ITAT Directs to Grant TDS Exemption after Verification of TDS Exemption Certificate issued u/s 195(3) of IT Act by Joint Director found Genuine [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) has directed the grant of Tax Deducted at Source ( TDS ) exemption after confirming the authenticity of the TDS exemption certificate issued under Section 195(3) of the Income Tax Act by the joint director found genuine

The assessee was engaged in the business of development of software and running a call center. During the survey conducted on 11/12/2002 under section 133A of the Income Tax Act, 1961, it was found that the assessee made payments to IGTL Solutions ( USA ) and True Dial Technologies INC, without deducting the tax at source under section 195 read with Section 9(1)(vi) and (vii) of the Income Tax Act.

According to the Assessing Officer the assessee having not made any deduction of tax at source without making any application under section 192(2) of the Act before the Assessing Officer and without ensuring that an application under section 195(3) of the Act was filed by the recipient to obtain necessary exemption, was liable to be treated as an assessee in default, in terms of the provisions of section 201(1) of the Income Tax Act. The Assessing Officer also charged interest under section 201(1A) of the Income Tax Act, and passed the order dated 10/02/2003.

 Mr. P. Saketh Reddy, representing the assessee argued that the consequence of the granting of the exemption under section 195(3) of the Act is that the entire remittances that have been made to M/s IGTL Solutions (USA) would be non-taxable so far as the TDS is concerned and, therefore, the order dated 10/02/2003 passed under section 201(1A) of the Income Tax Act, has no legs to stand. He accordingly prayed that the appeal may be allowed and the order dated 10/02/2003 passed under Section 201(1A) of the income Tax Act may be annulled.

Per contra, Mr. K. Madhusudan representing the revenue submitted that the observation of the High Court is that the consequence of non-deductibility of the TDS in respect of the payments made to M/s. IGTL Solutions ( USA ) would flow only after the alleged certificate said to have been issued under Section 195(3) of the Income Tax Act was verified and found to be genuine. He, therefore, prayed that the Assessing Officer may be directed to verify the genuineness of the certificate under Section 195(3) of the Income Tax Act and if it is found to be genuine, then to grant the relief as directed by the High Court.

The two member bench of the tribunal comprising S.Rifafur Rahman ( Accountant member) and K. Narasimha Chary ( Judicial member) considered that it was  only if the contents of the certificate issued in section 195(3) of the Income Tax Act are verified and found to be correct and genuine, then the consequences would be that the remittances that have been made to M/s. IGTL Solutions (USA) would be non-taxable so far as the TDS is concerned, since if the contents of such certificate are accepted, then the action on the part of the Revenue in carrying out a deduction at source on the remittances made to M/s. IGTL Solutions (USA) would be bad.

Further the assessing officer was directed to cause verification of the certificate dated 10/02/2003, issued under section 195(3) of the Act and if it is found to be genuine, the consequence shall be that the entire remittances that were made to M/s. IGTL Solutions ( USA ) would be non-taxable so far as TDS was concerned, and the impugned order under section 201(1A) of the Income Tax Act will have no legs to stand. Accordingly appeal of the assessee was treated allowed for statistical purposes

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates