No denial of TDS credit on its non-appearance in ITD system of department if Form No. 16A was issued by payer

Where deductor had issued Form No. 16A after deducting tax at source, its credit could not be denied to deductee solely on ground that such credit does not appear on ITD system of department and/or same does not match with ITD system of department.

The issue that arose before the High Court was as under:

Whether deductee could claim credit of TDS on the basis of Form No. 16A issued by the deductor even if such credit did not appear or did not match with the ITD system of the department?

The High Court held in favour of assessee as under:

1)Section 204 of income tax Act (‘the Act’) imposed liability to deduct tax at source upon the employer/deductor. It is clearly stated under section 205 of the Act that the assessee (i.e., deductee) shall not be called upon to pay the tax himself to the extent to which tax has been deducted by the deductor.

2)Considering the Sections 204 and 205 of the Act, it can be said that deductee shall be entitled to claim credit of TDS when the deductor who was liable to deduct the tax at source deducted it and issued Form No.16A to the deductee.

3)Credit of TDS could not be denied to the deductee even if after deducting the tax at source, the same had not been deposited in the account of the government by the deductor. In such a case the department had to recover the said amount from the deductor instead of denying credit to the deductee.

4)Hence, a deductee was not supposed to do anything in the whole transaction except that he had to accept the payment of the reduced amount after TDS. It was observed that on the amount being deducted the deductee got a certificate to that effect from the person responsible to deduct the tax and credit for the same could not be denied solely on the ground that such credit did not appear or did not match with ITD system of department.- SUMIT DEVENDRA RAJANI V. ASSISTANT CIT [2014] 49 taxmann.com 31 (Gujarat)

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.)