Wednesday, June 15, 2016

Refund of Tax Deducted at Source U/s 195 to Deductor

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:-
  1.  The contract is cancelled and no remittance is made to the non-resident;
  2. 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;
  3. The contract is cancelled after partial execution and no remittance is made to the non-resident for the non-executed part;
  4. 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;
  5. 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;
  6. 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;
  7. There occurs deduction of tax twice from the same income by mistake;
  8. There occurs payment of tax on account of grossing up which was not required under the provisions of the Income-tax Act, 1961;
  9. 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:

"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.”

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.

The Assessing Officer may, after giving intimation to the deductor,
  1.  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.
  2. The balance amount, if any, should be refunded to the person who made such payment under section 195.
  3. 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.
  4. 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.
__________________________________________________________________________________
For suggestions and feedback please feel free to contact us via e-mail; dhruvjainassociates@yahoo.co.in or you can log on to our website: http://www.dhruvjainassociates.in
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This blog is the property of Dhruv Jain & Associates. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of the content of blog or of the blog itself  without the prior written consent of the author of this blog is strictly prohibited and doing so will attract legal proceedings. Any views or opinions presented in this blog post are solely those of the author and for informative purpose only and should not be treated /used as guiding rule or professional consultancy in any case. The matter of discussion is highly sensitive to the amendments made by the government under various laws and may not be updated as per the changes. Readers are suggested to take prior professional consultancy of experts before using the blog or its material in any way.
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Monday, May 30, 2016

Equalisation Levy Finance Act 2016

EQUALISATION LEVY (FINANCE ACT, 2016)

Organization for Economic Co-operation and Development’s (OECD’s) had considered,  base erosion and profit shifting (BEPS) Action Plan, to impose an equalization levy (i.e., a tax to equalize the tax burden on remote and domestic suppliers of similar goods and services) as one option to tax digital transactions. The final Action report did not recommend introducing such a levy as an internationally agreed standard at this stage, it did state that countries could introduce one in their domestic laws as an additional safeguard against BEPS, provided they respect existing treaty obligations, or include them in their bilateral tax treaties.

In the Indian fiscal budget 2016, Finance Minister proposed inserting a new chapter "Equalization Levy" in the Finance Bill 2016 to provide for an equalization levy.

Here it is imperative to highlight a key issue that this levy has been proposed in the Budget as part of the Finance Bill and not as income tax so the person would not be able to take benefit of tax treaties to avoid double taxation in their home countries. (This issue is unaddressed yet)

Concept of Equalisation Levy as per Chapter VIII of Finance Act, 2016:

Equalisation Levy Means:
                                                Tax leviable on
                                                Consideration received or receivable
                                                for Specified service

Specified Service Means:
1.    Online Advertisement
2.    any provision for digital advertising space or any other facility or 
       service for the purpose of online advertisement
3.    Any Other Service as Notified by Government.

Rate of Levy:                               At the Rate of 6% of consideration

Applicability:
     Amount of consideration
     for any specified services
     received or receivable
     by a person being a non-resident
                         
                      FROM

1.    Resident in India carrying business or profession or
2.    Non-Resident having PR in India
     
But shall NOT BE CHARGED, where

1.    Non-resident providing the specified service has PE in India and 
       such services are effectively connected with such PE.
2.    Aggregate amount received or receivable in a P.Y is Less than 
       Rs.1Lakh.
3.    Payment for specified service is not for purpose of business or 
       profession.

Date of Applicability:                   1st June 2016 N.No. 37/2016 F No. 370142/12/2016-TPL.

Date of Payment of Levy:             7th day of the month immediately following the calendar month.

Furnishing of Statement:               Statement in Form-1 to be furnished before 30th June annually.  

Penalty/ Consequence of Non-Compliance:

Equalization levy not deducted:
                                                      Equal to the amount of the levy that failed to deduct (along with 
                                                      interest and the outstanding levy amount)

Equalization levy was deducted
but not deposited:
                                                      The penalty is equal to INR1,000 for each day the failure 
                                                      continues, but not to exceed the amount of the equalization levy
                                                      that the assesse failed to pay (along with interest and the
                                                      outstanding levy amount)

Disallowance of exp.                    
                                                      Expense disallowed u/s 40 of income tax Act. unless the defect is 
                                                      rectified)

Failure to file statement:               
                                                      INR100 for each day the noncompliance continues

Prosecution:                                  
                                                      If a false statement has been filed, the person may be subject to 
                                                      imprisonment of a term of up to three years and a fine
__________________________________________________________________________________
For suggestions and feedback please feel free to contact us via e-mail; dhruvjainassociates@yahoo.co.in or you can log on to our website: http://www.dhruvjainassociates.in
___________________________________________________________________________________
This blog is the property of Dhruv Jain & Associates. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of the content of blog or of the blog itself  without the prior written consent of the author of this blog is strictly prohibited and doing so will attract legal proceedings. Any views or opinions presented in this blog post are solely those of the author and for informative purpose only and should not be treated /used as guiding rule or professional consultancy in any case. The matter of discussion is highly sensitive to the amendments made by the government under various laws and may not be updated as per the changes. Readers are suggested to take prior professional consultancy of experts before using the blog or its material in any way.
___________________________________________________________________________________