Division Bench v. Respondents :Deputy Commissioner Of Income Tax (Tds) & Others

THE HIGH COURT OF MADHYA PRADESH: JABALPUR (Division Bench) W.P. No. 19315/2017 PETITIONER : IJM Corporation Berhad Versus RESPONDENTS :Deputy Commissioner of Income Tax (TDS) & others ============================================= Coram: Hon’ble Shri Justice Ajay Kumar Mittal, Chief Justice Hon’ble Shri Justice Vijay Kumar Shukla, Judge ============================================= Appearance: Shri Sankalp Kochar, Advocate for the Petitioner. Shri Sanjay Lal, Advocate for the Respondent No.1. Shri Abhijit Shrivastava, Advocate for the Respondent No.3. ============================================= ORDER (Oral){ 11.02.2020 } Per: Ajay Kumar Mittal, Chief Justice: The present writ petition under Article 226 of the Constitution of India has been filed by the petitioner seeking the following reliefs: “7.1 Quash order dated 14.9.2017 (Annexure P-12) passed by Respondent No.1 and direct the Respondent No.1 to refund the interest to the tune of `3,62,70,639/- in favour of the petitioner along with interest on the said amount in accordance with Section 243 and 244A of the Income Tax Act 1961 and/or direction may be given to the Respondent No.2 to refund the interest amount since the jurisdiction of petitioner lies with the Respondent No.2 after getting confirmation from the Office of Respondent No.1 that they have not refunded the interest amount to Respondent No.3 to pass and/or alternatively this case may be transferred to High Court of Delhi since the petitioner is assessed at Delhi, if this Hon'ble Court think so. 7.2 That, in the alternative and without prejudice this Hon'ble Court may kindly be pleased to direct the respondent No.3 to take necessary action with regard to refund of interest levied u/s 201(1A) of the Income Tax Act.Court may kindly be pleased to direct the respondent No.3 to take necessary action with regard to refund of interest levied u/s 201(1A) of the Income Tax Act. 7.3 Issue any other writ or direction as may be deemed fit by this Hon'ble Court in the facts and circumstances of the case.” this Hon'ble Court in the facts and circumstances of the case.” 2.The facts of the case, bereft of unnecessary details, are that the petitioner entered into a works contract with respondent No.3/National Highways Authority of India (in short “the NHAI”) on 09.04.2006 for construction of four lane road of Jhansi-Lakhnadon Section KM 132 to KM 187 on NH-26 in the State of Madhya Pradesh. The petitioner had obtained certificates from its Assessing Officer at New Delhi for deduction of tax at lower rate under Section 195/197 of the Income Tax Act, 1961 (for short “the Act”) entitling the petitioner for deduction of tax at source at lower rate of 2.11% inclusive of surcharge and education cess on the contract amount payable during the Financial Years 2006-07 and 2007-08; 2.5% inclusive of surcharge and education cess for the Financial Years 2008-09 and 2009-10; and 4.5% plus surcharge and education cess for the Financial Year 2010-11 (Annexure P-2). According to the petitioner, the respondent No.3 had been deducting the tax at source on the basis of the said certificates and issuing TDS certificates to the petitioner but respondent No.1, in relation to the financial years 2007-08 and 2008-09, vide order dated 30.03.2011 sought to levy TDS @42.23% in respect of payments which were made to the petitioner. In turn, the respondent No.3 sought recovery of the said amount of TDS from the petitioner. Feeling aggrieved by the recovery sought to be made by respondent No.3, the petitioner approached this Court in W.P. No.8509/2011, which was disposed of vide order dated 19.05.2011 directing the petitioner to approach the Commissioner of Income Tax (Appeals) [for short “the CIT(A)]. The CIT(A) vide order dated 29.7.2011 dismissed the appeal on the ground of territorial jurisdiction. financial years 2007-08 and 2008-09, vide order dated 30.03.2011 sought to levy TDS @42.23% in respect of payments which were made to the petitioner. In turn, the respondent No.3 sought recovery of the said amount of TDS from the petitioner. Feeling aggrieved by the recovery sought to be made by respondent No.3, the petitioner approached this Court in W.P. No.8509/2011, which was disposed of vide order dated 19.05.2011 directing the petitioner to approach the Commissioner of Income Tax (Appeals) [for short “the CIT(A)]. The CIT(A) vide order dated 29.7.2011 dismissed the appeal on the ground of territorial jurisdiction. 3. The ACIT (TDS), Jabalpur in line with the earlier orders for the previous years, passed another order dated 29.03.2012 for the financial years 2009-10 and 2010-11 against the respondent No.3 whereby he sought to apply TDS @42.23%. Accordingly, the respondent No.3 made recovery of TDS against the petitioner to the tune of `1,46,77,485/- for the financial year 2009-10 and `4,97,25,895/- for the financial year 2010-11. A sum of `1,46,77,485/- was deducted by respondent No.3 from the running bills of the petitioner for which TDS certificate was issued to the petitioner for a sum of `1,06,35,859/-. Against the recovery made by the respondent No.3 and illegal deposit of TDS amount at higher rate along with interest to the ACIT (TDS), Jabalpur, the petitioner preferred W.P. No.15866/2011 and 19444/2012, which were disposed of vide order dated 27.04.2012 (Annexure P/3) with the direction to issue certificate of deduction of TDS to the petitioner and further liberty was granted to move an application for refund of excess amount withheld by the respondent No.3. 4. It may also be noted that the respondent No.3 also preferred an appeal before the CIT(A), which was partly allowed vide order dated 11.10.2011 but the order of the ACIT (TDS) so far as it related to TDS at the rate of 42.23% was upheld. Being aggrieved by the order of the CIT(A) dated 11.10.2011, the respondent No.3 then preferred an appeal before the Income Tax Appellate Tribunal (in short “the Tribunal”). The learned Tribunal vide orders dated 20.09.2013 (Annexure P-4) and 29.05.2015 (Annexure P-5) allowed the appeal and directed the Assessing Officer to adjudicate the issue as regards the income of the petitioner determined at loss under intimation under Section 143(1) or assessed under Section 143(3) and whether the petitioner was entitled to refund/credit of the TDS amount which was already deducted and deposited by the respondent No.3. 5. The respondent No.2 i.e. the Deputy Commissioner of Income Tax, New Delhi after detailed scrutiny vide orders passed under Sections 154/ 143(3)/143(1) dated 25.02.2016, 28.02.2016, 25.02.2016 and 29.02.2016 as contained in Annexure P-6 allowed the TDS credit in favour of the petitioner as it was found to have been assessed at loss. The respondent No.3 had issued letters dated 19.06.2012, 26.11.2013 and 31.07.2013 as contained in Annexure P-7, which shows deduction of TDS at higher rate and payment of the same along with interest to the respondent No.1. 6. The grievance of the petitioner is that despite the orders passed by the Assessing Officer and allowing TDS credit in favour of the petitioner the respondents No.1 and 2 have not refunded the amount of interest, which was deducted by the respondent No.3 and was paid to the respondent No.1. The petitioner has given the yearwise details of TDS and interest and claimed 6. The grievance of the petitioner is that despite the orders passed by the Assessing Officer and allowing TDS credit in favour of the petitioner the respondents No.1 and 2 have not refunded the amount of interest, which was deducted by the respondent No.3 and was paid to the respondent No.1. The petitioner has given the yearwise details of TDS and interest and claimed that it is entitled to refund of amount of interest to the tune of `3,62,70,639/-. The petitioner also preferred a writ petition forming subject matter of W.P. No.13284/2016 against non-refund of interest, which was disposed of vide order dated 23.01.2017 (Annexure P-9) wherein direction was issued to the respondent-Authorities to consider the question of refund of interest levied under Section 201(1A) of the Act after giving opportunity of hearing to the petitioner and the respondent No.3. The petitioner has asserted that it submitted various representations as contained in Annexure P-10 for considering the question of refund of interest but the respondent No.1 vide impugned order dated 14.09.2017 (Annexure P-12) without giving any opportunity of hearing to the petitioner and respondent No.3 rejected its claim on the ground that interest under Section 201(1A) of the Act has not been levied against the petitioner but it was levied on the respondent No.3. In this manner, the present petition has been filed. 7. Learned counsel for the petitioner submitted that the impugned order has been passed without giving opportunity of hearing to the petitioner despite the direction issued by this Court vide order dated 23.01.2017 (Annexure P-9) and therefore, it is untenable in the eye of law. It was further submitted that interest under Section 201(1A) of the Act could not be levied unless there was default and if there is no liability to tax then interest is not chargeable. It was prayed that the petitioner is entitled to interest recovered under Section 201(1A) of the Act on behalf of the petitioner from respondent No.3 together with interest under Section 244A of the Act. 8. On the other hand, learned counsel for the respondent No.1 by referring to the reply submitted in response to the writ petition, contended that the petitioner is not under its jurisdiction. The jurisdiction has been exercised over the respondent No.3 being the deductor and having TAN in its jurisdiction. The order under Section 201(1) and 201(1A) of the Act was passed against the respondent No.3 and not against the petitioner and therefore, the petitioner has no cause of action against the respondent No.1. However, the learned counsel submitted that the respondent No.1 had issued the summons to the petitioner on 17.03.2017 (Annexure-1) and called for the details of its claim. Similar letter was issued to the respondent No.3 to clarify certain queries. But, having received no response from them, the impugned order was passed. 9. Reply has also been filed on behalf of the respondent No.3. Learned counsel submitted that the respondent No.3 is not directly concerned with the demand made by the petitioner. It has deposited the TDS and interest as per the demand of the Income Tax Department. Further, its appeal for refund of interest is also pending. 10. We have heard learned counsel for the parties at length and find that the present petition deserves to be allowed. 11. We proceed to examine the scope of relevant statutory provisions. Section 195 of the Act is a special provision for tax deduction at source from payments to non-residents. All payments except under the head “salary” are covered thereunder. Explanation appended to it makes it clear that even a credit to non-resident account or suspense account tantamounts to payment for the purposes of tax deduction at source. The relevant provision of Section 195 of the Act reads as under:- “Other sums. 10. We have heard learned counsel for the parties at length and find that the present petition deserves to be allowed. 11. We proceed to examine the scope of relevant statutory provisions. Section 195 of the Act is a special provision for tax deduction at source from payments to non-residents. All payments except under the head “salary” are covered thereunder. Explanation appended to it makes it clear that even a credit to non-resident account or suspense account tantamounts to payment for the purposes of tax deduction at source. The relevant provision of Section 195 of the Act reads as under:- “Other sums. 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC (or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries” shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode: Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Explanation 1.- For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. –Explanation 2. For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- (i)a residence or place of business or business connection in India; or (ii)any other presence in any manner whatsoever in India. Section 197 of the Act provides for the power of authorization to the Assessing Officer assessing the payee to give a “nil’ deduction or deduction at a lower rate, so as to avoid excessive deduction of tax at source. Under sub-section (2) of Section 197 of the Act, where any such certificate is issued, the person responsible for paying any amount shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. Once the certificate is issued, the person responsible for making payment shall be required to deduct the tax at the rate specified in the certificate in respect of payment to be made or has already been made, as the case may be for the period mentioned in the certificate. The relevant provisions of Section 197 of the Act are reproduced as under:- “Certificate for deduction at lower rate. of the Act are reproduced as under:- “Certificate for deduction at lower rate. 197. (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person (or sum payable to any person), income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBB, 194LBC, 194M and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer, shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. (2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. (2A) *** *** *** Section 201 of the Act spells out the consequences on the assessee, who fails to deduct tax and deposit the same within the time permissible under the Statute. Sub-section (1) imposes penalty on the Principal Officer or the Company on its failure for non-deduction or deposit of the tax after deduction as envisaged under Chapter XVII. This shall be done after issuance of show cause notice to the defaulter. Under Sub-section (1A) of Section 201 of the Act, interest for non-deposit of the tax deducted shall be leviable at simple interest varied from time to time till the date on which the omission is made good. Section 201 of the Act reads, thus:- “Consequences of failure to deduct or pay.. 201. (1) Where any person, including the principal officer of a company. – (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid, to a payeeor on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee - (i)has furnished his return of income under section 139; (ii)has taken into account such sum for computing income in such return of income; and return of income; and (iii)has paid the tax due on the income declared by him in such return of income, of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. (1A)Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, - (i)at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii)at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, (1A)Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, - (i)at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii)at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200; Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible on the date of furnishing of return of income by such payee. Section 191 of the Act deals with direct payment made by the assesee. However, Explanation appended thereto spares deduction of tax in the eventuality where such tax is directly paid by the assessee in respect of whom tax was required to be deducted by him. “Direct payment, 191. In the case of income in respect of which provision is not made and in any case where income-tax for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. –Explanation. For the removal of doubts, it is hereby declared that if any person including the principal officer of a company, - (a)who is required to deduct any sum in accordance with the provisions of this Act; or provisions of this Act; or (b)referred to in sub-section (1A) of section 192, being an employer, does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.” whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.” 12. The cumulative reading of the aforesaid provisions leads to the conclusion that where there is no tax liability on the recipient of income, in respect of its entire income including the income paid by the deductor, then in that eventuality, no liability can be fastened on the deductor under Section 201(1) of the Act in respect of payments made to the deductee. Once it is held that no liability arises against the deductor under Section 201(1) of the Act, when the deductee had been assessed at loss figure, there is no justification for levy of interest under Section 201(1A) of the Act, as the same is consequential in nature. In other words, in a situation where deductee is not required to pay any tax on its income, there is no reason to hold the deductor in default under Section 201(1) and 201(1A) of the Act, as deductee is not required to pay any tax on its income, which is, in fact, a loss. 13. Adverting to the present factual matrix, in the instant case, assessment in the case of the recipient for the assessment years 2008-09, 2009-10, 2010-11 and 2011-12 had been completed under Section 143(3) of the Act at a loss and the recipient of the income was, therefore, not required to pay any income-tax for the relevant assessment years. Accordingly, no occasion will arise for charging any interest from the date on which tax was deductible to the date on which tax is actually paid. The Revenue had recovered the –following amounts from respondent No.3 deductor on account of interest under Section 201(1A) of the Act, which in turn had been paid by the petitioner to the deductor:- 14. Apart from the aforesaid, it is seen that in pursuance to the direction issued by this Court in W.P. No.13284/2016 decided on 23.01.2017 thereby remanding the matter to the respondent No.2 for considering the question of refund of interest to the petitioner, the petitioner submitted a reminder to the respondent No.2 along with copy of the order passed by this Court on 23.01.2017. The petitioner has also preferred a detailed representation to the respondent No.2 on 21.02.2017 which is Annexure P-10 to the petition. Thereafter, vide letter dated 04.08.2017 (Annexure P-11), the respondent No.2 has written to the respondent No.1 for compliance of the order passed in W.P. No.13284/2016 in the case of the petitioner clearly mentioning therein that the TDS amount deposited was refunded to the petitioner but the interest amount cannot be refunded by their office and therefore, a request was made to the respondent No.1 to give effect to the order of this Court and issue refund of the interest amount for the assessment years 2008-09 to 2011-12 to the respondent No.3/NHAI at the earliest so that subsequently the NHAI can refund the same to the assessee. But despite the same, the respondent No.1 has rejected the claim vide impugned order dated 14.09.2017 (Annexure P-12). Surprisingly, there is no reference to the order dated 04.08.2017 (Annexure P-11) passed by the respondent No.2 directing the Assistant Commissioner of Income Tax (TDS), Bhopal for compliance of the order of this Court passed in W.P. No.13284/2016 and refund of interest amount to the NHAI, as claimed, so that subsequently the NHAI can refund the same to the petitioner. It appears that there has been lack of communication between the respondent No.1 and 2. 15. Still further, the respondent No.1 while passing the impugned order dated 14.09.2017 (Annexure P-12) has assigned the reasons that the default was detected in the case of NHAI i.e. the respondent No.3, which was the assessee over which the respondent No.1 exercised jurisdiction. The NHAI was liable to deduct and deposit TDS and interest for delay but the NHAI instead of paying it out of its own coffers illegally recovered the amount from IJMC-petitioner. The charge of interest was created on NHAI and not on the petitioner and therefore, the claim of the petitioner was not justifiable. In view of the aforesaid elaborate discussion, in our opinion, the reasons assigned by the Revenue to decline refund of the interest under Section 201(1A) of the Act recovered from respondent No.3-NHAI on behalf of the petitioner is untenable, as after detailed scrutiny, the respondent No.2 found that the petitioner was assessed at loss and therefore, allowed the TDS credit in its favour. The TDS was refunded to the petitioner in accordance with law. Then, in that situation, no interest recovered from respondent No.3 under S/ Section 201(1A) of the Act could be legally retained by the Revenue. In these circumstances, the interest under Section 201(1A) of the Act deducted and deposited by the respondent No.3 with the office of the ACIT (TDS), Jabalpur ought to have been refunded. S/ Section 201(1A) of the Act could be legally retained by the Revenue. In these circumstances, the interest under Section 201(1A) of the Act deducted and deposited by the respondent No.3 with the office of the ACIT (TDS), Jabalpur ought to have been refunded. 16. Therefore, in the facts and circumstances of the present case, any payment of TDS by the deductor in respect of payment made to deductee-petitioner will entitle the deductee to get back such TDS with interest at the time of framing of assessment under Section 143(3) of the Act. In such eventuality, it was not proper to hold the deductor as assessee in default under Section 201(1) nor interest could be levied under Section 201(1A) of the Act. 17. For the foregoing reasons and the admission of claim of refund of interest amount payable to respondent No.3 by the respondent No.2 and direction being issued in this regard to the respondent No.1 vide order dated 04.08.2017 (Annexure P-11), the impugned order dated 14.09.2017 (Annexure P-12) is quashed. The respondent Nos.1 and 2 are directed to refund the interest amount collected under Section 201(1A) of the Act from respondent No.3 on behalf of the petitioner together with interest under Section 244A of the Act, who in turn, shall pay the same to the petitioner in accordance with law. 18. Resultantly, the present petition is allowed and disposed of. (Ajay Kumar Mittal) Chief Justice (Vijay Kumar Shukla) Judge