Refund of Tax Deducted at Source U/s 195 To Deductor
Very
often assessee involved in transactions with Non-residents faces a situation where
transaction with the Non-residents is disrupted and they have deducted &
deposited TDS on the transaction to the accounts of the government.
In
addition to other concerns the assessee find himself trapped in additional loss
on account of Tax deducted at source on the transaction which he has already
paid to the government.
To
remove the genuine hardship the CBDT issued the Circular No. 790 dated 20/04/2000,
which lay down the procedure for refund of tax deducted under section 195, in
certain situations to the person deducting the tax at source from the payment to the
non-resident.
However
there are situations where genuine claim for refund arises to the person
deducting the tax at source from payment to the non-resident and it does not
fall in the purview of the Circular No.790.
So
Board has revised procedure for refund of TDS us 195 to the deducted vide
circular no 7/2007 dated 23/10/2007 & circular no 7/2011 dated 27/09/2011.
The
cases which are covered mainly relate to circumstances where, after the deposit
into Government account of the tax deducted at source under section 195:-
- The contract is cancelled and no remittance is made to the non-resident;
- The remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source;
- The contract is cancelled after partial execution and no remittance is made to the non-resident for the non-executed part;
- The contract is cancelled after partial execution and remittance related to non-executed part is made to the non-resident. In such cases, the remitted amount has been returned to the person responsible for deducting the tax at source or no remittance is made but tax was deducted and deposited when the amount was credited to the account of the non-resident;
- There occurs exemption of the remitted amount from tax either by amendment in law or by notification under the provisions of Income-tax Act, 1961;
- An order is passed under section 154 or 248 or 264 of the Income-tax Act, 1961 reducing the tax deduction liability of a deductor under section 195;
- There occurs deduction of tax twice from the same income by mistake;
- There occurs payment of tax on account of grossing up which was not required under the provisions of the Income-tax Act, 1961;
- There occurs payment of tax at a higher rate under the domestic law while a lower rate is prescribed in the relevant double taxation avoidance treaty entered into by India.
In
the cases mentioned above, income does not either accrue to the non-resident or
it accrues but the excess amount in respect of which refund is claimed, is
borne by the deductor.
The
amount deducted as tax under section 195 and paid to the credit of the
Government therefore belongs to the deductor.
In
the type of cases referred above in point-1, the non-resident not having
received any payment would not apply for a refund.
For
cases covered in point-2 to 9, no claim may be made by the non-resident where
he has no further dealings with the resident deductor of tax or the tax is to
be borne by the resident deductor.
This
resident deductor is therefore put to genuine hardship as he would not be able
to recover the amount deducted and deposited as tax.
Hence
where no income has accrued to the non-resident due to cancellation of contract
or where income has accrued but no tax is due on that income or tax is due at a
lesser rate, the amount deposited to the credit of Government to that extent
under section 195, cannot be said to be "tax", this amount can be
refunded.
Procedure for the
Refunds:
Prior
approval of the Chief Commissioner of Income-tax or the Director General of
Income-tax concerned, to the person who deducted it from the payment to the non-resident,
under section 195, is required.
The
amount paid into the Government account in such cases to that extent, is no
longer "tax". In view of this, no interest under section 244A was admissible on refunds.
However the board vide circular No. Circular No. 11/2016 F.No.279/Misc./M-140/2015-ITJ, has allowed interest on refund of TDS as under:
In view of the above
judgment of the Apex Court it is settled that if a resident deductor is
entitled for the refund of tax deposited under Section 195 of the Act, then it
has to be refunded with interest under section 244A of the Act, from the date
of payment of such tax.
However the board vide circular No. Circular No. 11/2016 F.No.279/Misc./M-140/2015-ITJ, has allowed interest on refund of TDS as under:
"The issue of eligibility for interest on
refund of excess TDS to a tax deductor has been a subject matter of controversy
and litigation. The Hon’ble Supreme Court of India in the case of Tata Chemical Limited (2014-LL-0226-164
NJRS Citation), Civil Appeal No. 6301
of 2011 vide order dated 26.02.2014, held that, “Refund due and payable to the assessee is debt-owed and payable by the
Revenue. The Government, there being no express statutory provision for payment
of interest on the refund of excess amount/tax collected by the Revenue, cannot
shrug off its apparent obligation to reimburse the deductors lawful monies with
the accrued interest for the period of undue retention of such monies. The
State having received the money without right, and having retained and used it,
is bound to make the party good, just as an individual would be under like
circumstances. The obligation to refund money received and retained without
right implies and carries with it the right to interest.”
The
Assessing Officer may, after giving intimation to the deductor,
- adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law.
- The balance amount, if any, should be refunded to the person who made such payment under section 195.
- A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer or the Assessing Officer in favour of the "Income-tax Department" and sent to the bank along with the challan of the appropriate type.
- The amount adjusted and the balance, if any, refunded would be debitable under the major head "020-Corporation Tax" or the major head "021-Taxes on incomes other than Corporation tax" depending upon whether the payment was originally credited to the major head "020-Corporation tax" or to the major head "021-Taxes on Income other than Corporation tax".
Refund
should be granted only after obtaining an undertaking that no certificate under
section 203 of the Income-tax Act has been issued to the non-resident.
In
cases where such a certificate has been issued, the person making the refund
claim should either obtain it or should indemnify the Income-tax Department
from any possible loss on account of any separate claim of refund for the same
amount by the non-resident.
A
refund should be granted only if the deductee has not filed return of income
and the time for filing of return of income has expired.
Assessing
Officer shall disallow corresponding transaction amount, if claimed, as an
expense in the case of the person, being the deductor making refund claim for the
refund is permitted in respect of transactions with non-residents which have
either not materialized or have been cancelled subsequently.
Period of Limitation:
The
limitation for making a claim of refund shall be two years from the end of the
financial year in which tax is deducted at source.
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