Dy. Director of Income Tax isn’t empowered to lodge complaint for prosecution against taxpayer

Facts:

a) The Deputy Director of Income Tax (‘Dy. DIT’) filed complaint for prosecution against taxpayers (i.e., husband and wife) under Indian Penal Code on basis of revelation that the statements made by taxpayers on the date of the search were false and misleading.

b) The Trial Court held that sufficient grounds had been made out against taxpayers to proceed under Sections 191,193, 200 IPC.

c) The taxpayers sought annulment of order of Trial Court primarily on the ground that the search operations having been undertaken by the I.T.Os., the complaint could not have been lodged by the DY. DIT, who was not the appellate authority in terms of Section 195(4) of the CrCPC. On appeal, the High Court declined to interfere on either of these contentions.

The Supreme Court held as under:

1) The DY. DIT, cannot be construed to be an authority to whom appeal would ordinarily lie from the decisions or orders of the I.T.Os involved in the search proceedings so as to empower him to lodge the complaint in view of the restrictive preconditions imposed by Section 195 of CrPC.

2) Thus, the complaint filed by the Deputy Director of Income Tax was to be held as incompetent. – [2016] 73 taxmann.com 32 (SC)

Sec. 246A doesn’t allow filing of appeal before CIT(A) against order passed by AO under Sec. 195(2)

Facts:

a) ONGC entered into a contract with Abu Dhabi Ship Building PJSC and Rodman Polyship, Vigo, Spain for construction of Immediate Support Vessels (ISV).

b) ONGC filed application before the Assessing Officer (AO) under section 195(2) requesting for approval for non–deduction of tax at source on payment for the construction of the ISVs.

c) AO rejected the application as he was of the view said payments were taxable in India and, thus, liable to tax deduction at source under section 195.

d) Abu Dhabi Ship Building (payee) filed an appeal before the CIT (Appeals) challenging the order under section 195(2). CIT (A) reversed the order of AO.

e) Aggrieved by the order of CIT (A), revenue filed the instant appeal before the Tribunal. The issue before the Tribunal was as under:

Deductor to get interest on TDS refund from date of filing claim and not from date of deposit of TDS

Facts:

a)    The assessee, a steel manufacturing co., entered into an agreement with German company for transfer of technical know-how in order to establish an integrated steel plant.

b)    Assessee was required to make payment to German Co. in three installments after deducting tax at source under Section 195.

c)    Subsequently, since the German company was not able to fulfil its obligations, it agreed to waive the payment of third instalment of technical knowhow fee and treated the payment of first and second instalments as full and final payment against the contract.

d)    The petitioners subsequently filed an application (after 18 months from the date of waiver of third installment by German Company) claiming refund of the amount which was deposited as advance TDS towards the third instalment of the payment which was to be made to the German company.

Discount to foreign buyer in lieu of advance payments was in nature of interest; liable to TDS

Pre-payment discount given by assessee to foreign buyers in absence of any mention in purchase contract that obliged assessee to give said discount, was in nature of interest and tax was deductible on it at source under section 195

Facts

a)The assessee-seller gave some discount to foreign buyers on sale in consideration of receiving advance payment for the same.

b)The Assessing Officer (AO) opined that assessee was not obliged to give said discount as per the purchase contract entered into between assessee and foreign buyer and, therefore, benefit allowed by assessee to its buyers as pre-payment discount was, in fact, in nature of interest on which TDS was deductible under section 195.

c)The Commissioner (Appeals) (‘CIT(A)’) deleted the addition made by the AO.

d)Aggrieved by the order of CIT(A), revenue filed the instant appeal before the tribunal.

The tribunal held in favour of revenue as under-

1)It was mentioned in the purchase contract that the seller would cause the issuance of a banker's guarantee for an amount equal to the provisional price plus interest in the form acceptable to buyer.

2)It was also specified in the contract that within two business days from the date buyer's bank received the guarantee in the acceptable format, buyer would pay to seller the pre-payment amount. Hence, assessee was not obliged to offer discount to the buyer as per the purchase contract.

3)As per the invoice, it was seen that pre-payment discount was allowed and buyer was asked to make payment of the balance amount against the invoiced price after adjusting the advance received by the assessee and pre-payment discount.

4)So, asking the buyer to pay lesser amount after adjusting discount or making payment of discount to the buyer was same thing because in both the cases, the buyer received the benefit.

5)Thus, the benefit allowed by the assessee to its buyers as discount was, in fact, in the nature of interest because the same was in consideration of receiving advance payment, and, therefore, TDS was deductible under section 195 and disallowance made by AO was held as justified-DEPUTY CIT V. KOTHARI FOOD & FRAGRANCES [2014] 50 TAXMANN.COM 213 (LUCKNOW - TRIB.)

No liability of bank to withhold tax from cap gains remitted to a non-resident when it was merely acting as broker

Where assessee-bank was only acting as an authorized dealer to brokers of foreign residents in transferring funds in respect of share transactions, which resulted in gains, it was not liable to withhold tax under section 195.

Facts:

a)Individuals (residents of UAE) carried out transactions in shares through brokers and earned short-term capital gains. The assessee-bank made remittances on behalf of brokers in respect of these gains without deduction of tax.

b)According to the AO, the assessee-bank (in capacity as remitter) was to deduct tax at source before making overseas payments under section 195. Subsequently, the AO held that the assessee-bank was a defaulter under section 201 and was liable to pay interest under section 201(1A). On appeal, the CIT(A) reversed the order of AO.

On appeal, the Tribunal held in favour of assessee as under:

1)The ITAT Mumbai Bench in the case of Hongkong & Shanghai Banking Corpn. Ltd.,v. Jt. CIT [2009] 29 SOT 17 had held that capital gains arising to the NRIs residing in UAE were short term capital gains and the bank, which was acting as an authorized dealer, was not liable to deduct tax. Consequently, the AO was not justified in treating the assessee as a defaulter under section 201;

2)In the instant case, the non-residents had earned short-term capital gains and the assessee-bank was only acting as an authorized dealer in transferring the funds on behalf of the broker.

3)Thus, following the order of ITAT Mumbai bench (Supra) it was to be held that assessee-bank was not a person responsible for paying tax within the meaning of section 204 and, therefore, it was not liable to deduct tax at source under section 195. Therefore, assessee-bank could not be treated as a defaulter within the meaning of section 201. – ITO(IT)(TDS) V. ABU DHABI COMMERCIAL BANK [2014] 47 taxmann.com 263 (Mumbai - Trib.)