In the case of a Joint Venture, when co-joint venturer can claim credit of TDS.

Facts:

• The assessee was a partnership firm engaged in the manufacture of PSCC/RCC and MS pipes, cement slabs and also executed civil contracts.

 

• Subsequently, by virtue of the conversion, all the assets and liabilities of the erstwhile partnership firm became assets and liabilities of the company.

 

• The assessee along with three others entered into a joint venture agreement for the purposes of preparing and submitting pre-qualification/post-qualification tender to the Hyderabad Metropolitan Water Works and Sewerage Board.

 

• As per the terms of the agreement, each of the parties to the joint venture was concerned with its share of work/contract and the profit or loss arising therefrom.

 

• With respect to the contract work receipts, TDS was done and the assessee claimed credit of the tax mentioned in the said TDS certificates.

 

• The Assessing Officer refused to give credit on the ground that some of the TDS certificates belonged to the joint venture and some other TDS certificates were in the name of Directors but said certificates did not relate to the assessee firm/company.

 

• The Commissioner (Appeals) allowed the assessee’s claim holding that where the joint venture had not filed the return of income and claimed credit for TDS certificates, then the said credit had to be entertained in the assessee’s hands.

 

Analysis of facts:

By the Income Tax (8th amendment) Rules, 2011, the CBDT amended Rule 37 BA, and in sub-rule (2), for clause (i), the following clause was substituted:

“(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee”

This amendment has done away with the specified four clauses in the pre-amended Rule 37BA which restricted the benefit of the rule only in four specified situations. It has thus widened the scope of rule 37 BA thereby enabling the credit of taxes to the actual payee in whose hands the income is assessable and not restricting this benefit only to the specified four situations.

Thus, the assessee is entitled to the credit of the TDS mentioned in the TDS certificates issued by the contractor, whether the said certificate is issued in the name of the Joint Venture or in the name of a Director of the assessee company. They have considered the terms of the agreement dated 12-03-2003 among the parties to the joint venture and held that credit for TDS certificates cannot be denied to the assessee while assessing the contract receipts mentioned in the said certificates as income of the assessee. The income shown in the TDS certificates has either to be taxed in the hands of the joint venture or in the hands of the individual co-joint venturer. As the joint venture has not filed a return of income and claimed credit for TDS certificates and the TDS certificates have not been doubted, credit has to be granted to the TDS mentioned therein for the assessee.

The Revenue cannot be allowed to retain tax deducted at the source without the credit is available to anybody. If the credit of tax is not allowed to the assessee, and the joint venture has not filed a return of income, then credit of the TDS cannot be taken by anybody. This is not the spirit and intention of the law.