Facts of the Case

The petitioner, a non-resident company incorporated in Germany, filed its return of income for Assessment Year 2015-16 declaring nil taxable income. It asserted that the income received from Bajaj Allianz Life Insurance Company Limited was not taxable in India by virtue of Section 90 of the Income Tax Act, read with the applicable Double Taxation Avoidance Agreement.

Tax was deducted at source by the payer; however, part of the TDS pertaining to the last quarter of Financial Year 2014-15 was credited after the return had already been filed and therefore did not fully reflect in Form 26AS at the time of filing. While the return for AY 2015-16 was completed under Section 143(3) without any additions, the petitioner was denied credit of the TDS amount in the subsequent assessment year.

Repeated rectification applications were not acted upon, leading the petitioner to file a revision application under Section 264, which was dismissed by the Commissioner. This dismissal was challenged before the High Court.

 

Issues Involved

Whether credit and refund of tax deducted at source can be denied on the ground that the corresponding income was not offered to tax, and whether revision of the return is mandatory to claim TDS credit when such credit is reflected subsequently in Form 26AS.

 

Petitioner’s Arguments

The petitioner contended that the income received was consistently claimed as non-taxable under Section 90 and was never disputed by the Revenue. The assessment under Section 143(3) accepted this position without any additions.

It was argued that denial of TDS credit merely because of delayed reflection in Form 26AS is contrary to law. Section 155(14) specifically provides a mechanism for granting TDS credit once the same is reflected subsequently, without requiring revision of the return. The petitioner asserted that refusal of refund was arbitrary and contrary to the statutory scheme.

 

Respondent’s Arguments

The Revenue argued that since the income was not offered to tax, the petitioner was not entitled to TDS credit. It was further contended that the petitioner ought to have revised its return to include the income and claim the TDS credit, failing which no refund could be granted. The Commissioner relied on this reasoning to dismiss the revision application under Section 264.

 

Court Order / Findings

The Delhi High Court set aside the impugned order and allowed the writ petition. The Court held that the reasoning adopted by the Commissioner was fundamentally flawed.

The Court observed that the income in question was never held to be taxable under the Act and that the assessment under Section 143(3) had accepted the petitioner’s position. In such circumstances, denial of TDS credit was legally untenable.

Interpreting Section 155(14), the Court held that the statute itself contemplates situations where TDS credit is reflected at a later stage and mandates amendment of the assessment order once such credit is established. The provision does not require revision of the return as a precondition.

The refusal to grant refund was therefore held to be illegal and arbitrary. The respondents were directed to refund the TDS amount along with statutory interest.

 

Important Clarification

The Court clarified that an assessee cannot be denied TDS credit merely because the corresponding income is claimed as exempt or non-taxable, particularly when such claim has not been rejected by the Revenue. Section 155(14) is a remedial provision intended to address delays in TDS reflection, and tax authorities are statutorily bound to grant credit and refund once Form 26AS reflects the deducted tax. Revision of return is not mandated in such circumstances.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194247_MUNCHENERRUCKVERSICHERUNGSGESELLSHAFTAKTIENGESELLSCHAFTINMUNCHENVsTHECOMMISSIONEROFINCOMETAXINTERNATIONTAXATION2ANR..pdf

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