2000.

2. The issue of eligibility for interest on refund of excess TDS to a tax deductor has been a subject matter of controversy and litigation. The Hon’ble Supreme Court of India in the case of Tata Chemical Limited’ , Civil Appeal No. 6301 of 2011 vide order dated 26.02.2014, held that, “Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/ tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good , just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest.”

3. In view of the above judgment of the Apex Court it is settled that if resident deductor is entitled for the refund of tax deposited under Section 195 of the Act, then it has to be refunded with interest under section 244A of the Act, from the date of payment of such tax.

4. Accordingly, it is advised that no appeals may henceforth be filed on this ground by the officers of the department and appeals already filed on this issue may not be pressed

5. This may be brought to the notice of all concerned.

SadhanaPanwar

DCIT (OSD)(ITJ)

CBDT, New Delhi

Source: Income Tax

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Tax is not to be deducted at a higher rate of 20 percent under Section206AA of the Income-tax Act when the benefit of tax treaty is available

Recently, the Bangalore Bench of the Income-tax Appellate Tribunal (the Tribunal) held that there is no scope for the tax deduction at source (TDS) at a higher rate of 20 per cent as per the provisions of Section 206AA of the Income Tax Act, 1961 (the Act) when the benefit of tax treaty is available to a non-resident.

Facts of the case

  • The taxpayer is engaged in the business of Business Process Outsourcing (BPO). The taxpayer made certain payments to a non-resident on account of royalty and/or Fees for Technical Services (FTS). As the benefit of a tax treaty was available to the non-resident, tax was deducted by applying the beneficial rate prescribed under the tax treaty in terms of the provision of Section 90(2) of the Act.
  • The taxpayer filed statements of deduction of tax at source for various quarters of the relevant financial year in respect of payments made to non-resident during the period.
  • The Assessing Officer (AO) after processing TDS statement issued intimation under Section 200A of the Act. The AO raised a tax demand on account of the short deduction of tax and interest was also charged on the same. The tax demand was raised on the ground that the taxpayer has not furnished the PAN of the non-resident deductee/recipient. The AO held that if the taxpayer did not furnish PAN, as per the provisions of Section 206AA of the Act, the TDS should have been deducted at the rate of 20 per cent
  • The Commissioner of Income-tax Act, 1961 [CIT(A)] rejected the objection of the taxpayer regarding the scope of Section 200A for making the adjustment and consequential demand. However, the CIT(A) decided the matter in favour of the taxpayer and held that payment made to the nonresident recipient was eligible for the tax treaty benefit and by applying the beneficial provisions, the rate of tax to be withheld cannot be more than the tax liability provided in the tax treaty.

Tribunal’s ruling

Applicability of higher TDS under Section 206AA of the Act  

  • The Tribunal held that there was no dispute that the benefit of the tax treaty was available to the nonresident recipient. Therefore, the tax liability of the recipient could not be more than the rate prescribed by the tax treaty or the Act, whichever is lower.
  • Reliance was placed on the Pune Tribunal’s decision in the case of Serum Institute of India Limited1 wherein the Tribunal observed that Section 206AA of the Act does not override the provisions of Section 90(2) of the Act. The taxpayer had rightly applied the rate of tax as per the tax treaty and not as per Section 206AA of the Act since the provision of the tax treaty was more beneficial.
  • The Tribunal observed that the similar view has been taken by the co-ordinate bench in the case of Bosch Ltd.
  • The Tribunal relied on the decision of Karnataka High Court in the case of Bharti Airtel Ltd.3 where it was held that the Act is to be read as an integral code. To deduct tax while making payment to a nonresident, the amount paid must be ascertainable as income chargeable to tax in the hands of the nonresident. TDS is a vicarious liability, and it presupposes the existence of primary liability and hence the TDS provisions need to be read in conformity with the charging provisions i.e. Section 4, 5 and 9 of the Act.
  • The Tribunal held that provisions of TDS had to be read along with the machinery provisions of computing the tax liability on the sum in questions.
  • Following the aforesaid decisions, the Tribunal held that there was no error in the CIT(A)’s order where it was held that there is no scope for deduction of tax at the rate of 20 per cent as provided under the provisions of Section 206AA of the Act when the benefit of tax treaty is available.

Adjustment under Section 200A of the Act

  • While making the adjustment under Section 200A of the Act the AO had ignored the provisions of the tax treaty.
  • The payment in question was made to the nonresident, and the provisions of tax treaty were applicable. Thus, the issue of applying the rate of tax at 20 per cent and ignoring the provisions of tax treaty is a debatable issue and does not fall into the category of any arithmetical error or incorrect claim apparent from any information in the statement, as per the provisions of Section 200A(1) of the Act.
  • On reference to Explanation to Section 200A(1) of the Act it is clear that in respect of deduction of tax at source where such rate is not in accordance with provisions of the Act, it can be considered as an incorrect claim apparent from the statement. However, in the present case it was not a simple case of deduction of tax at source by applying the rate only as per the provisions of the Act, when the benefit of tax treaty was available to the recipient of the amount.
  • Therefore, the question of applying the rate of 20 percent as provided under Section 206AA of the Act is an issue which requires a long drawn reasoning and finding. Hence, it was held that applying the rate of 20 per cent without considering the provisions of the tax treaty and consequent adjustment while framing the intimation under Section 200A is beyond the scope of the said provision.
  • Thus, the AO had travelled beyond the jurisdiction of making the adjustment as per the provisions of Section 200A of the Act. Accordingly, the issue was decided in favour of the taxpayer.
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CPC (TDS) communication: TDS Defaults exist in all Six preceding Quarters, “No Correction TDS Statement filed as yet”

As per the records of the Centralized Processing Cell (TDS), there exist outstanding Defaults in “all six preceeding Quarters” with respect to the TDS Statements filed by deductors, relevant to the Financial Years 2013-14 and 2014-15.

CPC (TDS) has issued a communication to deductors in this regards which has been given below:

Dear Deductor,(TAN: XXXXXXXXXXXX)

As per the records of the Centralized Processing Cell (TDS), there exist outstanding Defaults in “all six preceeding Quarters” with respect to the TDS Statements filed by you, relevant to the Financial Years 2013-14 and 2014-15.

Please note that you have “not filed” any Correction Statements as of December 31, 2014 for closure of the TDS Defaults.

Immediate Attention:

  • CPC (TDS) facilitates downloading of TDS Certificates (Forms 16/16A) in accordance with section 203 of the Income Tax Act, 1961 read with Rule 31(1) of the Income Tax Rules, 1962 for issuance of the same to the deductees. The deductor duly verifies to the effect that the amount due has been deducted and deposited to the credit of the Government and the information provided in the said certificate is true, correct and complete
  • However, as per the records of CPC (TDS), it is observed that the amount of tax deposited / remitted mentioned by you in the TDS Statements is not correct due to insufficient or unmatched challans (owing to possible data entry errors).
  • To take care of the above and to facilitate non-intrusive TDS Compliance, Online Correction facility has been made available at TRACES for closure of Short Payment defaults due to challan errors. CPC (TDS) processes such statements within 24 hours of submission of such corrections.
  • In view of the above, Short Payment Defaults ought to be closed at the earliest , failing which you may not be able to submit requests to download TDS Certificates from the web portal TRACES

Consequences of failure to pay the demand:

  • As per the provisions of section 220 of the Act, Any amount, specified as payable in a notice of demand shall be paid within thirty days of the service of the notice.

If the amount specified in any notice of demand is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid.

  • If any person fails to deduct or pay the whole or any part of the tax, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay under Section 271C of the Act.
  • Failure to pay tax to the credit of Central Government is punishable with fine as per the provisions of section 276B/ 276BB.
  • Section 278A of the Act prescribes for punishment for second and subsequent offences, if any person has been convicted of an offence under section 276B.

Actions to be taken:

  • Use Challan ITNS 281 to pay the above demand with your relevant Banker, if there are no challans available for consumption
  • Please download the Justification Report from our portal TRACES to view your latest outstanding demand. Please click here for assistance on downloading the Justification Report.
  • Please use the Online Corrections facility on TRACES to submit corrections, to payoff/ close the demand.
    • To avail the facility, please Login to TRACES and navigate to Defaults tab to locate Request for Correction from the drop-down list. You can refer to our e-tutorials for necessary help.
    • In case of Short Payment Defaults due to Unmatched Challans, please use Tag Unmatched Challan facility using Online Corrections.
    • In case of Short Payment Defaults due to Insufficient Challans, please use Move Deductee facility using Online Corrections
  • Alternatively, you may also download the Conso File from our portal provided there are no Short Payment Defaults.
    • Prepare a Correction Statement using the latest Return Preparation Utility (RPU) and File Validation Utility (FVU).
    • Submit the Correction Statement at TIN Facilitation Centre.

For any assistance, you can write to ContactUs@tdscpc.gov.in or call our toll-free number 1800 103 0344.

CPC (TDS) is committed to provide best possible services to you.

CPC (TDS) TEAM

 

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CPC (TDS) reminder to Deductors: Statement filed during Q1 FY 2013-14 to Q2 FY 2014-15, TDS certificates not downloaded for any of the Quarters

CPC (TDS) has issued a reminder communication to deductors in which it has stated about the downloading of TDS certificates. According to CPC (TDS), TDS Statements have been filed by the deductors during Q1 FY 2013-14 to Q2 FY 2014-15 but TDS Certificates (Form 16A) have not been downloaded for all of the referenced quarters, from the TRACES portal. The provisions of Income Tax Act, 1961 in this regard has also been given in the issued communication.

The issued communication has been given below:

Dear Deductor, (TAN: XXXXXXXXXXXX)

As per the records of Centralized Processing Cell (TDS), TDS Statements have been filed by you for different quarter(s) for the above period, however, TDS Certificates (Form 16A) have not been downloaded for all of the referenced quarters, from the TRACES portal.

Please refer to the following provisions of the Income Tax Act, 1961 in this regard:

Downloading of TDS Certificates from TRACES made mandatory:

In this regard, your attention is invited to the CBDT circulars 04/2013 dated 17.04.2013, No. 03/2011 dated 13.05.2011 and No. 01/2012 dated 09.04.2012 on the Issuance of certificate for Tax Deducted at Source in Form 16/16A as per IT Rules 1962. It is now mandatory for all deductors to issue TDS certificates after generating and downloading the same from “TDS Reconciliation Analysis and Correction Enabling System” or http://www.tdscpc.gov.inin (herein after called TRACES Portal).

TDS Certificates downloaded only from TRACES hold valid:

In view of above circulars, it may kindly be noted that the TDS Certificates downloaded only from TRACES Portal will be valid. Certificates issued in any other form or manner will not comply to the requirements referred in the Income-tax Act 1961 read with relevant Rules and Circulars issued in this behalf from time to time.

Due Date for downloading and Penalty for non-compliance:

Please be advised that under the provisions of section 203 of the Income Tax Act, 1961 read with rule 31A, Certificate of tax deducted at source is to be furnished within fifteen (15) days from the due date for furnishing the statement of tax deducted at source. Failure to comply with the provisions of the Act will attract penalty under the provisions of section 272A of the Act, a sum of one hundred rupees for every day during which the failure continues.

Taking cognizance of the above information, you are requested to download TDS Certificates at the earliest to avoid above implications and any further action by the Field TDS Officers.

Assistance for downloading TDS Certificates from TRACES:

You can logon to our portal http://www.tdscpc.gov.in and refer to our e-Tutorial to download TDS Certificates. For any assistance, you can write to ContactUs@tdscpc.gov.in or call our toll-free number 1800 103 0344.

CPC (TDS) is committed to provide best possible services to you.

CPC (TDS) TEAM

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