TMI Blog2022 (8) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has not furnished any certified copies of ledger account of assessee in the books of borrower parties so as to reflect the amount credited in the account of the assessee. Statutory provisions and judicial precedents, we feel it appropriate to restore this issue of granting credit of tax deducted source to the file of the AO for verification as to whether the assessee has shown interest income corresponding to the TDS in profit and loss account for the year under consideration and whether the tax has been deducted at source by the payer of the income. Assessing Officer need not to insist for demand in respect of said TDS payment to Government account as explained by the CBDT in OM F/No 275/29/2014-IT(B) dated 11.03.2016. The onus is on the assessee to substantiate its claim of tax deducted at source by way of necessary documentary evidence. AO is also at liberty to verify or make necessary inquiries from the borrower of loans as to what amount has been deducted by them in respect of the interest paid or credited to the assessee. It is needless to mention that the adequate opportunity of being heard shall be provided to the assessee. The grounds relating to the credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng credit for tax deducted at source (TDS), including credit for which the appellant court not furnish certificates but the payments were received net of taxes. 10. On the facts and in the circumstances of the case and in law, Hon ble CIT(A)/Ld. AO on facts and in law has erred in raising a demand, in respect of taxes already deducted at sources appropriately by the deductor and, making a demand of the said taxes which is not in consonance as per provisions of section 205 of the Act. 5. The appeal for assessment year 2014-15 was heard on 11/07/2022, whereas appeals for other assessment years were heard on 13/07/2022. As common issue in dispute is involved in all these appeals, same are disposed off by way of this consolidated order for convenience and avoid reputation of facts. 6. In support of the grounds recalled, the Ld. senior counsel of the assessee submitted that credit may be allowed in respect of tax deducted at source (TDS), including the items where the assessee could not furnish the TDS certificates, but the income was received net of taxes. It was further submitted that Indian borrowers have paid the interest income after deducting tax at source in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an companies and the appropriate taxes have been deducted at source from the same. The Assessing Officer was of the view that the DZ Bank India representative office was a permanent establishment (PE) of the head office DZ Bank AG and the interest income and other income earned by the head office from the operations in India should be taxed at the rate of the 40% as per the provisions of the Act. It was explained by the assessee that under Article 7 of the Indo German tax treaty, only so much of the business profits of a German enterprise can be brought to tax in India as are attributable to its permanent establishment in India and the representative assessee did not constitute PE of the DZ Bank AG in as much as no business activity were carried out from the same. The Ld. Assessing Officer however concluded that in view of the activities carried out, the representative office was engaged in managing the business of the enterprise i.e. DZ bank AG, and was functioning beyond preparatory or auxiliary activity, therefore it was a permanent establishment within the meaning of the expression in DTAA. The Assessing Officer also held the commitment fee and agency fees in connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the exclusion article 11(5) could have been triggered, nor the taxability under article 7 could not have come into play. It is not even Assessing Officer's case that the debt claims in question are effectively connected with the PE, but at best that there is a real relation between the business carried on by the assessee for which it receives interest and processing charges abroad and activities of its representative office in India which contribute directly or indirectly to the earning of income of the assessee (i.e. DZ Bank AG, Germany)- something is much less than the threshold nexus level to trigger article 11(5) exclusion clause. The existence of permanent establishment, in the light of our analysis of ITA No.: 1815/Mum/18 Assessment year: 2014-15 legal position, is not really relevant for determining the issue of taxability under article 7 on the facts of the present case. 32. In view of our detailed findings above, the question that we had raised on our own, with respect to the right hands in which impugned demands could be brought to tax, is rendered infructuous, and it does not call for our adjudication as on now and in this case. Suffice to say that the tax de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ensure that the Lender receives a sum net of any deduction or withholding equal to the sum which it would have received had no such Tax Deduction been made or required to be made. (b) The Borrower shall promptly upon becoming aware that it must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Lender accordingly. Similarly, the Lender shall notify the Borrower on becoming so aware in respect of a payment payable to the Lender. (c) If the Borrower is required to make a Tax Deduction, it shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law. (d) Within thirty days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Borrower shall deliver to the Lender evidence reasonably satisfactory to the Lender that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority. 8.3 According to the clause 12.2(c) of above agreement, the borrower was required to make payment of tax deducted at source as required under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of Form 26AS, the credit of TDS was used to be given on the basis of TDS certificate produced by the assessee. The Ld. counsel of the assessee has referred to the decision of the Hon ble Bombay High Court in the case of Yashpal Shani reported in 293 ITR 539(Bom). In said case, a question was raised as to where a company deducts tax at source ('TDS' for short) from the salary payable to an employee, but fails to deposit the said amount into the Government treasury, whether, the Revenue can recover the TDS amount with interest from the concerned employee in spite of the express bar contained in Section 205 of the Income Tax Act, 1961? 8.9 The Hon ble High Court after considering provisions of the law and precedents on the issue in dispute held that assessee should be provided credit of tax irrespective whether the tax deducted was deposited by the deductor into the government account. The relevant finding of the Hon ble High Court is reproduced as under: 15. Chapter XVII of the Income Tax Act, 1961 provides for collection and recovery of tax by two modes. They are (one) directly from the assessee and (two) indirectly by deduction of tax at source. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the amount so deducted on production of the TDS certificate issued under Section 203 of the Act. Section 205 of the Act provides that where tax is deductible at the source under Chapter XVII of the Act, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted. 19. Section 205 of the Act as it stood at the relevant time reads thus: 205 - Bar against direct demand on assessee-Where tax is deductible at the source under Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D, Section 194E, Section 195 and Section 196A, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. 20. From the language of Section 205, it is clear that once the tax is deducted at source, the same cannot be levied once again on the assessee who has suffered the deduction. Once it is established that the tax has been deducted at source from the salary of the employee, the bar under Section 205 of the Act comes into operation and it is immaterial as to whether the tax deducted at source has been paid to the Central Government or not, because el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it is established that the tax has been deducted at source and it is wholly irrelevant as to whether the tax deducted at source is paid to the credit of Central Government or not and whether TDS certificate in Form No. 16 has been issued or not. Also the mere fact that the employer may not issue TDS certificate to the employee does not mean that the liability of the employer ceases. The liabilty to pay income tax if deducted at source is upon the employer. 23. As held by the Gauhati High Court in the course of Omprakash Gattani (supra), once the mode of collecting tax by deduction at source is adopted, Page 1544 that mode alone is to be adopted for recovery of tax deducted at source. Although it is obligatory on the part of the person collecting tax at source to pay the said TDS amount to the credit of the Central Government within the stipulated time, if such person fails to pay the TDS amount within the stipulated time, then, Section 201 of the Act provides that such person shall be deemed to be an assessee in default and the revenue will be entitled to recover the TDS amount with interest at 12% p.a. and till the said TDS amount with interest is recovered there shall be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the said liability is not recoverable from the petitioner, the revenue is directed to earmark the said TDS liability as not recoverable from the petitioner. 8.10 Thus in the above case, the Hon ble court directed the Assessing Officer to allow credit of the TDS which was deducted by the payer of the income, irrespective whether the same was deposited in government account or not. In the above case, the assessee was able to substantiate by way of the salary slips and his bank statement that tax was deducted by the payer of salary income despite that no TDS certificate was issued by the deductor to the assessee. 9. Before us, the assessee has submitted that no certificate of tax deduction at source are available with the assessee. Therefore, respectfully following the decision of the Hon ble Bombay High Court in the case of Yashpal Sahni (supra), for availing credit of TDS, the assessee has to discharge its responsibility of substantiating whether tax was deducted by the payer of income. From the contract agreement also it is evident that the borrower was required to intimate to the DZ Bank AG regarding the amount of tax deducted at source and paid to the tax authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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