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Facts:

1. The assessee derived income from the business of erection, commissioning, and installation of towers on a contract basis.
2. The Assessing Officer noticed that total receipts declared by the assessee were less than the amount on which TDS credit was claimed. [Rs. 6,20,99,368/- as opposed to Rs. 19,08,20,903/- & the TDS claimed was Rs. 1,20,73,097/-]
3. The assessee explained that discrepancy arose because the vendor had billed the assessee’s sister company REPL for the work but had mistakenly mentioned the assessee’s PAN in the TDS certificate and, thus, inadvertently crediting assessee’s TDS account in the 26AS statement, which was PAN-based.
4. The assessee had claimed credit of all TDS certificates, including those related to REPL stating that benefit of the TDS certificates mistakenly issued in the assessee’s PAN name had not been availed by REPL. The total TDS claim made by the assessee was Rs. 1,20,73,097/- against a total of Rs. 19,08,20,903/- received.
5. The Assessing Officer rejected the assessee’s claim relying on section 199 and held that the TDS credit should be allowed to the person from whose income the deduction was made.
6. On appeal, the Commissioner (Appeals) allowed the assessee’s claim on the ground that since the assessee had already paid the due taxes in REPL, it would be a travesty of justice to not allow the benefit of TDS to the assessee. The Tribunal upheld the order of the Commissioner (Appeals).

Analysis of facts:

“199. Credit for tax deducted.

(1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of the property or of the unit-holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.”

Revenue cannot be allowed to retain tax without credit being allowed to anybody: 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 (sister concern in the above case) 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. Also, the procedure is the handmaid of justice, and it cannot be used to hamper the cause of justice.

Applicability of rule 37A: At this stage, it is also relevant to note the provisions of Rule 37BA of the Income Tax Rules, 1962, which envisions grant of TDS credit to entities other than the deductee (herein, M/s REPL). We must clarify that we are not oblivious of the fact that Rule 37BA is not directly applicable in the facts of this case. The reliance placed on Rule 37BA is merely to demonstrate that in not all circumstances is TDS credit given to the deductee.

Conclusion:

When can the assessee claim credit of TDS even in the case of mistake of credit of TDS to a wrongly but related person/account?

Where due to an inadvertent mistake of the vendor, the TDS relating to the assessee’s sister concern was credited to the assessee’s TDS account, the assessee could claim credit of such TDS, provided its sister concern had not availed the benefit of such TDS certificates.

A few extracts from this decision would probably indicate that even after an amendment to rule 37BA, credit for TDS can be claimed by the person who is not liable to pay tax on the receipt covered by that TDS.

1. TDS benefit may be taken even in cases where corresponding income is not offered for tax

“The Assessing Officer denied credit of TDS in the hands of the assessee on the ground that corresponding income by way of compensation has not been offered to tax. – It is worth noting here that once TDS certificates are in the name of the assessee and credit for such TDS is appeared in the name of the assessee in the AIR database and also the fact that the particular income is not taxable either in the hands of the assessee or in the hands of the HUF credit for TDS cannot be rejected merely on the ground that the corresponding income has not been offered to tax.

There is merit in the arguments for the reason that when a particular income is exempt from tax in view of specific provisions provided under section 10(37) and also the fact that the HUFs have declared the compensation received on account of compulsory acquisition of agricultural land in their return of income and claimed exemption under section 10(37) there is no reason for the Assessing Officer to deny credit for TDS merely on the ground that no income has been offered to tax in the hands of the assessee. The compensation received on account of compulsory acquisition of agricultural land is exempt from tax under section 10(37).

It is further noticed that HUFs have declared the said compensation in the return of income. It is also undisputed that the HUFs have not claimed credit for TDS in their return of income.

Therefore, when the facts are clear in respect of exemption of particular receipt in the hands of the assessee as well as HUFs, the question of offering such income for tax in the hands of the assessee does not arise.

2. Where credit of TDS is appearing in AIR database and assessee have furnished TDS certificate

When the credit for such TDS is appearing in the name of the assessee in the AIR database and the assessee has furnished the necessary TDS certificate in his name, the Assessing Officer erred in rejecting the claim of credit for TDS by citing the provisions of section 199 read with rule 37BA.

Therefore, the revenue’s contention that the assessee instead of claiming the entire TDS amount ought to have sought a correction of the vendor’s mistake would unnecessarily have prolonged the entire process of seeking a refund based on TDS credit. Therefore, the Assessing Officer erred in denying credit of TDS to the assessee.