SC issues notice to RCom in tax matter

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: May 29 2012, 08:27am hrs
The Supreme Court has sought a reply from Reliance Communications (erstwhile Reliance Infocomm) as to why the I-T department should pay interest of R1.71 crore on refund of withheld tax. Tax was deducted at source (TDS) in a foreign remittance made by the Anil Ambani company, even though it was not to be paid as held by the Bombay High Court later.

A Bench, headed by Chief Justice SH Kapadia, issued notice to RCom on a petition filed by the department, seeking the apex court's intervention in deciding whether the department is liable to pay interest if it had granted refund to a deductor of tax under Section 195 of the Income Tax Act, 1961.

Challenging the high court judgment that asked it to pay interest on refund, the revenue department argued that such refund under the Act can be made only to the deductee on whose behalf tax has been deducted.

According to the petition, the high court misconstrued the law and its approach was "manifestly misconceived."

It cited a CBDT circular of October 23, 2007, that stated that no interest under Section 244A will be given in cases where refund of excess TDS was made on the ground that the amount paid into the government treasury to the extent of refund was no longer tax.

In this case, RCom had entered into a contract with Nortel Networks, Singapore, for the purchase of telecommunication software. The assessing officer in June 2003 held that payment made by RCom to the foreign company would qualify as royalty, thus tax was required to be deducted at source . The department asked RCom to withhold taxes on such foreign transaction. Accordingly, the company had deducted TDS of over R12.13 crore from remittance paid to Nortel. The company also transferred such payments to the tax authorities. While the I-T commissioner allowed interest on tax refunds to Reliance, the deputy director of income tax granted refund of withheld tax without interest.

However, the AO rejected the rectification application filed by RCom on the ground that as the refund had not arisen to the assesse under the Act, RCom is not entitled to receive any interest.