Payment made to the manager for Euro Issue without deducting TDS can create liability of interest under sec 194A of the Act

IN THE INCOME TAX APPELLATE TRIBUNAL

“C” BENCH: MUMBAI

BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER

AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER

ITA.6075/Mum/2010

(Assessment Year: 1999-00)

Asst. Director of Income-tax

(International Taxation)-1(2),

119, Scindia House,

Ballard Pier,

Mumbai-400 038 .....…. Appellant

Vs

Carol Info Services Ltd.,

(Formerly –Wockhardt Life Sciences Ltd.)

City Survey No.681, Village-Nahur,

Mulund Goregaon Link Road,

Bhandup (W), Mumbai -4000 078 .....… Respondent

PAN: AAACW 1299 E

Appellant by: Shri A.K. Nayak

Respondent by: Shri Rajan R. Vora

Date of Hearing: 19.01.2012

Date of Pronouncement: 14.03.2012

O R D E R

PER R.S. PADVEKAR, JM:

In this appeal the revenue has challenged impugned order of the Ld. CIT (A)-10, Mumbai dated 14.05.2010 for the A.Y. 1999-2000. The revenue has taken the following effective ground:

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing to allow interest under section 244A on the amount of self assessment tax ignoring the Circular No.769 and 790 issued by the CBDT.”

2. The short controversy in this appeal is whether the assessee is entitled for interest u/s.244A of the Act on the amount of Rs.1 crore paid in pursuance of the order passed by the A.O. u/s.195 r.w.s. 201 & 201(1A) of the Act.

3. The facts which are revealed from the record as under. The assessee made a Euro issue in February, 1994 for USD 75.00 million. The assessee had appointed M/s. Barclays de Zoete (BZ) (in short Barclays) as a lead manager for assisting the issue and had paid an amount of Rs.8.72 crores towards various services rendered by said party as a lead Manager of the assessee. At the time of making payments to Barclays the assessee did not withhold any tax u/s.195 of the Act. The A.O. passed the order u/s.195 r.w.s. 201(1) and 201(1A) of the Act dated 24.01.2000 treating the assessee as assessee in default for not deducting tax u/s.195 in respect of the payment

made to M/s. Barclays, lead Manager and raised demand of Rs.6.25 crores on the assessee, comprising tax demand of Rs.3.74 crores and interest u/s.201(1A) of the Act of Rs.2.78 crores. In pursuance of the order passed by the A.O. u/s.195 r.w.s. 201(1) and 201(1A) of the Act the assessee paid Rs.1 crore on 30.03.2000 to meet the part of the demand. The assessee challenged the said order before the first appellate authority who passed the order dated 04.04.2000 sustaining the order of the A.O. but set aside the issue of non-applicability of grossing-up of tax to the A.O. and gave direction for adopting lower rate of tax. The A.O. passed the order giving appeal effect on 30.05.2000 and recomputed the demand at Rs.4.91 crores which comprised tax of Rs.2.62 crores and interest of Rs.2.29 cores. In setting aside the proceedings, the A.O. rejected the contention of the assessee on non-applicability of grossing up and after adopting lower rate of tax, granted credit of Rs.1 crore paid on 30.03.2000 and raised the fresh demand of Rs.3,98,00,000/-. Again the assessee carried the issue before the Ld. CIT (A) who allowed the appeal of the assessee on the issue of the grossing-up and directed the A.O. not to comply grossing-up while working out tax liability. The assessee further carried the matter before the ITAT and the ITAT vide order dated 08.06.2005 allowed the appeal filed by the assessee and cancel the demand raised by the A.O. u/s.195 r.w.s. 201(1) and 201(1A) of the Act. The A.O. passed the order giving appeal effect to the order of the Tribunal dated 30.09.2005, deleting the demand of Rs.4.91 crores who omitted the credit of Rs.1 crore for tax paid by the assessee. The A.O. passed the rectification order u/s.154 on 18.01.2006 granting refund of tax of Rs.1 crore along with the interest u/s.244A(1) of the Act of Rs.47.50 lakhs, for period from 30.03.2000 to 18.01.2006 (date of order). However, subsequently, the A.O. vide order dated 2.6.2009 passed u/s.154 has withdrawn interest of Rs.47.50 lakhs which was allowed u/s.244A(1) of the Act vide order dated 18.01.2006. The assessee challenged the order passed by the A.O. u/s.154 withdrawing interest granted u/s.244A(1) of the Act before the Ld. CIT (A). The Ld. CIT (A) after considering the decision in the case of ITO vs. Delhi Development Authority 252 ITR 772 (SC) as well as the decision in the case of ADIT Mumbai vs. M/s. Reliance Info Com Ltd. 209-TIOL-602-ITAT-Mumbai order dated 09.09.2009 directed the A.O. on the ground to allow the interest on the amount of Rs.1 crore paid by the assessee. Now, the revenue is in appeal before us.

4. We have heard the rival submissions of the parties and perused the records. We find that vide order u/s.201(1) and 201(1A) of the Income-tax Act dated 24.02.2000 the A.O. raised the demand of Rs.6,51,86,075/-, in which the interest u/s.201(1A) was worked out at Rs.2,77,76,563/-. The identical issue has already been considered by the Hon’ble Supreme Court in the case of ITO vs. Delhi Development Authority 252 ITR 772. As per the facts narrated in the

judgment, the Delhi Development Authority (in short DDA) was to construct and allot the flats to buyers within the time stipulated in their agreements. On failure to do so the DDA was liable to pay interest to the buyers on the amount paid by them for the period of delay. The DDA made payment of interest to the buyers in consequence of default to allot flats in time limit. The ITO(TDS) found that the DDA failed to deduct income-tax at source on the payment of interest made to the said buyers as provided u/s.194A of the Incometax Act. Accordingly, the demand was raised for A.Ys. 1987-88, 1988- 89 and 1989-90 and appeal against said order to the Commissioner of Income-tax (Appeals) failed. The Tribunal allowed the appeal filed by the DDA by holding that the credit to the accounts of the allottees were not in the nature of interest within the meaning of sec.2(28A) of the Act. At the instance of the Department reference was made to the High Court. In the mean time, order giving effect to the order of the Tribunal was passed by the concerned authority giving refund of the amount with interest calculated u/s.244(1) of the Act. The DDA filed the Writ Petition before the Delhi High Court challenging quantum of

interest granted by the Department. The Department resisted the claim on the ground amount refunded to the DDA was not amount of tax or involved any amount tax paid by the DDA so as to attract sec.244A. The High Court negativeed the plea of the Department and allowed the Writ Petition filed by the DDA. The matter was further carried by the Department to the Hon’ble Supreme Court. Hon’ble Supreme Court confirmed the order of the Hon’ble High Court dismissing the appeal filed by the revenue. It is held that the term “assessee” includes actual as well deemed assessee under the provisions of the Act. Moreover, the A.O. passed the order u/s.201(1), 201(1A) of the Act raising the demand and in consequence of the said order DDA paid the tax and hence, the Department was liable to pay the interest to the DDA.

5. In the case of DDIT (IT)-2(1) Mumbai vs. M/s. Set Satellite (Singapore) Pte Ltd. PTI 4975/M/2005 order dated 26.11.2009 the Tribunal has again considered the identical situation and directed the A.O. to pay the interest to the assessee.

6. In the case of DDIT, Mumbai V/S M/s. Star Cruises (India) Travel Services P. Ltd. vs. 2009-TIOL-351-ITAT-Mumbai Tribunal has again considered identical situation in which the tax was paid in consequence of the order passed by the A.O. u/s.195(2) in the said case, and also after considering Circular No.769 dated 06.08.1998 and Circular No.790 dated 24.02.2000 issued by the CBDT held that assessee is entitled for interest under sec. 244A of the Act. In the light of our above discussion, we are of the opinion that the order of the Ld. CIT (A) is correct as per the provisions of law and no interference is called for. We, accordingly, confirm the same.

7. In the result, revenue’s appeal stands dismissed.

Order pronounced in the open court on this day of 14th March, 2012.

                                          Sd/-                                             Sd/-

                                   (R.S. SYAL)                      (R.S. PADVEKAR)

                         ACCOUTANT MEMBER         JUDICIAL MEMBER

Mumbai, Date: 14th March, 2012

Copy to:-

1) The Appellant.

2) The Respondent.

3) The CIT (A)-10, Mumbai.

4) The DIT (International Taxation)-Range-1, Mumbai.

5) The D.R. “C” Bench, Mumbai.

/ / True Copy / /

                                                                                                                               By Order

Asstt. Registrar

 I.T.A.T., Mumbai

*Chavan