Sep 132021
 

The credit of TDS to be given for the assessment year in which invoices are raised

In terms of Rule 37BA(3)(i) benefit of TDS is to be given for assessment year for which corresponding income is assessable, therefore, where the assessee raised invoice on ‘A’ in March 2011, the benefit of TDS had to be allowed in the assessment year 2011-12 even though the tax on invoice amount was deposited by ‘A’ in April 2011. So, in no case TDS credit can be given in other assessment years.

Assessee to reconcile income vis-à-vis TDS credit

Total freight collected by the assessee was Rs.30.53 crores and that the assessee paid freight to shipping companies at Rs.25.56 crores thus resulting in a balance of Rs.4.97 crores as gross income in its Profit and Loss Account, which was not disputed by the Assessing Officer.

The Assessing Officer did not allow full TDS credit of Rs.76,16,380/- to the assessee, as in the opinion of the Assessing Officer, since the assessee had not accounted for the entire gross receipts of Rs.30.53 crores it was not entitled to claim the full TDS credit of Rs.76,16,380/- and the Assessing Officer restricted the TDS credit to Rs.12,37,993/-

Even in various appeals TDS credit was not allowed as it is the responsibility of the assessee to reconcile TDS credit with income exposed to tax. The onus is on the assessee to make proper reconciliation of the differences between the receipts as per TDS certificates and that of as per Profit and Loss Account lay relevant evidence/material in support of its contentions/explanation.

No denial of TDS even in the absence of Form 16A (TDS certificates)

The Gujarat High Court in the case of Sumit Devendra Rajani v. Asstt. CIT [2014] 49 taxmann.com 31 (Gujarat), involving the assessment year 2010-11, held that “where the deductor having deducted TDS, issued Form No. 16A, credit of the same cannot be denied to the assessee-deductee solely on the ground that such credit does not appear on the ITD system of the department and/or the same does not match with the ITD system of the department.”

Any receipts do not become taxable just because TDS is deducted from it

Income and chargeability are two separate terms defined under the Act under 2(24) of the Act and Sec 4 of the Act respectively. Every transaction has to be tested separately as per the definition in the Act and then only the provisions of Chapter XVII- B of the Act can be applied.

If a Fixed Deposit is made by an assessee in the process of setting up a new project as security for opening an L/C for import of Plant and Machinery, then interest on such Fixed Deposit does not constitute income but is liable to be netted off against the cost of setting up of the project. In such cases, the interest on Fixed Deposit does not constitute income under the charging provisions of Section 4 of the Act. In such cases however the Revenue cannot claim the interest to be chargeable to tax under section 4 of the Act even if the Bank deducts tax on such interest income under section 194A of the Act by taking recourse to Sec. 198 of the Act.

 

Sep 102021
 

Facts:

  • The assessee company was engaged in providing software development services and outsourcing services. It was also availing management services from its parent company, namely, CSC, USA.

 

  • In lieu of the management services obtained, the assessee paid to certain amount CSC, USA, after deducting tax at source at the rate of 20 percent on the premise that the payment made to the parent company was in the nature of royalty and fees for technical services.

 

  • As the non-resident parent company did not have any Permanent Account Number (PAN), the Assessing Officer opined that the tax should have been deducted at source at a higher rate in terms of the provisions of section 206AA.

 

  • The Commissioner (Appeals) partly accepted the assessee’s contention by holding that the assessee should have deducted tax at source at the rate of 20 percent. He, however, held that, in addition, surcharge and education cess should have also been levied.

 

  • The assessee filed an instant appeal raising two issues. The first issue was that the rate of tax withholding should be 15 percent and, second, no surcharge and education cess should have been levied.

 

Analysis of facts:

The person responsible for paying to the non-resident is required to deduct tax at source (section 195); issue certificate for tax deducted to the deductee (section 203); and the credit for tax deducted at source is given to the deductee by treating it as a payment of tax by the deductor on behalf of the deductee (section 199). It clearly emerges that once a deduction of tax at source has been made on behalf of the deductee (payee), the deductor (payer) becomes functus officio and, cannot, under any circumstance, claim a refund of the tax deducted at source. The deduction of tax at source is always a payment of tax by the deductor on behalf of the deductee and it is only the deductee, who is entitled to the credit of tax deducted by the deductor on his behalf for which a certificate is issued to him.

No statutory provision permits the deductor to claim a refund of the excess tax deducted at the source.

There is a vital distinction between two situations viz., one, in which the amount of income is put to tax at a high rate; and two in which the deduction of tax is made from it at a higher rate.

Obviously, the first situation is a cause of concern as no amount of tax more than what is rightfully due to the exchequer, can be recovered.

On the other hand, the second situation simply encompasses a payment of tax on behalf of the deductee without impacting his tax liability in any manner. If such a deduction has voluntarily been made at a higher rate, the deductee, at the time of filing his return, is always entitled to claim the benefit of TDS and the resultant refund, if any due to him.

Conclusion:

The ITAT Delhi Bench in the case of Computer Sciences Corporation India (P.) Ltd. v. ITO [2017] 77 taxmann.com 306 (Delhi – Trib.) held that once the tax has been deducted at source and certificate of such deduction is issued to the deductee, only the deductee can claim the benefit of deduction of tax at source and in no circumstances the deductor can claim any refund out of the excess amount of tax deducted at source on behalf of the deductee.

Sep 072021
 

Facts of the case:

S had engaged the services of the assessee for collection of the subscription amount against the commission and the assessee had remitted the entire gross amount received from the cable operators to S. The amount remitted by the assessee to S included the number of TDS deducted by the cable operators at the time of payment made by them to the assessee.

The assessee company filed its return of income for the assessment year 2010-2011 on 24.09.2010 declaring an income of Rs.13,62,81,800/-. The Assessing Officer while computing the assessment under section 143(3) of the Act, assessed the income at the same figure of Rs.13,62,81,800/- However, the Assessing Officer had not allowed the assessee’s claim of credit for TDS of Rs.2,46,80,256/- on the ground that the concerned income was not offered to tax in the return of income. The Assessing Officer in his order on noticing that the assessee had not included the subscription charges of Rs.86,34,97,146/- corresponding to the TDS amount of Rs.2,46,80,256/- in the Profit and Loss account, disallowed the credit for the corresponding TDS.

Arguments in favor of allowing TDS credit are as below:

  • Since tax had already been deducted and paid to the Government at the time of making collections, it (the assessee) was entitled to get the credit of the same while receiving commission income.

 

  • The amounts collected by the assessee were credited to the separate account ‘Subscription Charges’ and the said account was debited at the end of the Financial Year when the amounts were paid to S.

 

  • As the subscription collected by the assessee from various cable operators was not the income of the assessee, the same was not shown in its Profit & Loss account.

 

  • The fact of the situation was that the cable operators were deducting tax at source on the payments of subscription made to the assessee, whereas, the assessee was remitting the gross amount to S.

 

Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and finally to High Court.

Analysis of facts:

  • To examine the same, the Bench called for Profit and Loss account and Ledger accounts to know, how the subscription received was accounted in the assessee’s books. The assessee’s counsel filed only financial statements and not filed ledger accounts of subscription received accounts.

 

  • Hence, we are not in a position to express any opinion whether the assessee is having an element of income from subscription charges received from various parties.

 

  • Therefore, if the entire subscription received by the assessee is transferred to S and the assessee is entitled only to commission on subscription income, then TDS credit may be allowed to assessee.

 

  • The assessee was entitled to a fixed commission on the collection amount on behalf of S. The Agreement dated 14th October 2002 were self-explanatory about the services provided by the assessee with regard to the collection of Subscription Charges on behalf of S for a fixed commission and that the Agreement was entered as early as on 14th October,.2002 (i.e.) much prior to the Assessment Years 2009-10, 2010-11 and 2011-12.

 

  • These collection charges had been credited to the account “Subscription Charges” as and when they were billed and this account had been debited at the end of the financial year when the same was paid back to S.

 

  • The amounts in question had been routed through the accounts maintained by the assessee, which formed part of the Balance Sheet and in turn, formed part of the Profit and Loss Account and therefore did not partake the character of income or expenses or capital in the hands of the assessee.

 

Conclusion:

Thus, the assessee was entitled to receive a credit of the tax deducted at source under section 199 of the Act subject to production of TDS Certificates received from respective deductors.

Sep 042021
 

Case 1 – Diversion of income by overriding title:

Facts of the case: the assessee is an individual, engaged in retail business and earned income from franchisee/commission from M/s. Arvind mills. The assessee filed a return of income on 29.9.2009 declaring a total income of Rs. 1,19,89,080/-. The scrutiny assessment of the case was completed on 23rd December 2011. The detail of commission income offered to assessment is given below:

Particular of income Actual income received Income credited to P&L
Commission from M/s. Arvind mill Rs. 2,61,18,048/- Rs. 1,53,18,478/-
Amount of commission transferred to the stepson of the assessee

(in compliance to the direction of the High Court given in a dispute)

Less: Rs. 1,07,99,570/-
TDS credit allowed   Rs. 17,35,607/-
TDS claim rejected invoking section 199   Rs. 12,23,608/-

Analysis of facts:

Section 199 and rules made there under not applicable: subsection 2 and 3 of the section are not applicable to the facts of the case in hand. Further, sub Rule (2) and (3) of Rule 37BA of the Income-tax Rules are also not applicable to the facts of the case in hand, as the income of the assessee is not falling under any of the clauses of sub Rule (2) and the issue of credit in multiple years is also not involved in the case in hand.

 

TDS credit shall be given to the person from whose income deduction was made: The first limb of section 199(1) refers to the tax deducted and paid to the Central Government. The second limb of the subsection refers to allowing credit of the tax so deducted and paid to the central government, in the hands of the person from whose income, the tax has been deducted. So, a plain and literal interpretation of subsection (1) of section 199 leads to the result that the credit of the tax deducted has to be given in the hands of the deductee i.e. the person from whose income the deduction was made. Thus, said subsection nowhere says that credit of TDS should be restricted only to the amount of income or receipt offered in the return of income or in the Profit and Loss Account.

 

TDS credit shall be allowed based on the information provided by the deductor (Rule 37BA(1)): Further, sub-rule (1) of Rule 37BA of the Rules also emphasize allowing the credit in the hands of the deductor on the basis of the information related to deduction of tax furnished by the deductor

 

Neither party should be made unjust enriched at the cost of the other: the credit of the Rs. 12,23,608/- is allowable in the hands of the assessee, in view of the clear provisions of subsection(1) of section 199 of the Act and Rules made thereunder. However, we direct the assessing officer to verify whether any credit of the TDS of Rs. 12,23,608/- has been allowed by the Income-tax Department in the hands of Shri Kapil Ahluwalia or not. If it has been not allowed, then the credit of this amount should be given in the hands of the assessee.

Case 2: TDS deducted on payment of mobilization advance

Where TDS was deducted from mobilization advance paid to the assessee who was an erection contractor, credit of same was to be allowed, even if no income was assessable to tax as the contract was not fully executed in the relevant year.

Aug 282021
 

Case 1: The assessee had been taking contracts in its name as well as in the names of its director and the Assessing Officer agreeing with the contentions of the assessee that as both the receipts were deposited in the assessee company’s accounts it was entitled to claim credit of TDS reflected in Form 26AS in the case of the director passed the Assessment Order for the assessment years 2010-11 and 2011-12 subject to verification that TDS had not been claimed by the director.

Against such directions, the assessee filed appeals before the Commissioner of Income-tax (Appeals). Though the appeals were allowed by the Commissioner of Income-tax (Appeals), the issue of claiming and granting of TDS credit in the account of the director as appearing in Form 26AS in the hands of the assessee was not the subject matter of the appeal.

As the assessment orders passed by the Assessing Officer were found to be erroneous and prejudicial to the interest of the Revenue, the Principal Commissioner of Income-tax, exercising his jurisdiction under section 263 of the Act, issued a notice to the assessee and by virtue of his order directed the Assessing Officer to revise the assessment by giving credit to the extent of TDS certificate issued in the name of the assessee only and withdraw the TDS certificate in the name of the director.

The Tribunal also held at para.17 of its order as under-

“There is no denial in the written submissions filed by the assessee before the Principal Commissioner of Income-tax and before us that at the relevant time, the order was passed by the Assessing Officer, Rule 37BA was applicable. Further, the assessee has failed to mention that the case of the assessee would fall in any of the ingredients mentioned in Rule 37BA, as reproduced by the Principal Commissioner of Income-tax in para 2 of the impugned order. In view of the legal position, the opinion formed by the Principal Commissioner of Income-tax that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue cannot be faulted”

Thus, the issue was answered against the assessee, and TDS reflecting in 26AS of the director was not given to the assessee company.

Case 2: The facts of the case which arose before the Madras High Court in Madura Coats Ltd. v. CIT [1986] 25 Taxman 200 (Mad) were the assessee company was formed by the amalgamation of three companies. The amalgamation took place on January 1, 1975, with retrospective effect from July 1, 1974. During the accounting year relevant to the assessment year 1976-77, two of the three companies which held shares in the third company were entitled to dividend income on the said shares, and on the said dividend income, the tax was deducted at source. This dividend was declared at the annual general meeting of the company held on December 27, 1974.

The assessee’s claim before the Assessing Officer that the dividend income could not be taken as its income but the tax deducted at source from the said dividend should be given credit to in its assessment was rejected by the Assessing Officer who held that the dividend was the income of the amalgamated company as per the terms of the amalgamation.

The Commissioner of Income-tax (Appeals), however, directed the Assessing Officer to exclude the dividend income from the total income of the assessee and as regards the tax deducted at source, he held that the proper person should approach the concerned authority for a refund of the tax wrongly deducted.

The Tribunal held that the tax deducted at source could not be given credit to the assessee in whose hands the dividend income had not been taxed.

The High Court, dismissing the petition, held that the finding of the Tribunal that the dividend income could not be treated as the income of the amalgamated company viz., the assessee, automatically resulted in the tax deducted at source from the said gross dividend not being part of the assessee’s income. The tax deducted at source could be given credit only in the case of the company in whose hands the income was to be assessed and as per section 198 of the Income-tax Act, 1961, the tax deducted at source would be the income received by the erstwhile companies which owned the shares in respect of which the dividend was declared. Accordingly, credit for the tax deducted at the source from the said dividend could not be given to the assessee.

Case 3: The Madras High Court in the case of CIT v. Tanjore Permanent Bank Ltd. [1987] 30 Taxman 265 (Mad.) held that:

“It is well settled that a tax credit can be given only in cases where the tax is paid on the income in respect of which tax has been deducted at source and which is offered for assessment.”

The assessee-bank, in this case, advanced money to its constituents, bought bonds of Electricity Board for them but in its own name, kept them in its own custody but the real and beneficial owners were the said constituents and the assessee-bank claimed credit for tax deducted at source on interest income of the said bonds through interest income from the said bonds had not been included by the assessee in its return. The Assessing Officer allowed credit for the said tax deducted at source but subsequently withdrew it by passing an order under section 154 of the Act. The High Court, reversing the order passed by the Tribunal, held that giving credit of tax deducted at source on the said interest income which had not been included in assessee’s total income amounted to a mistake apparent from record amenable to rectification under section 154 of the Act by the Assessing Officer.

Aug 252021
 

Facts:

  • A TDS survey was conducted by the Asstt. Commissioner of Income-tax at the premises of the assessee-company. The Assessing Officer passed an order under section 201 holding that it failed to deduct the TDS in respect of provisions of expenditures amounting to INR 15,07,25,637/- made under several heads of income. The details of provisions on which TDS have not been deducted is given below:
Head of the provision Amount of provision made Date of provision Amount of TDS demand u/s 201(1) Delay in months Interest amount Demand u/s 201(1A)
Misc. Expenses – conference expenses 4,00,00,000 31.03.10 40,00,000 @ 10% 37 14,80,000
Business development initiative (reimbursement to dealers) 1,25,61,825 31.03.10 2,51,236 @ 2% 37 92,957
Business development conference 5,00,00,000 31.03.10 50,00,000 @ 10% 37 18,50,000
Product publicity expenses outside India 4,58,14,000 31.03.10 9,16,280 @ 2% 37 3,39,024
Commission to selling agents – domestic 19,64,000 31.03.10 1,96,400 @ 10% 37 72,668
Commission to selling agents – clearing & forwarding 3,85,812 31.03.10 38,581 @ 10% 37 14,275
Total 15,07,25,637   1,04,02,497   38,48,924
  • On appeal, the Commissioner (Appeals) sustained the order of the Assessing Officer.

 

  • In the instant appeal before the Tribunal, the assessee submitted that next year when the actual expenditure was incurred, the provision was reversed and the deduction was claimed on the basis of actual expenditure incurred. When such expenditure was actually incurred, TDS was made as per law.

 

  • On the other hand, the revenue took the stand that provision can be made only when the liability is an ascertained liability. Therefore, the assessee cannot claim that the payee in respect of whom the liability is created is unidentifiable.

 

  • He further stated that as per provision of section 194C(2), the tax is to be deducted at source where any sum is credited to any account whether called suspense account or by any other name in the books of account of the person liable to pay such income.

 

Analysis of facts:

The question here is – whether the assessee can be said to be in default for not deducting the TDS in respect of a provision made at the year-end?

Liability to deduct TDS: Explanation 2 of sec. 194C, which exists even now, that the said TDS liability would arise even if the amount is credited to any account whether called suspense account or called by any other name.

Thus, the position of TDS deduction in the above case can be summarized as below:

Whether the payee is identifiable? The amount payable to the payee is ascertainable? Liability to deduct TDS on the year-end provision
Yes + Yes = Yes
No + Yes = No
No + No = No
Yes + No = No

Conclusion:

The ITAT Delhi Bench in the case of Apollo Tyres Ltd. v. Deputy CIT [2017] 78 taxmann.com 195 (Delhi – Trib.) held that where assessee-company could not ascertain the identity of payees while making provision for expenditure under several heads of income at the year-end, the assessee was not required to deduct tax at source on such provision.

Aug 222021
 

Facts of the case:

  • The original assessee Shri S. P. Patel (hereinafter referred to as “the assessee”) and his brother were partners in a firm known as M/s. Patel Brothers having 50 percent, share each in the profit and loss of the firm.

 

  • The assessee held several equity shares of limited companies from which dividend income was received.

 

  • Up to and inclusive of the assessment year 1971-72, the assessee was given the credit of tax deducted at source (TDS) from the dividend income.

 

  • However, for the assessment years in question, namely, the assessment year 1972-73 and 1976-77, the Income-tax Officer declined to give credit of TDS from the dividend income to the assessee on the ground that the shares belonged to the firm and accordingly held that that the firm is entitled to the credit of the TDS amount.

 

Analysis of facts:

The shares from which dividend income was earned stood in the name of the assessee, TDS certificates issued by the company stood in the name of the assessee and moreover, admittedly the dividend income has also been assessed in the hands of the assessee. He submitted that the first proviso to section 199 comes into operation only if the dividend income is to be taxed in the hands of a person other than the shareholder.

The dividend income is admittedly taxed in the hands of the assessee/shareholder. Once the dividend income is assessed in the hands of the assessee/shareholder, the proviso to section 199 of the Act would have no application and consequently denying the credit of TDS to the assessee/shareholder does not arise at all.

The Bombay High Court in the case of Yezdi Hirji Malegam v. CIT [2008] 299 ITR 329 (Bombay) held that “The first proviso to section 199 of the Act, read with rule 30A, inter alia, provides for giving credit for TDS to the firm where dividend income is to be taxed in hands of firm and not to partner; once dividend income is assessed in hands of shareholder-partner, proviso to section 199 would have no application and consequently the question of denying credit of TDS to partner does not arise at all.”

The assessment years involved in this case were 1972-73 and 1976-77 and the law, as it stood then, provided for allocation of firm’s income together with tax to partners’ income. In other words, the share income of a partner was taxed twice in the relevant assessment years with proportionate credit of the firm’s tax in the hands of a partner.

To put it differently each section in the Income-tax Act would have application in so far as the purpose for which it has been enacted is concerned except in cases wherein it has been provided otherwise enlarging the scope of that section.

Conclusion:

Therefore, in the present case, admittedly the dividend income was taxed in the hands of the assessee/shareholder. And hence, denial of credit of TDS based on the decision of the Tribunal in the case of the assessee for the assessment year 1974-75, cannot be sustained.

Aug 192021
 

Facts of the case:

The facts obtaining in the case decided by the Punjab and Haryana High Court in CIT v. Punjab Financial Corporation [2009] 181 Taxman 209 (P&H) were that the assessee, a financial corporation, had an agreement with the State of Punjab and in terms of the aforesaid agreement, amounts deposited by State of Punjab with assessee-financial corporation were invested by the assessee and on account of said common investment, dividend income was earned, out of which percentage of the income of the assessee was only 31.50 and percentage of that of State of Punjab was 68.50.

Analysis of facts:

Second proviso to section 199:

in any other case, where the dividend on any share is assessable as the income of a person other than the shareholder, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person in such circumstances as may be prescribed :

Provided further that where any property, deposit, security, unit, or share is owned jointly by two or more persons not constituting a partnership, the payment shall be deemed to have been made on behalf of, and credit shall be given to, each such person in the same proportion in which rent, interest on deposit or on security or income in respect of unit or dividend on share is assessable as his income.

 

Thus, the credit for tax deduction at source is to be assigned to, each of such persons deriving income from the common investment (i.e., in the same proportion in which they share the income).

 

In this context, it would be pertinent to mention that when the liability of the respondent-assessee on the dividend income was sought to be assessed in the present assessment, out of total dividend income of Rs. 89,915, the respondent claimed a deduction of Rs. 61,521 (68.50% of Rs 89,915/-) by asserting that the said income belonged to the Punjab Government.

 

In other words, out of the total dividend income of Rs. 89,915 the income of the respondent-assessee was only Rs. 28,394 (31.50% of Rs 89,915/-) and that of the State of Punjab Rs. 61,521. There can, therefore, be no doubt, that the credit for tax deduction at source should be available to the Punjab Financial Corporation Limited as also the State of Punjab in the same proportion as their income referred to hereinabove.

The High Court held that “credit for tax deduction at source is to be assigned to each of such persons deriving income from common investment, i.e., in the same proportion in which they share income” and “therefore, the assessee would be entitled to claim the credit on account of tax deduction at source in the same proportion as it shared income from dividend with the State of Punjab.”

Conclusion:

As in the arrangement between the State of Punjab and the Punjab Financial Corporation Limited, the income is shared between the State of Punjab and the Punjab Financial Corporation Limited in the ratio of 2:1 and hence whatever income is derived on account of equity dividend, by the aforesaid two sharing parties, is also liable to deduction of tax at source. The afore-stated benefit of deduction on account of tax deducted at source, as discussed above, is liable to be in the same ratio in which the parties share the income.

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.

 

 

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.