ITO vs. Sun Pharmaceutical Industries Ltd (ITAT Mumbai)

S. 195 TDS: Application for refund of TDS due to cancellation of contract with non-resident can be made vide s. 154 application

The assessee remitted consulting charges/fees to a Taiwan based company called ‘Scandinavian Health Ltd’ on which it did not deduct tax at source u/s 195. The AO passed an order u/s 201 & 201(1A) by which he held the assessee to be in default. The assessee filed an application u/s 154 in which it pointed out that the agreement with the Taiwanese company had been subsequently cancelled and that there was no obligation to deduct TDS as per the CBDT’s Circular No.7 of 2007 dated 23.10.2007. The AO rejected the application on the ground that there was no mistake apparent from the record. On appeal, the CIT (A) upheld the claim and directed the AO to verify whether the conditions laid down in Circular No. 7 of 2007 for a refund of tax already collected had been satisfied. The department filed an appeal before the Tribunal claiming that there was no apparent mistake in the AO’s order and that the CIT(A) had admitted new evidence without granting any opportunity to the AO. HELD by the Tribunal dismissing the appeal:

Before the CIT(A) the assessee filed copies of various invoices raised on it in pursuance to the contract by the Taiwanese company and also filed copy of credit note issued pursuant to the cancellation of the contract and documents showing inward remittance of the amount earlier paid. The CIT(A) held that the case of the assessee is covered by sub-clause (b) of clause 2 of Circular No. 7 dated 23.10.2007 and clause 2(b) of Circular No. 790 dated 20.04.2000. In para 2.1 of Circular 7 dated 23.10.2007, it is clearly provided that once the amount already remitted in pursuance of a contract has been refund back to the remitted after cancellation of the contract, no income accrues to the non-resident. It is also provided in the circular that the amount of tax paid u/s195 can be refunded to the deductor with prior approval of the CCIT. The detailed procedure is provided in the said circular and certain pre-conditions are to be satisfied, suitable undertaking from the deductor has to be obtained before the refund can be issued. It is also specified that refund can be given only if the non-resident has not filed any return and the time limit for filing of return has already expired. It was held that as the contract has been cancelled and the money has been received back, no tax is payable by the non-resident assessee. The CIT (A) directed the AO to verify that the conditions laid down in Circular No.7 of 2007 have been satisfied. There is no infirmity in the order of the CIT(A) and it cannot be said that AO was not allowed any opportunity as he has to verify the details before granting any refund of tax if any.