National Highway Authority, Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 521 & 522/JP/2011 fu/kZkj.k o"kZ@Assessment Year : 2007-08 & 2008-09

The ADIT (International cuke M/s. National Highway Authority Taxation), Jaipur Vs. of India PIU-EW-V 7A & B, Ram Kamal Road, No.5 Bapu Nagar Senthi, Chittorgar (Raj.) LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: JDHNO 1998 D vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Smt. Neena Jeph, JCIT fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Jain, Advocate

lquokbZ dh rkjh[k@ Date of Hearing : 12/05/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/07/2015

vkns'k@ ORDER

PER T.R. MEENA, AM

Both these appeals have been filed by the Revenue against two

different orders of the ld. CIT(A)-II, Jaipur dated 28-03-2011 for the

assessment year 2007-08 & 2008-09 wherein similar following grounds

have been raised by the Revenue in both the appeals.

''1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the interest charged u/s 201(1A) of the Act by holding that TDS (deducted by the assessee at lower rate) was in any case more than the income of the payee as the payee took refunds; without appreciating that the interest was demanded u/s 201(1A) of the Act to compensate the interest, as provided by 2 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

the law, lost due to the violation/ failure on part of the payer to deduct TDS at the maximum marginal rate.

2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in not appreciating that the order u/s 195(2) is not a blanket certificate stretchable beyond the specified amounts/ dates.

3. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that if the payer had a bona fide belief that no part of the payment bears income character then it is not mandatory for the payer to undergo the procedure of Section 195(2) before making any payment to the non-resident; without appreciating that the law does not permit the payer to step into the shoes of the AO to suo moto decide as to whether the payment in question bears income character or not.''

2.1 Brief facts of the case are that the ADIT (International Taxation)

verified the TDS on 24-02-2010 made by the ITO-TDS, Udaipur. During

the course of TDS verification, it was noticed that the assessee has made

substantial payment to a foreign contractor company M/s. China

Gezhouba Water & Power (Group) Co. Ltd., New Delhi in connection

with their road construction project. It was further noticed that M/s.

National Highway Authority of India (for short 'NHAI') made payments

to the foreign company at lower rates than the applicable rates in the case

of the foreign companies. M/s. NHAI also failed to provide the relevant

certificate/ authorization from the assessing officer of the foreign

company u/s 195/197 to deduct the TDS at a lesser rate. The ITO-TDS

gave shown cause notice to the assessee which has been reproduced by 3 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

ADIT (International taxation) at page 1 and 2 of the order. The assessee

also availed the opportunity. The assessee submitted before him that

Hon'ble Supreme Court in the case of M/s. Hindustan Coco Cola

Beverage (P) Ltd. vs. CIT (2007) 283 ITR 226 held clearly held that:-

''TDS assessee in default - Tax already paid by recipient of income payee has already paid taxes due on the payment received by it from the assessee therefore, tax could not be recovered once again from the deductor - assessee. This issue stands clarified by circular No. 275/201/95-IT(B) dated 29-01-1997.''

It is further submitted that M/s. China Gezhouba Water & Power (Group)

Co. Ltd. New Delhi has filed its return of income for the financial year

2006-07 claiming the income tax refund of Rs. 83,93,465/- and for the

financial year 2007-08 claiming the income tax refund of Rs. 93,92,252/-.

The assessee also furnished the copy of return for both the years before

him. He further submitted before ADIT (International Taxation) that

Hon'ble Gujarat High Court in the case of CIT vs. Rishikesh Apartment

Cooperative Housing Society Ltd., 253 ITR 310 held as under:

''Deduction of tax at source. Failure to deduct tax.

Interest - Entire Tax Payable by payee paid by him as advance tax and tax on self assessment interest - Interest cannot be levied u/s 201(1A) - Income-tax Act, 1961.''

Therefore, proceedings initiated u/s 201 and 201(1A) was requested to

drop after the judgment cited above by the assessee. The assessee filed

the details of contract with reconciliation before the ADIT (International

Taxation) for both the financial years. After considering assessee's reply, 4 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

he held that ITO-TDS has issued a certificate u/s 195/197 on 12-04-2006

for financial year 2006-07 by directing him to deduct tax @

1.9%+Surcharge@2.5%+Educational Cess @ 2% for the payment

received relating to East West Corridor Project -Package-R-6,

Rehabilitation on and upgrading of Road Sections on N-76 and N - 25.

The second order was dated 28-07-2006 wherein ITO -TDS Ward- 1,

International Taxation has directed the assessee to deduct TDS @ 1%

instead of @ 1.9%+Surcharge 2 2.5% +Education Cess @ 2% for the

same project. The assessee's requested has been turned down by ITO -

TDS that this order should be made effective for the period 1-11-2006 to

31-03-2007. The ADIT (International Taxation) held that assessee made

payment of Rs. 20,91,08,552/- at lower rate of TDS than the applicable

rate of 41.82% without any authorization from the Income-tax Deptt

during the financial year financial year 2006-07. Similar findings was

given for the financial year 2007-08 by ADIT (International Taxation)

for payment of Rs. 81,63,07,941/- . The ADIT (International Taxation)

held that the assessee was liable for the financial year 2006-07 for not

withholding the tax of Rs. 8,32,62,510/- on payment of Rs.

20,91,08,552/- and for financial year 2007-08 for not withholding the tax

of Rs. 31,88,77,276/ on payment of Rs. 81,63,07,941/-. However,

considering the decision of Hon'ble Supreme Court in the case of

Hindustan Coco Cola Beverage (P) Ltd. vs. CIT (207) 293 ITR 226, he 5 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

charged the interest u/s 201(1A) of the Act till the date of payment of

taxes by the deductee. Thus he calculated the interest u/s 201(1A) of the

Act from the date of deduction of tax till 31st March of the relevant

financial year. The interest for financial year 2006-07 was calculated at

Rs. 62,3,895/- and for financial year 2007-08 at Rs.58,05,368/-.

2.2 Being aggrieved by the order of the ADIT (International Taxation),

the assessee carried the matter before the ld. CIT(A) wherein the ld.

CIT(A) held that said company M/s. China Gezhouba Water & Power

(Group) Co. Ltd. New Delhi had established its branch-wise offices in

India and for execution of projects in the year 2005-06. As per back to

back agreement entered between M/s. China Gezhouba Water & Power

(Group) Co. Ltd. and sub-contractor M/s. Soma, the foreign company was

required to transfer all receipts pertaining to work done or mobilization

advances to M/s. Soma after retention of 4% as the stipulated

commission. The total amount received by M/s. China Gezhouba Water

& Power (Group) Co. Ltd. from the assessee during the financial year

2006-07 was Rs. 74,71,03,382/- and amount paid to M/s. Soma was Rs.

72,05,65,283/- leaving differential income of Rs. 2,65,38,099/- only

chargeable to tax. After debiting the expenses incurred by M/s. China

Gezhouba Water & Power (Group) Co. Ltd., the net income was

disclosed at Rs. 1,11,85,675/- for A.Y. 2007-08 and after getting credit

for TDS, M/s. China Gezhouba Water & Power (Group) Co. Ltd. got 6 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

refund of Rs. 18.82 lacs. The certificate was issued by ITO, TDS Ward-

1, International Taxation, New Delhi. Finally, the TDS rate was decided

@ 1% for payment of Rs. 20,91,08,552/- made even after 31-10-2006 and

remitted the same to the Central Govt. The ld. CIT(A) considered various

decisions on this issue. In the instant case M/s. China Gezhouba Water &

Power (Group) Co. Ltd. has retained only 4% of the amount of the

payments made to the assessee. The assessee also submitted the details of

total receipts, TDS deducted, 4% of contract receipts and excess TDS

deducted which has been reproduced by the ld. CIT(A) at page 19 of his

order and held that the assessee has deduced excess TDS for financial

year 2006-07. After considering the assessee's above details, the ld.

CIT(A) held that if in case in the assessment proceedings relating to

recipient, it is ultimately held that the sum received by the recipient was

not chargeable to tax, the effect of that would be that there was no

obligation on the assessee to deduct tax at source on the sum paid to the

non-resident and in that eventuality, the assessee will not be treated

assessee in default and would be absolved of any consequences for non-

deduction of tax at source. The liability of the payer for the deduction of

tax at source ceases if the payer has offered the income for taxation in his

hands and the facts do not necessitate the making of any further payment

of tax. He found that in case the AO has proceeded to charge interest u/s

201(1A) of the Act on the payments made to M/s. China Gezhouba Water 7 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

& Power (Group) Co. Ltd. after 30-10-2006 since the payee had obtained

certificate u/s 197 from ITO-TDS , New Delhi for deduction at lower

rates. The assessee had deducted TDS of Rs. 5,82,275/- upto 30-10-06

which was in fact more than the total tax liability of Rs. 46,77,848/-

determined in the assessment order of the payee passed on 30-12-2009. He further relied on decision of Hon'ble Jurisdictional High Court in the

case of CIT vs. Rajasthan Rajaya Vidyut Prasaran Nigam Ltd., 287 ITR

354 wherein it has been held that ''when the payee has paid more tax

than the tax payable it and refund is due to it as a result of TDS by the

assessee, interest u/s 201(1A) cannot be charged.'' This decision is fully

applicable to the facts of the present case as there was no loss to the

Revenue for non-deduction of tax. Finally, the ld. CIT(A) directed the

AO to quash the order passed by him and allowed the assessee's appeal.

2.3 Now the Revenue is before us. The ld. DR supported the order of

the AO and argued that as per Section 201(1A), the assessee is liable to

pay interest on no TDS deducted or lesser TDS deducted. The ITO -TDS

had not issued the blanket certificate u/s 195 of the Act for all the

payments and the party should not put its feet in the shoes to the AO to

decide whether the payments to non-resident is taxable or not. Therefore,

the ld. DR requested to confirm the order of the AO.

2.4 At the outset, the ld. AR reiterated the arguments made before the

ld. CIT(A) and relied on his order. The ld. AR of the assessee drew our 8 ITA No. 521/JP/2011 ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

attention that ld. CIT(A) has analyzed each and every aspect of Section

201 & 201(1A ) alongwith Section 195 after considering the legal

proposition made by the assessee on this issue and held that the assessee

is not liable to pay interest 201(1A) of the Act. He further relied on the

decision of Hon'ble Jurisdictional High Court in the case of CIT vs.

Rajasthan Rajya Vidyut Prasaran Nigam , 287 ITR 354 and the ld. AR

requested to confirm the order of the ld. CIT(A).

2.5 We have heard the rival contentions and perused the materials

available on record. We find from the records that the ld. CIT(A) had

examined issue in detail by considering the agreement between the parties

and the case laws cited (supra). He has also verified the assessment

records that the assessee finally got refund on 4% contracted receipt made

by M/s. China Gezhouba Water & Power (Group) Co. Ltd.. The decision

of Hon'ble Apex Court in the case of Hindustan Coco Cola Beverage (P)

Ltd. vs. CIT (supra) is squarely applicable on this issue. The decision of

Hon'ble Jurisdictional High Court in the case of CIT vs. Rajasthan Rajya

Vidyut Prasaran Nigam Ltd. also support the finding of the ld. CIT(A)

wherein it has been held as under:-

9 ITA No. 521/JP/2011

ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

''Where the Tribunal had found that in all the cases, the recipient of the income had claimed refund, which had arisen due to tax deducted at source.'' Held, that interest could not be charged u/s 201(1A) of the Income-tax Act, 1961.

The ld. DR could not controvert the findings of the ld. CIT(A). Thus

respectfully following the order of Hon'ble Apex Court in the case of

Hindustan Coco Cola Beverage (P) Ltd. vs. CIT and the order of Hon'ble

Jurisdictional High Court in the case of CIT vs. Rajasthan Rajya Vidyut

Prasaran Nigam Ltd. (supra), we find no reason to interfere in the order of

the ld. CIT(A) which is sustained. Thus the appeal of the Revenue for

assessment year 2007-08 is dismissed. We have also observed that the

grounds raised by the Revenue in its appeal for the assessment year 2008-

09 are similar. Thus in view of the similar facts and circumstances of the

case for the assessment year 2007-08, we find no reason to interfere in the

order of ld. CIT(A) which is sustained. Thus the appeal of the Revenue

for the assessment year 2008-09 is also dismissed.

3.0 In the result, the appeals of the Revenue are dismissed.

Order pronounced in the open court on 17 /07/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@ Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 17/07/2015 *Mishra 10 ITA No. 521/JP/2011

ADIT (International Taxation), Jaipur .vs National Highway Authority of India, Chittorgarh .

vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:

1.vihykFkhZ@The Appellant- The ADIT (International Taxation), Jaipur

2.izR;FkhZ@The Respondent- M/s. National Highway Authority of India, Chittorgarh.

3.vk;dj vk;qDr¼vihy½@ CIT(A).

4.vk;dj vk;qDr@ CIT

5.foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6.xkMZ QkbZy@ Guard File (ITA No.521/JP/2011) vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar