TDS claim – in the case of FDs where TDS is paid periodically and interest income is credited to the account at the maturity of FDs.

 TDS claim – in the case of FDs where TDS is paid periodically and interest income is credited to the account at the maturity of FDs.  Compliances
Aug 132021
 

Facts:

The assessee was following the cash system of accounting. She was holding cumulative term deposits in a bank entitling her for interest, which was periodically credited by the bank in the deposit account of the assessee.

  • During the previous years relevant to the assessment years 1997-98 to 2000-01, the bank deducted tax at source on the interest credited in the deposit account of the assessee and issued TDS certificates to her.

 

  • Though the assessee in the returns of income filed for the assessment years 1997-98 to 2000-01 did not disclose the interest income from these deposits as her income, she claimed credit of tax based on TDS certificates issued by the bank.

 

  • The Assessing Officer declined to give credit for the tax deducted at source by the bank for the reason that interest income on which deduction of tax was made by the bank was not returned by the assessee in the relevant assessment years.

 

  • However, the Assessing Officer accepting the contention of the assessee that she was following the cash system of accounting did not assess any interest income in the assessment years concerned.

 

Analysis of facts:

From a reading of the provisions of section 199, as they stood during the relevant assessment years 1997-98 to 2000-01, it is clear that the assessee is entitled to a credit of tax paid in the assessment year in which the income is assessed. In other words, the assessee should claim credit of tax based on the TDS certificate in the year in which the assessee returns the income from which deduction is made for the purpose of assessment. Even after the amendment of the section through the introduction of sub-section (3) in section 199, the Central Board was authorized to make rules for giving credit for tax deducted at source. As required under that section, rule 37BA was inserted in the Rules by the IT (Sixth Amdt.) Rules, 2009, with effect from 1-4-2009.

Thus, the assessee can retain the TDS certificates and claim credit in the assessment year in which the assessee returns the income on which deduction of tax is made for assessment.

Now the question arises – Whether the Assessing Officer was justified in refusing to give credit for tax deducted at source based on TDS certificates issued by the bank for the reason that income is not returned for assessment by the assessee in the assessment years following the years in which tax is deducted and paid by the bank?

Section 199 makes it clear that the assessee is entitled to a credit of tax based on the TDS certificate only in the assessment year in which income from which tax is deducted is assessed. Therefore, when the statute makes it mandatory that credit of tax based on TDS certificate is available only in the assessment year in which the income from which tax deducted at source is assessed, the Tribunal cannot overrule the statutory provisions.

Conclusion:

Thus, in such cases assessee has two methods of claiming credit of TDS in return for income as given below:

Method 1 –  Going by the practical difficulty to retain TDS certificates for several years until the interest is returned for assessment on the cash basis, prudent assessees should return income on which tax is deducted and remitted by the payer in the assessment year following the year in which such income is subject to deduction of tax and remittance by the payer.

Method 2 – The assessee who does not follow method 1 supra,  should follow section 199 and rule 37BA, retain the TDS certificates, and claim credit in the assessment year in which such income is returned for assessment.

In other words, the assessee should claim credit of tax based on the TDS certificate in the year in which the assessee returns the income from which deduction is made for the purpose of assessment. Even after the amendment of the section through the introduction of sub-section (3) in section 199, the Central Board was authorized to make rules for giving credit for tax deducted at source.

 

 

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

 In the case of a Joint Venture, when co-joint venturer can claim credit of TDS.  Compliances
Aug 102021
 

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.

Who is to claim credit of TDS?

 Who is to claim credit of TDS?  Compliances
Aug 072021
 

Facts of the case

The assessee company entered into a foreign technical collaboration for Basic Engineering and Training (BEAT) Agreement with D, a foreign company, to set up a gas-based Sponge Iron Plant in India. In terms of the agreement, D was to deliver the designs, drawings, and data besides training a certain number of employees of the petitioner company outside India. In lieu of the services, it was agreed that in addition to the consideration, all tax liabilities of D, if any, arising in India shall be borne by the petitioner company.

The assessee- company sought no objection certificate from income tax authorities to remit the consideration payable to D without deducting TDS but the same was denied.

Subsequently, the assessee- company paid TDS under protest as withholding tax which was over and above the agreed consideration payable to D.

Later on, D filed its nil return of income in India for the same period but the Assessing Officer held that D had taxable income in India and accordingly, the withholding tax paid by the assessee- company was adjusted towards D’s tax liability.

Against such order, a writ petition was filed together by the assessee- company and D wherein on 5th May 2010, the Bombay High Court rendered its judgment and held that such income was not taxable in India and further the income tax authorities were directed to pass fresh orders excluding the income received by D.

Subsequent to this order, the assessee-company requested the income tax authorities that it was entitled to refund of TDS deposited on behalf of D but the department refuted its claim by holding that since TDS was deposited on behalf of D and D had claimed the credit of such TDS deposited in its return of income, petitioner company was not entitled to such refund.

Analysis of facts:

The tax was deducted at source at the relevant time on behalf of D in accordance with Section 199 of the Act, credit can only be given to Davy and the benefit of the order of this Court rendered on 5 May 2010 can only be given to D who had filed its return of income for the A.Y.1990-91 and 1991-92.

It is, therefore, submitted that the assessee cannot claim a refund of tax deducted at the source which was deposited by the Petitioner on behalf of D, as there is no provision in the Act for the same.

It is submitted that the Assessee has no locus standi to claim a refund on behalf of D.

The order passed by the High Court & Conclusion

As regards the question of whether the petitioner is entitled to get such a refund, the Court is not expressing any opinion at this stage. However, the Court directs that if any amount deducted at source for the Assessment’s years 1990-91 and 1991-92 is required to be refunded to D pursuant to the judgment dated 5th May 2010 in Writ Petition of this Court, the respondents shall deposit the said amount along with interest in accordance with the law in this Court.