In the context of Income Tax, Tax Deducted at Source (TDS) plays a crucial role in collecting taxes at the very point when income is generated. However, there are instances where tax is deducted at the source, but the taxpayer might claim it as non-deductible, or there might be disputes over the correctness of such deductions. In such cases, Section 248 of the Income Tax Act, 1961 comes into play.
Section 248 provides taxpayers with an avenue to challenge and seek relief in cases where tax has been deducted at source, but they believe it was wrongly deducted, or it was non-deductible in the first place. This section offers a mechanism for filing appeals in certain situations, particularly when tax has been deducted but claimed to be non-deductible by the taxpayer.
In this blog, we will delve into how Section 248 addresses these cases, who can file appeals under this section, and the broader implications of this provision for tax disputes.
Overview of Section 248
Section 248 of the Income Tax Act primarily deals with the appeals that taxpayers can file if they believe that tax has been deducted at source (TDS) or collected at source (TCS) incorrectly. The section allows taxpayers to dispute the TDS or TCS if they believe that the amounts were wrongfully deducted or should not have been deducted at all.
Key Provisions of Section 248
- Appeals Against TDS or TCS Claims: Section 248 is designed for situations where the taxpayer believes the tax deducted is not deductible. This could happen due to various reasons, including the taxpayer not being liable for the tax deduction, or the income being exempt from tax under specific provisions.
- Scope of Application: It applies to cases where tax has been deducted under various sections of the Income Tax Act, but the taxpayer claims that the deduction was wrong or not applicable. It also applies in cases where the taxpayer was charged higher than required or when the tax deducted does not match the actual liability.
- Taxpayers Who Can Appeal: The provision is available to taxpayers who are aggrieved by the deduction or collection of tax and want to seek a resolution by filing an appeal with the appropriate authorities.
How Section 248 Addresses Non-Deductible Tax Claims
1. Tax Deducted in Error or Excess
Section 248 provides a means for a taxpayer to challenge cases where tax was deducted in error or in excess. For instance, if the TDS was deducted from an amount that was not taxable, or the tax deducted exceeded the actual tax liability, Section 248 allows the taxpayer to file an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) to resolve the matter.
Example:
A foreign company receives payment for services provided in India. The Indian company deducts TDS under Section 195, but the rate of deduction applied was higher than the rate prescribed under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign company’s country. The foreign company believes the deduction was incorrect and files an appeal under Section 248 to seek a refund of the excess tax deducted.
2. Claim of Exemption or Non-Deductibility
Section 248 also addresses scenarios where the taxpayer claims that the income is exempt or non-deductible under specific provisions of the Income Tax Act. For instance, certain types of income may be exempt from TDS under provisions like Section 10 (exempt income). If the tax is wrongly deducted despite this exemption, the taxpayer can appeal under Section 248.
Example:
A taxpayer is receiving interest income under Section 10(15), which is exempt from tax. However, TDS is deducted by the bank on the interest income. The taxpayer believes that the tax should not have been deducted and appeals under Section 248.
3. No Liability to Deduct Tax
In some cases, tax may be deducted even though the taxpayer is not liable to deduct tax under the Income Tax Act. Section 248 provides a remedy in such cases, allowing the taxpayer to file an appeal for rectification and adjustment.
Example:
A contractor providing services to a company might be wrongly classified as a “non-resident,” leading to tax being deducted at a higher rate than applicable. The contractor can appeal under Section 248, arguing that they are a resident and thus exempt from higher TDS rates.
Filing an Appeal Under Section 248
The process of filing an appeal under Section 248 is similar to the regular appeal process under the Income Tax Act. Taxpayers need to follow the prescribed steps to file the appeal:
Step 1: File an Appeal with the Commissioner (Appeals)
- Form No. 35: The taxpayer needs to file an appeal in Form No. 35 to the CIT(A), providing all necessary documentation and details supporting their claim that tax was deducted improperly or that the income was non-deductible.
- Time Limit: The appeal must be filed within 30 days of receiving the order or notice of the disputed TDS or TCS.
Step 2: Provide Grounds for Appeal
- The grounds of appeal must specify why the TDS was wrongfully deducted or why the income was non-deductible. The taxpayer may also submit any supporting documents, such as agreements, payment receipts, or relevant tax provisions.
Step 3: CIT(A) Review and Decision
- The CIT(A) will review the case, consider the grounds of appeal, and may schedule a hearing if necessary. The taxpayer and the tax department may be asked to present their arguments.
- After considering all facts, the CIT(A) may confirm, modify, or annul the disputed order.
Key Case Law on Section 248
- CIT v. R.K. Builders (2001) 251 ITR 207 (SC): In this case, the Supreme Court clarified that Section 248 applies to cases where tax is wrongly deducted or where there is a claim of exemption from TDS under specific provisions. The case emphasized the right of taxpayers to challenge such deductions and seek adjustment or refund.
- Dr. Subhash Chandra v. Income Tax Officer (2020) 118 taxmann.com 250 (Delhi): The Delhi High Court ruled that taxpayers who claim that TDS was deducted in excess or wrongfully applied can file an appeal under Section 248 to seek redressal. The court stressed the importance of timely filing and correct documentation to support the claim.
Conclusion
Section 248 is a crucial provision in the Income Tax Act that allows taxpayers to appeal against incorrectly deducted tax or non-deductible income. Whether it is a case of excess tax deducted, a wrongly applied TDS rate, or tax deducted on exempt income, Section 248 provides a mechanism for taxpayers to seek relief.
By understanding the provisions of Section 248 and the process of filing an appeal, taxpayers can ensure they are not unfairly burdened with unjustified tax demands. It is important for taxpayers to be aware of their rights and remedies available under this provision, especially in situations involving TDS or TCS disputes.
Additional Resources
Learn more about Tax Provisions on the official Income Tax India website.
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