1. There being a difference of opinion between the Members constituting the Division Bench, the Hon'ble President has referred, under Section 255(4) of the IT. Act, 1961, the following point of difference to me as a Third Member to resolve the controversy: 1. Whether in the facts and circumstances of the case the learned CIT(A) is justified in confirming the addition of Rs. 2,96,460.92 ps., made by the Assessing Officer in respect of 3 TDS certificates pertaining to the period 1/4/1996 to 31/3/1997 issued to the assessee by RCF? 2. The facts in brief are the assessee, an individual, was carrying on the business of providing security and housekeeping services to different clientele. The assessment year involved is 1997-98. There is no dispute that the assessee was following mercantile system of accounting for reporting the income for the purpose of assessment.
3. During the assessment proceedings the Assessing Officer found that the business receipts, as per the TDS certificates submitted by the assessee along with his return of income, was to the extent of Rs. 1,06,15,995 whereas the receipts credited to the Profit & Loss Account was only to the extent of Rs. 95,19,657. The assessee was asked to explain the difference. The assessee explained the difference by providing a reconciliation statement, except in respect of three TDS certificates received for the services rendered to Rashtriya Chemicals & Fertilizers (RCF for short), Chembur. The details of the certificates as also the amounts credited are as under:Date of credit Amount credited TDS09.04.97 2,46,268 4,92503.04.97 8,954 17921.04.97 41,239 825 The assessee explained that the aforesaid three receipts were not included in his income for the assessment year 1997-98 on the reasoning that these TDS certificates were received after the close of the relevant previous year ending on 31.03.97. The Assessing Officer included the actual billed amounts as per the TDS certificates to the declared income and has also allowed the credit of tax deducted at source amounting to Rs. 5,929. The C1T(A) confirmed the action of the Assessing Officer.
4. It was contended before the Tribunal that the assessee was raising the bills against his clientele for the services rendered in a month only in the succeeding month and on that basis the bills in respect of the services rendered in March 1997 were placed only in the month of April 1997. Accordingly, the receipts corresponding to services rendered in March, 1997 have been credited in the accounts of the succeeding assessment year. The learned counsel submitted that this method has been consistently followed by the assessee. The assessee has already included the receipts for twelve months in the accounts for the year under consideration and by adding the receipts for March, 1997 the Assessing Officer would be considering the receipts of thirteen months in the assessment for the year under consideration. The learned Accountant Member in his proposed order accepted the claim of the assessee after having found satisfied with the method of accounting consistently employed by the assessee. However, the learned Judicial Member was of the view that the assessee has claimed credit for tax deducted at source in AY. 1997-98 whereas, in fact, the amounts received were offered for taxation in the succeeding assessment year.
He opined that in the light of the provisions of Sections 198 and 199 of the Act, the action of the assessee is not justified. According to the learned Judicial Member, Section 198 of the Act provides that all sums deducted under Chapter XVII are required, for the purpose of computing the income of the assessee to be deemed to be the income received and, therefore, the tax deducted at source has to be treated as income received in the assessment year 1997-98 itself The learned Judicial Member further opined that according to Section 199 of the Act, the credit for tax deducted at source is required to be given for the amount so deducted on production of the certificate furnished Under Section 203 of the Act in the assessment made under this act for the assessment year for which such income is assessable. According to him a bare perusal of Section 199 of the Act shows that credit for tax deducted as source is required to be given in the assessment in which the income relating thereto is assessable. The Assessing Officer having allowed credit for tax deducted at source in the assessment year 1997-98, it is undisputable that the income referable to that credit should also be brought to tax in the same assessment year and in no other assessment year. According to the learned Judicial Member, Section 199 of the Act prohibits the credit for tax deducted at source to be given in an assessment year different from the one in which the income relating thereto is assessable. The learned Judicial Member further opined that the system of accounting cannot defeat the express provisions of law contained in Section 199 of the Act, which mandate that credit for tax deducted at source shall be given for the assessment year in which the income relating thereto is assessable.
According to him the Hon'ble Supreme Court in Tuticorin Alkali Chemical v. CIT 227 ITR 172 has held that income tax law-does not march step by step in the divergent foot prints of the accountancy profession. The learned Judicial Member further observed that having claimed corresponding expenditure under mercantile system of accounting, the assessee cannot defeat the taxability of the income on the ground that he has not raised the bills. According to him this is a case where the assessee has executed the work, received the benefit of tax deducted at source and was also allowed expenditure in executing the said work.
Therefore, the assessee cannot, in the opinion of the learned Judicial Member turn around to say that corresponding income is not taxable. He, therefore, upheld the order of the Assessing Officer. The expression of different opinions on this matter has brought before me the question as abstracted above.
5. I have heard both the sides extensively and have carefully gone through the records. On the facts, both the learned Members are clear.
The difference is the result of understanding the exact purpose and intent of the provisions of Sections 198 and 199 of the I.T. Act, 1961.
On the method of accounting consistently followed by the assessee for billing, there is absolutely no difference. I, therefore, take up the provisions of Section 198 and 199 of the Act by extracting the same under as applicable to the assessment year under consideration. ; 198. All sums deducted in accordance with the provisions of sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D, Section 194E, Section 194EE, Section 194F, Section 194G, Section 194H, Section 194-1, Section 194J, Section 194K, Section 195, Section 196A, Section 196B, Section 196C and Section 196D shall, for the purpose of computing the income of an assessee, be deemed to be income received.
199. Any deduction made in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D, Section 194E, Section 194EE, Section 194F, Section 194G, Section 194H, Section 194I, Section 194J, Section 194K, Section 195, Section 196A, Section 196B, Section 196C and Section 196D 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 depositor or owner of property or of unit holder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under Section 203 in the asst made under this Act for the assessment year for which such income is assessable.
i) in a case where such person or owner or depositor or unit holder or shareholder is a person, whose income is included under the provisions of Section 60, Section 61, Section 64, Section 93 or Section 94 in the total income of another person, the payment shall be deemed to have been made on behalf of, and the credit shall be given to, such other person; ii) in any other case, where the dividend on any share is assessable as the income of a person other than the share holder, 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 tow 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.
Both the Sections viz. 198 and 199, fall within Chapter XVII of the Income-tax Act, 1961 which are titled as "Collection and Recovery-Deduction at source". In other words, these are machinery provisions for effectuating collection and recovery of the taxes that are determined under the other provisions of the Act. In other words, these are only machinery provisions dealing with the matters of procedure and do not deal with either the computation of income or chargeability of income. The basis of charge of income to tax in the case of business income is provided in Section 28 of the Act. The computation provisions of Sections 28 to 43A deal with the assessment of profits and gains of business. In computing the income from business or profession, the method of accounting followed by the assessee becomes relevant. After all, the profits and gains of business or profession carried on by the assessee should be computed in accordance with the method of accounting regularly followed by the assessee as provided in Section 145(1) of the I.T. Act, 1961. In fact, the words "Profits and Gains" referred to in Sections 28 and 29 of the Act deal with only commercial profits as understood in the commercial parlance as held by Lord Halsbury in Gresham Life Assce. Soc. v. Styles 3 TC 185 (HL) "in its natural and proper sense - in a sense which no commercial man would misunderstand". This principle has been approved by the Privy Council in Pondicherry Railway Co. Ltd. v. CIT 5 ITC 363, and by the Supreme Court in Badridas Daga v. CIT 34 ITR 10, Calcutta Co. Ltd. v.CIT 37 ITR 1 and CIT v. Shirinbai Kooka 46 ITR 86. The profits mentioned herein are the real profits and they must be ascertained on ordinary principles of commercial practice and commercial accounting.
Therefore, the assessee's method of accounting becomes relevant for determining the income from the conduct of any business or exercise of any profession. The assessee, in this case, is rendering security and housekeeping services to various clientele such as UTI, RCF, HDFC etc.
The deducibility of any expenditure incurred by an assessee depends upon the method of accounting followed by him. The assessee, in this case, is following mercantile system of accounting. All expenses, to which liability is accrued in the accounting year, are deductible as business expenditure. In the same manner all business receipts will have to be determined on the basis of method of accounting employed by the assessee. Unless the assessee renders services for the entire month, it is not open to him to raise the bill upon his clientele. In other words, some of the services rendered in March 1997 will have to be necessarily billed after the close of the month which falls outside the accounting year under consideration and, in fact, the assessee has billed the same immediately after the close of the accounting year, in the month of April 1997 which is subsequent to the previous year for the year under consideration and has treated the same as part of business receipts for the next assessment year 1 do not think that there is any flaw in this method of accounting regularly employed by the assessee and accepted by the department from year to year in the past. After all, the TDS certificates which are again dated and received in the months subsequent to the accounting year cannot be accounted in the assessment year under consideration, which has already been closed. It is not necessary for the assessee to account those receipts by re-opening the books of accounts of the earlier year because the assessee himself has raised the bills in the subsequent month after the close of the accounting year in question. Therefore, it is incorrect on the part of the revenue to workout any addition, on the basis of the bills subsequently raised, in the accounting year which has already passed wherein according to the method of accounting employed by the assessee, such receipts have not been recognized as part of business profits.
6. Sections 198 and 199 of the Act nowhere provide for an exception either to the determination of the income under the aforesaid provisions of Sections 28, 29 or as to the method of accounting employed Under Section 145 of the Act, which alone could be the basis for computation of income under the provisions of Section 28 to 43A of the Act. Section 198 has a limited intention. It only declares the amounts deducted at source Under Section 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D, Section 194E, Section 194EE, Section 194F, Section 194G, Section 194H, Section 194-I, Section 194J, Section 194K, Section 195, Section 196A, Section 196B, Section 196C and Section 196D to be treated as an income received. The purpose of Section 198 is not to carve out an exception to Section 145 of the Act. Section 199 of the Act has two objectives- one to declare the tax deducted at source as payment of tax on behalf of the person on whose behalf the deduction was made and to give credit for the amount so deducted on the production of the certificate in the assessment made for the assessment year for which such income is assessable. The second objective mentioned in Section 199 is only to answer the question as to the year in which the credit for tax deducted at source shall be given.
It links up the credit with assessment year in which such income is assessable. In other words, the Assessing Officer is bound to give credit in the year in which the income is offered to tax. This Section 199 does not empower the Assessing Officer to determine the year of assessability of the income itself but it only mandates the year in which the credit is to be given on the basis of the certificate furnished. In other words, when the assessee produces the certificates of TDS, the Assessing Officer is required to verify whether the assessee has offered the income pertained to the certificate before giving credit. If he finds that the income of the certificate is not shown, the Assessing Officer has only not to give the credit for TDS in that assessment year and has to defer the credit being given to the year in which the income is to be assessed. At the cost of repetition, it may be mentioned that Sections 198 and 199 do not in any way change the year of assessability of income, which depends upon the method of accounting regularly employed by the assessee. They only deal with the year in which the credit has to be given by the Assessing Officer. It cannot be disputed that according to the method of accounting employed by the assessee the income in respect of the three TDS Certificates, which are mentioned in paragraph 3 above, does not pertain to the assessment year in question, but it pertains to the next assessment year and, in fact, in that year the assessee has offered the same to tax. Therefore, the credit in respect of these three TDS Certificates shall not be given in the assessment year under consideration, but the credit for the same shall be given in the next assessment year in which the income is shown to have been assessed.
7. In the light of the above discussions, I agree with the reasoning given by the learned Accountant Member, who has correctly directed the exclusion of the income represented by these three TDS Certificates from being assessed in the assessment year 1997-98, i.e. the year under consideration. But the assessee, in the light of the scheme of the provisions of Sections 198 & 199 of the Act, shall not be allowed to claim the credit in respect of these TDS Certificates for which the income has not been returned by her as a result of the method of accounting employed. The credit shall be carried forward and the assessee will get the credit for the present TDS Certificate in the year in which she offers the income to tax on the basis of the method of accounting regularly employed.
8. Before parting with the matter, I think it is necessary for me to deal with certain observations regarding the claiming of the expenditure as discussed by the learned Judicial Member. The claim of deduction for an expenditure depends upon again the method of accounting regularly employed by the assessee. There is no dispute that the assessee has incurred these expenses even in respect of the services rendered to its clientele in the month of March, 1997 (to which the bills are not raised). These expenses have been undoubtedly incurred during the previous year in question. Only the matching receipts have not accrued to the assessee in the accounting year in question due to the method of accounting employed by her. But over the years, the effect on the Profit & Loss Account gets neutralized.
Sections 198 & 199, it may again be stressed, do not in any way determine the year of assessability of profits and gains of business.
They only deal with the year in which the TDS Certificates have to be given credit to. In my humble opinion, the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals v. CIT 227 ITR 172 relied upon by the learned Judicial Member, does not in any way alter the year of assessability of income, which is governed under Sections 28, 29 and 145 as has been interpreted by the Apex Court and as discussed by me above.
9. For the above reasons, I am in agreement with the view expressed by the learned Accountant Member. The matter will now be placed before the regular Bench to dispose of the appeal in accordance with the opinion of the majority.
1 There having been a difference of opinion between the Members who originally heard this appeal, the following question was referred under Section 255(4) to the Hon'ble President for nominating a Third Member to resolve the controversy therein.
1. Whether in the facts and circumstances of the case the learned CIT (A) is justified in confirming the addition of Rs. 2,96,460.92ps made by the Assessing Officer in respect of 3 TDS certificates pertaining to the period 1/4/1996 to 31/3/1997 issued to the assessee by RCF? 2. The Hon'ble President has nominated Shri G.E. Veerabhadrappa, Vice President (Mumbai Benches) as a Third Member to resolve the controversy. Shri G.E. Veerabhadrappa, Vice President, has since vide his Order dated 27^th September, 2005, has agreed with the view expressed by the learned Accountant Member, in his proposed order on this issue. Accordingly, inconformity with the majority view, we hold that the addition of Rs. 2,96,406-92ps is deleted and it is further held that the assessee was not be allowed to claim credit in respect of the TDS certificates for which the income has not been returned by her as a result of the method of accounting employed. The credit shall be carried forward and the assessee will get the credit for the present TDS certificates in the year in which she offers the income taxed on the basis of the method of accounting regularly employed.
3. The assessing authority is therefore directed to modify the assessment accordingly.
5. Judgment was pronounced in the open Court on this the 7^th day of October, 2005.
1. This appeal is filed by the assessee. The relevant assessment year is 1997-98. The appeal is directed against the order passed by the CIT(A)-XXXVII at Mumbai on 19^th December, 2000. The appeal arises out of the assessment completed Under Section 143(3) of the Income-tax Act, 1961.
2. The assessee is an individual carrying on the business of providing security and house keeping services. He is regularly assessed to Income-tax. The assessee is following Mercantile System of Accounting and the said system has been consistently and regularly followed in all the assessment years.
3. In the course of assessment proceedings, the Assessing Officer found that as per the TDS certificates submitted by the assessee along with his return of income, the total receipts amounted to Rs. 1,06,15,995.55 whereas the receipts credited in the Profit & Loss account worked out to Rs. 95,19,657. When asked to explain the difference, the assessee stated that out of the many TDS certificates submitted by the assessee, a certificate pertaining to Rs. 4,925 also was submitted in the year under appeal but the corresponding receipt of Rs. 2,46,268 has been credited in the succeeding previous year. This is because, according to the assessee, the assessee was billing for the services rendered in a month only in a subsequent month. The said receipt of Rs. 2,46,268 infact related to the services rendered by the assessee in the month of March, 1997 for which the assessee had raised bill only in the succeeding month, April 1997. The assessee explained that the said amount accounted in the month April 1997 has been included in the total receipts furnished for the assessment year 1998-99. He submitted that this is according to the consistent practice of accounting followed by the assessee-company.
4. The Assessing authority, on the other hand, held that the assessee should have credited the amount of Rs. 2,46,268 due for the month March 1997, in the relevant previous year itself as the assessee was following Mercantile System of Accounting. Therefore, he made addition of Rs. 2,96,460.92 in this regard to the returned income of the assessee. This addition has been confirmed in first appeal. Therefore the second appeal before us.
5. The contentions raised by the assessee in this appeal read as below:- 1. The addition of Rs. 2,96,460.92 made to the gross total income may please be deleted.
2. The interest charged Under Section 234B may please be revised and the same should be charged to the date of filing of return i.e. upto October 1997.
6. Shri Shailesh Doshi, the learned Chartered Accountant appearing for the assessee argued the case in detail. According to him, the assessee was raising bill against his clients for the services rendered in a month, in the succeeding month alone and therefore, the bills against services rendered in March 1997 was raised only in the month of April 1997. Accordingly, the receipts corresponding to the services rendered in March 1997 has already been credited in the accounts of the succeeding previous year 1997-98, relevant to the assessment year 1998-99. He- submitted that this method is consistently followed by the assessee and this method does not any way affect the crucial system of accounting followed by the assessee. The learned Chartered Accountant further submitted that on the above method followed by the assessee, he has already included the receipts for the 12 months for the impugned assessment year and by adding the receipts for March 1997 in the impugned assessment, the Assessing Officer has infact considered the receipts for 13 months for the purpose of Income-tax and at the same time without giving deduction for corresponding expenditure relating to the said receipts pertaining to March 1997. The learned Chartered Accountant submitted that as far as the impugned assessment year is concerned, the total of the receipts from the month of March 1996 to February 1997 has been considered and if this method not followed in a regular" pattern, the assessment for the impugned assessment year will be on an exaggerate amount of income, which the assessee infact had not received at all.
7. Shri Sanjay Kumar, the learned Departmental Representative contended that if the assessee is following the Accrual System of Accounting, assessee should provide for accounting receipts due for the month of March 1997 also. He submitted that this is more important because the assessee has claimed credit for the TDS certificate for Rs. 4,925 which infact belonged to the bills raised for the month of March 1997. The learned D.R. submitted that the credit for the TDS and the offering of the corresponding income, both should be considered in the same assessment year. He submitted therefore that the orders passed by the lower authorities on this point are to be upheld.8. We considered the matter in detail. There is no dispute regarding the method of accounting followed by the assessee. He is following the Mercantile System of Accounting. Therefore, whenever income is recognized, the assessee has credited the same in his books of account, irrespective of its actual receipt. This accrual of income is something different from raising bills against the services rendered by the assessee from month to month. The question of following either Accrual System of Accounting or Cash System of Accounting arises only when the income is recognized. In the method of billing employed by the assessee, income is recognized only on raising of bills. The assessee raised the bills after the expiry of the month in which the services are rendered, In one way that Law is possible. The assessee can raise bills for the services rendered in March only in the month of April because the assessee has to wait till the end of the month of March. As far as the assessee is concerned, the income is to be recognized on issue of bills for services rendered. For the services rendered by the assessee in the month of March 1997, he has raised the bills in the succeeding months i.e. April 1997. Therefore, the income could be recognized only in the month of April 1997 and not in the month of March 1997. Once the bill has been raised in the month of April 1997, the assessee has to credit bill amount as his receipts for the month of April 1997 irrespective of the fact whether he received amount or did not receive the amount immediately. Even if the assessee did not receive the amount till March 1998, still the assessee had to show it as its receipt in the books of account.
9. In the present case, the assessee has strictly followed the above pattern. Infact the Assessing authority as well as the CIT(A) misconstrued the distinction between the recognition of income on the basis of the issue of bills and the accounting of income. Infact the income accrued to the assessee only on the recognition of income which is based on the raising of bills. Therefore, it is not possible here to hold that the assessee has deviated from the regular method of accounting followed by him. We should notice the distinction between the raising of bills and accounting of receipts.
10. As rightly pointed out by the learned Chartered Accountant, if the addition is sustained, the assessee would be subject to tax for the income relating to 13 month which is not justified. In the preceding assessment year 1996-97 also, the assessee had offered the receipts for the 12 months period from March 1995 to February 1996. In the present assessment year, he has shown the receipts for the month of March 1996 to February 1997. He has followed the consistent method of billing.
Once bills are raised and the income is recognized, he has again followed the Mercantile System of Accounting.
11. Therefore, there is no justification in making an addition of Rs. 2,96,460.92 to the income of the assessee. It is to be deleted. We order so. As the assessee is claiming credit for the corresponding TDS of Rs. 4,925 an equivalent amount would be treated as the income of the impugned assessment year, which would be reduced from the receipts of the ensuing assessment year.
12. In result, the appeal filed by the assessee is allowed. Order accordingly.
13. After having gone through the proposed order of the Id. Accountant member, I find it difficult to agree with the findings and conclusion as drawn by him in view of specific provisions contained in Sections 198 & 199 of the I.T. Act regarding allowance of credit of TDS.14. The undisputed facts are that the assessee is an individual, engaged in the business of providing security and house keeping services to various establishments, as such, UTI, RCF & HDFC etc. The assessee claimed TDS amounting to Rs. 5929/- in respect of three TDS certificates issued by RCF, Chembur pertaining to the period 1.4.96 to 31.3.97.97 as under: - Date of credit Amount credited Tax deducted at source 9.4.97 2,46,268.00 4,925 3.4.97 8,954.25 179 21.4.97 41,238.67 825 15. All the aforesaid three amounts were not included by the assessee in his income for the A.y. 1997-98, though the assessee was maintaining accounts on mercantile basis and claimed credit for TDS amounting to Rs. 5929/-. The Assessing Officer allowed the credit for TDS amounting to Rs. 5929/- and also taxed the corresponding income.
16. The assessee carried the matter in appeal and Id. CIT (A), in the impugned order, upheld the action of the Assessing Officer with the following observation: 2.3 The submission made have been carefully considered. From 1.4.97, the system of accounting has to be either in cash or mercantile alone and no mixed system of accounting or a system of accounting regularly followed can be accepted Under Section 145 of the I.T. Act. In views of it, the sum of Rs. 4,96,460/- pertaining to the period 1.4.96 to 31.3.97 as per the TDS certificates has accrued in the A.Y. 1997-98 and accordingly to be assessed in A.Y. 97-98 alone.
On that logic, the receipts for March 96 which the appellant has included in A.Y. 97-98 should be reduced and the corresponding expenditure be also reduced while working out the profits and gains from the business. However, such a benefit of deduction cannot be allowed as the same has not been claimed. By allowing such a claim, the appellant's earlier year's assessment will also have to be reviewed. Whatever may be the way to get out of the situation, the impugned receipts of Rs. 4,96,4607- accruing in the month of March 97 have to be taxed in the year ending 31.3.97. This position also appears to have been accepted in a way when the appellant has himself claimed the TDS deducted on these receipts. No interference is therefore called for in the A. O's order.
Aggrieved by the aforesaid order of the Id. CIT (A), the assessee is in before the Tribunal.
17. From the facts, it is clear that the assessee has claimed credit for tax deducted at source in A.Y. 1997-98, i.e. the assessment year under appeal whereas he has offered the income relating thereto for taxation in A.Y. 1998-99. The limited issue therefore, is whether the assessee can claim the credit for tax deducted at source (TDS) in A.y.
1997-98 and offer the income relating thereto for taxation in A.Y.1998-99. In my humble opinion, the provisions of Section 198 & 199 of the I.T. Act are quite clear. According to Section 198, all sums deducted under Chapter XVII are required, for the purpose of computing the income of the assessee, to be deemed to be the income received.
Therefore, tax deducted at source has to be treated as income received in A.Y. 1997-98, i.e., the year in which the assessee has claimed the credit. According to Section 199, the credit for tax deducted at source is required to be given for the amount so deducted on production of the certificate furnished Under Section 203 in the assessment made under this Act for the assessment year, for which such income is assessable.
It is therefore, evident on the bare perusal of the provisions of the Section 199 of the I.T. Act that credit for tax deducted at source is required to be given in the assessment year in which the income relating thereto is assessable. It is undisputed position in the case under consideration that the assessee has claimed and A.O. has allowed the credit for tax deducted at source in A.Y. 1997-98 and hence, it is equally undisputable that income relating thereto has to be brought to tax in the said A.Y alone and in no other assessment year. This view is quite apparent and clear, as stated above, on bare perusal of the provisions of Section 199.
18. The undisputed position that emerges is that credit for tax deducted at source and the assessment of income relating thereto have to go together in the same assessment year and that they cannot be divorced from each other. Section 199 prohibits the credit for TDS to be given in an assessment year different from the one in which the income relating thereto is assessable. It was the case of the assessee before the departmental authorities that credit for tax deducted at source should be given to him in the assessment year under consideration and hence the departmental authorities were justified in treating the income relating thereto also as his assessable income for the AY. 1997-98. Having claimed and obtained the TDS in A.Y. 1997-98, it was incumbent upon the assessee to offer the income relating thereto to tax in A.Y. 1997-98.
19. The submission of the assessee that he has followed mercantile system of accounting for the A.Y. under appeal also supports the aforesaid view. The assessee claimed credit for tax deducted at source in A.Y. 1997-98 and hence admitted and recognized the assessability of income relating thereto in A.Y. 1997-98. Be whatever it may, the system of accounting cannot defeat the express provisions of law contained in Section 199, which mandates that credit for TDS shall be given in the A.Y, in which the income relating thereto is assessable. As held by the Hon'ble Supreme Court in Tuticorin Alkali Chemicals v. CIT, 227 ITR 172 (SC), the income tax law does not march step by step in the divergent foot prints of the accountancy profession.
i) Whether it is possible to give credit for tax deducted at source in a year different from one in which the income is assessable; ii) Whether the income of the assessee was assessable in the case before us in A.Y. 1997-98.
21. As far as the first issue is concerned, the provisions of Section 199 are absolutely clear in that the credit for tax deducted at source shall be given in the A.Y. in which the income is assessable. It, therefore, follows that assessability of income and credits for tax deducted at source have to be considered in one and in the same assessment year and not in two different years. It is therefore, not possible to allow the assessee to avail the credit for tax deducted at source in A.Y. 1997-98 and brings the corresponding income to tax in A.Y. 1998-99.
22. As far as the second issue is concerned, the fact that the assessee himself has claimed and obtained the credit for tax deducted at source in A.Y. 1997-98 itself precludes the assessee from alleging otherwise.
The provisions of Section 115 of the Evidence Act are quite apposite.
The assessee made a declaration before the A.0 that it was entitled to get the credit for TDS in 1997-98. The Assessing Officer acted on that declaration and allowed the credit for TDS in A.Y. 1997-98. The Department thus altered its position on the basis of declaration made by the assessee, which was also in conformity with the provisions of Section 199 of the IT. Act. The Department acting on the said declaration, did not charge interest Under Section 234A/234B/234C, which would have been chargeable if the credit for TDS had not been claimed by the assessee and allowed by the department. On these facts, the assessee cannot be heard at this stage to say that its income in respect of which credit for tax deducted at source has been obtained by him in A.Y. 1997-98 should be assessed in A.Y. 1998-99. If the assessee felt that its income was assessable in A.Y. 1998-99, he should; have shown the income in A.Y. 1998-99 and also claimed the credit for TDS accordingly in A.Y. 1998-99. The assessee did not do so. Having claimed and obtained the credit for TDS in A.Y. 1997-98, the assessee should have also shown the corresponding income in A.Y. 1997-98 as required Under Section 199. Besides, the learned Accountant Member has also proposed in the draft order (para 11) that the income to the extent of tax deducted at source should be assessed to tax in A.Y. 1997-98. In my view similar principle applies to the entire income in respect of which tax has been deducted at source.. The deductor of the tax and the assessee have treated the income covered by TDS to be the income assessable to tax this year (A.Y. 1997-98) and it is only on this premise that credit for deduction of tax at source was claimed. Having taken this position, the assessee cannot contend that income covered by the TDS should not be taxed in the assessment year under appeal but in subsequent assessment year. 23. It is well established that it is income and not gross receipt, which is taxable. The assessee follows mercantile system of accounting and hence he is eligible to the allowance of expenditure incurred by him wholly and exclusively for the purposes of the business. The A.O. has recorded a categorical finding in para 5 of the assessment order as under: 5...Since the receipts of above amounts are shown to the extent of T.D.S. instead of the actual billed amount, no separate expenses are allowed as all the expenses pertaining to this year, i.e. A.Y. 1997-98 are debited to the P & L account.
24. No material was placed at the time of hearing before us to show that the aforesaid finding recorded by the Assessing Officer was incorrect. Having claimed the corresponding expenditure under mercantile method of accounting, the assessee cannot defeat the taxability of income on the ground that he had not raised the bill.
Here is a case where he has executed the work, received the benefit of TDS and was also allowed expenditure incurred in executing the said work. He cannot, in my humble view, turn around to say, in the face of the aforementioned facts, that the corresponding income is not taxable.