Judgment:
1. The appeal of the assessee was heard by a Division Bench Since there is a difference of opinion between the Members of the Bench, the point of difference is being referred to the Hon'ble President Under Section 255(4) for nomination of a Third Member The point of difference is identified as under: Whether the credit for the tax deducted at source in the previous year is to be allowed in the assessment year relevant to the year in which deduction has been made or in the year in which the income is assessable to tax? 2. The appeal records along with dissenting order are enclosed herewith.(N.K. Saini) (M.A. Bakshi)Account Member Vice President 1. This appeal by the assessee I directed against the order of Ld.
CIT(A)1, Ludhiana dated 2 8 2006.
1 That the Ld CIT(A)-1 has not considered the arguments advanced with reference to the deduction of TDS Even me written arguments have not been considered and the order or Ld. CIT(A)-1 is not speaking order.
2 (a) That the assessee is maintaining accounts on casn basis and the Ld CIT(A) I has not considered this issue hence the order of the Ld CIT(A)-1 is not in accordance with law.
(b) The Assessina Officer has given credit of TDS on proportionate basis to the assessee which is illeqat and against the IT Act and this issue has not been decided by the Ld. CIT(A)-1 Ludhiana hence the order Under Section 250(6) is not in accordance with law.
(c) The Assessing Officer has allowed TDS credit of Rs. 4279 against Rs 15030 claimed and deducted and reflected in the books on cash basis, hence the credit of "TDS of Rs 15030 may please be allowed.
3. That the addition of Rs. 47 000 on account of low household withdrawals upheld by Ld CIT(A)-1 may please of deleted " 4. That disallowance of Rs. 4211 on account of electcity Telephone expenses at Rs. 10546 and Motor car expenses at Rs 1539 upheld by the Ld CIT(A)-1 may please be allowed.
5. That the appellant craves for permission to and amend or alter any ground of appeal at the time of hearing.
3. The grievance of the assessee vide grounds No 1 & 2 relates to credit of TDS.4. The facts related to this issue in brief are that the assessee had been following casn system of accounting and claimed credit TDS deducted and paid by various parties on his penait at Rs. 15030 based on the respective TDS certificates in Form no 16A accompanying return OF income The Assessing Officer observed that the assessee had declared the receipt shown in TDS from on receipt basis, therefore the credit for TDS deducted and paid on his behalf was allowable to him with respect to me income which was assessable for the year under consideration and not the entire amount of TDS which had been deducted, paid and claimed by the assessee during the year under assessment itself in view of the provisions of Section 199(1) of IT Act. The Assessing Officer had given the details of the amount of TDS as per TDS certificate at para 4 of assessment order the worked out the TDS allowable at pro rata basis and had also mentioned the figure which was not allowable to the assessee the Assessing Officer held that a assessee was entitled to the credit of TDS of Rs. 4279 as against TDS claimed at Rs. 15030 5. The assessee carried and matter to the Ld. CIT(A) who confirmed the action of me Assessing Officer by OBSERVING AS UNDER. As per this ground of appeal the Assessing Officer has allowed credit of TDS of Rs. 42/9 against the credit of Rs. 15030 As per the provisions or Section 199 of Act the credit for TDS shall be give to the assessee for the amount deducted as TDS on production of certificate furnished Under Section 203 for the Assessment year for which such income is assessaple Therefore, the credit has to be given in the year me income on which TDS has been declared, has been returned for the purpose of assessment the reliance placed by the Ld. A.R. on the case of Toya Engineering India Ltd. V.J.C.I.T. ITA-I Mumbai 'J' Bench can not be of any help to him as in mat case, the assessee company was crediting the value of work in progress on the credit side of its P & L Account the work, in progress reflected in the accounts of the company was impregnated with the cost and expenditure of he project plus amount of income earned out of project till such stage. Thus it is clear from the facts of the case as relied upon by the Ld. A.R. for the assessee mat the work in progress on which TDS was deducted was credited in the assessee's P & L ACCOUNT However, from the facts it is clear that the appellant s case is entirely different As far as me appellant s case is concerned the corresponding income for which credit for TDS is being claimed has not been shown as income in me relevant previous year Therefore the action of the Assessing Officer is justified and ground of appeal is dismissed 6. Ld. Counsel for the assessee reiterated the submissions made before the authorities below He further submitted that the assessee, although was showing income on receipt basis by following the cash system but the TDS was to be considered for the year to which it belonged He further stated that the Assessing Officer has no power to adjust the TDS on pro rata basis Reliance was placed on the decision of ITAT Mumbai Bench in the case of Toya Engineering India Ltd. V.J.C.I.T.reported at 100 TTJ 733 it was also submitted that in the preceding years full amount 0f TDS had been considered and no adjustment was made on pro rata basis.
7. In her rival submissions Ld. D.R. for the revenue strongiv supported the orders of authorities below and further submitted that as per the provisions of Section 199 of IT Act the credit for TDS shall be given to assessee for the amount which a assessable and since the income was shown by the assessee on receipt basis the benefit of TDS was to be allowed only to the extent it related to the income delared by the assessee.
8. We have heard both the parties and carefully gone through the material available on record, in the instant case it is noticed that the assessee derived income mainly from commission/brokerage. The parties on behalf of whom the assessee was working, deducted TDS on the payments made by them. Those parties accounting of the expenses on the basis of mercantile system of accounting out the assessee was following the case system of accounting and was showing the income which had been received. However, the TDS deduted was claimed on the basis of certificates which were received from the parties and furnished to the department along with return of income. But the Assessing Office allowed the benefit of TDS which was relatable to the income shown by the assessee in the relevant year on cash basis. The Assessing Officer, in respect of his action, invoked the provisions of Section 199(1) of IT Act. The provisions of Section 199 read as under.
199, [(1)] Any deduction made in accordance with [the foregoing provision 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, of 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 assessment [made under this Act for the assessment year for which such income is assessable].
From the above provisions it would be clear that any deduction made and paid to the Central Government shall be treated as payment of tax of behalf of the person from whoso income deduction was made. In the instant case the deduction was, MADE from the assessee and the benefit of that deduction was available on the production of certificate furnisned Under Section 203 in the assessment which was relevant to the Assessment year. The assessee furnished TDS certificate along with return of income and claimed set off against the tax to be paid on the income declared for the year which is relevant to the Assessment ear under consideration 8.1 Now the question arises whether the TDS to be adjusted of the basis of TDS certificate or it can be considered in part i.e. on pro rata basis only for the income declared by the assessee on receipt basis.
The tax deducted at source from the income of the assessee is akin to the advance tax, so, the credit for advance tax is to be given as per the provisions of Section 219 of IT Act WHICH read as under: Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall be treated as a payment or tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was available, and credit there for shall be given to the assessee in the regular assessment.
From the above provision it is crystal clear that any sum recovered from the assessee as advance tax in pursuance or Chapter XVII of IT Act, shall BE Treated as payment of tax in respect of income of the period which would be the previous year for an assessment for the Assessment year next following the Financial year in which it was payable. In the instant case the TDS has been deducted from the income of the assessee in the Financial year 2002-03 and the credit for the same shall be given to the assessee in the regular assessment Regular assessment in this case relates to Assessment year 2003-04 so, any tax paid by the assessee in the form of advance tax of deducted by other parties in the form of TDS in the previous year 2002-03 shall be considered only for the Assessment year 2003-04. In other words, TDS can not be adjusted on pro rata basis even if the income is shown by the assessee on case basis but the TDS has been deducted by the payer on the basis of expenses incurred of mm on mercantile basis we therefore, considering the totality of the facts, set aside the order of Ld. CIT(A) and direct the Assessing Officer to allow the claim of the assessee in respect of TDS on the basis of ITDS certificate furnished by him.
9. Ground No. 3 relates to addition of Rs. 47,000 made by the Assessing Officer and sustained by the Ld. CIT(A) on account of household expenses.
10. The facts related to this issue in brief are that the assessee in response to a query raised of the Assessing Officer stated that his family comprises of 4mempers including his wife and two school going children The assesee stated that he incurred a sum of Rs. 49,000 towards his household expenses including school fees of his children which was Rs 700 pm. The Assessing Officer did not accept the contention or the assessee by observing that in view of the consistent rise in prices and standard of living even of an average family, the expenses claimed to have been incurred by the assessee for household expenses at Rs. 49 000 were to be considered at too a lower figure. The Assessing Officer estimated the household expenses @ Rs. 8000 pm. and made the addition Rs. 47,000 Ld. CIT(A) confirmed the action of the Assessing Officer. Now the assessee is in appeal.
11 Ld. Counsel for the assessee submitted that the expenses shown by the assessee were sufficient to meet the household needs since he was living a simple and not a lavish life.
12. In her rival submissions Ld. DR for the revenue strongly supported the orders of authorities below.
13. We have considered the rival contentions and carefully gone through the material available on record. In the instant case it is noticed that the Assessing Officer while making the estimate of Rs. 8000 pm on account of household expenses, had not given any basis. He also did not rebut this contention of the assessee that the School fee of both the children was Rs. 700 pm and the children were going to school on cycles, no servant even maid servant was kept and that the assessee was not a member of any club. We are therefore, of the view that the estimate made by the Assessing Officer is on higher side, to meet the ends of justice household expenses are estimated at Rs. 6000 pm. In other words, the addition to the extent of Rs. 23,000 is sustained and the assessee will get a relief of Rs. 24,000.
14. The next issue vide ground No. 4 relates to disallowances of Rs. 4211 on account of electricity, Rs. 10546 on account of telephone expenses and Rs. 15939 on account of motor car expenses which were made by the Assessing Officer and the disallowance had been sustained by the Ld. CIT(A).
15. The facts related to this issue in brief are that the Assessing Officer made the aforesaid disallowances by considering the possibility that the expenses were being incurred for personal purposes also He disallowed 1/4^th of the electricity and telephone expenses incurred by the assessee at Rs. 16846 and Rs. 42185 respectively and also disallowed 20% of the motor car expenses and depreciation Ld. CIT(A) confirmed the action of the Assessing Officer.
16. After considering the rival submissions and the material available on record, it is noticed that neither the Assessing Officer nor the Ld.
CIT(A) had given any basis for making the aforesaid disallowances. At the same time, in such type of cases personal use on account of electricity, telephone expenses and motor cat expenses by the proprietor and his family members can not be ruled out. The assessee is doing the business in his individual capacity and derives income mainly from commission, brokerage and dealing in yarn. Considering this fact that in such type of cases personal use can not be ruled out and also considering this fact that the Assessing Officer had not given any basis for making the disallowances we are of the opinion that the disallowances made by the Assessing Officer and untamed by the Ld.
CIT(A) are on higher side. We, therefore to meet the ends of justice direct the Assessing Officer to disallow 1/6^th of the expenses incurred by the assessee on account of electricity charges telephone expenses motor car expenses and depreciation thereon considering the same as to be utilized by the assessee and his family members for personal purposes.
17. Ground No. 5 is general in nature, so do not require any comments on our part.(M.A. Bakshi) (N.K. Saini)Vice President Accountant Member 1. I have gone through the order proposed by my ld. brother in the appeal of the assessee for assessment year 2003-04 Whereas I agree with the decision proposed by my ld brother in respect of disallowances of certain expenses and addition on account of household expenses. I have my reservations in regard to the proposed view relating to allowance of credit in respect of tax deducted at source Since I have not been able to persuade myself to agree with the proposed view, I am drafting a separate order relating to the issue referred to above.
2. The appellant is an individual and had filed return of income for assessment year 2003-04 on 30^th Sept , 2003 declaring income of Rs. 2,91,190 The return of income was processed Under Section 143(1) on 26.3.04. Subsequently, assessment was made Under Section 143(3). Vide para 4 of the assessment order the Assessing Officer has pointed out that assessee has been following system of accounting on cash basis and has claimed credit for tux deducted at source aggregating to Rs 15030 on the basis of TDS certificates in Form No. 16A accompanying the return of income it has been pointed out by the Assessing Officer that whereas the amount in respect of which tax has been deducted at source has been credited in the account of the assessee by the parties in their books of account, the assessee has declared only the income which has been received in the year under appeal or cash basis. The AO has given the following chart in regard to the receipts and tax deducted at source vis-a-vis the credit claimed by the assessee:Sr. No.Name of the party Amount of rceipt Amount Amount Amount (deducting tax) credited of TDS of receipt of IDS on as per declared for which accrual TDS by the credit basis a certificate assessee claimed per TDS in the1.
M/s KNA 3405 347 347 347 International2.
M/s A.K. Sales 9091 928 928 928 Corpn.3.
M/s Ajanta 193096 10138 101.38 10138 Total 205592 11413 11413 11413 Referring to the provisions of Section 199(1) of the Income-tax Act, 1961, the AO held that since the assessee has declared the aggregate income of Rs. 11,413 only out of the total credit of Rs. 2,05,592 in respect of which tax has been deducted at source the assessee is entitled to the credit of TDS only with reference to the payment of Rs. 11,413 offered for taxation in the year under appeal. He has accordingly allowed a credit of Rs. 662 out of the total TDS of Rs. 11,413 in the year under appeal The balance credit of Rs. 10,751 has been held to be allowable in the year in which balance income becomes assessable (In respect of the remaining amount of TDS (15030-11413) i.e. Rs. 3617/-there is no dispute).
3. The assessee appealed to the CIT(A) against the decision of the AO but without any success in the regard to this issue. Hence the present appeal before us.
4. The ld. Counsel for the assessee contended that assessee was entitled to the credit of the entire amount of TDS in the assessment year relevant to the previous year in respect of which tax has been deducted at source. Reliance was placed o the decision of Bombay Bench of the Tribunal in the case of Toya Engineering India Ltd. v. Jt.
C.I.T. 100 TTJ 373 (Bombay), wheren it has been held that the credit was to be allowed to the assessee in the year of deduction of tax at source. It was accordingly pleaded that the appeal of the assessee may be allowed and the Assessing Office directed to allow full credit for the TDS.5. The ld. D.R., on the other hand, contended that the AO has acted strictly in accordance with the provisions of Section 199 and has been fair to the assessee to mention that the credit for the remaining amount of TDS would be allowed to the assessee in the year in which the balance income is assessable to tax. The decision of the Bombay Bench of the Tribujnal has rightly been distinguished by the CIT(A), it was contended.
6. In the order proposed by my learned brother, reference has been made to the provisions of Section 199 as well as to Section 219. So, however, my ld. brother has opined that TDS is akin to the advance tax and as per provisions of Section 219 of the Income-tax Act, 1961, credit to be given to the assessee in the regular assessment for the year for which tax has been deducted at source. According to my ld brother since tax has been deducted at source in the financialy year 2002-03 the AO was bound to give credit to the assessee in the assessment year 2003-04 for the entire tax deducted at source notwithstanding the fact that the assessee had offered only the component of TDS as inpome for the year under appeal. In my considered view provisions of Section 219 relate to the credit in respect of the advance tax and in my humble view and with due respects to my learned brother, tax deducted at source is not akin to advance tax in the light of specific provisions of the Act. Section 219 of the Income-tax Act, 1961 has been quoted by my ld brother and for the sake of ready reference the same is reproduced hereunder: Section 219. Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit there for shall be given to the assessee in the regular assessment.
A plain reading of the Section does not leave me in doubt that the said section refers to any sum recovered from an assessee as advance tax in pursuance of Chapter XVII. Any sum paid or recovered by the assessee is followed by the words "as advance tax" and, therefore, the TDS, according to my appreciation of the language of Section 219, is not covered under the said section. Moreover, there is a specific section relating to the credit for the TDS and it is well-settled that once there is a specific provision in a statute, it shall prevail over the general provision. Reliance is placed on the decision of Gujarat High Court in the case of Addl. CIT, Gujarat v. Tarun Commercial Mills Ltd. 113 ITR 745 (Guj.). In the said case, it has been held that when there is general enactment as well as special enactment, the particular enactment would override the general enactment. There are number of other judgments relating to this rule construction but, in my view, it is unnecessary to burden this order with such decisions.
7. Section 199 is relevant for the purpose of credit in respect of TDS.The said section is reproduced hereunder; Section 199. (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 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 assessment 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 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.
(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 and credit shall be given to him for the amount so paid on production of the certificate furnished under Section 203 in the assessment under this Act for the assessment year for which such income is assessable.
(3) Where any deduction is made in accordance with the foregoing provisions of this Chapter on or after the 1^st day of April, 2006 and paid to the Central Government the amount of tax deducted and specified in the statement regerred to in Section 203AA shall be treated as tax paid on behalf of the persons referred to in Sub-section (1) or, as the case may be, Sub-section (2) and credit shall be given to him for the amount so deducted in the assessment made under this Act for the assessment year for which such income is assessable without the production of certificate.
It may be pertinent to mention that Section 199 quoted above is the section as amended from time to time and as applicable for assessment year 2002-03. Till 1.6.1987, the language of Section 199 was different insofar as it provided for giving credit to the assessee in repect of TDS in the assessment for me immediately following assessment year. By the Finance Act, 1987, the language of Section 199 was modified to the extent that the credit for the tax deducted at source was provided to be given in the assessment year in which TDS is assessable. As against the words "credits shall be given... for such assessment year for which such income is assessable", the section provided "the credit shall be given... for the immedately following year under this Act." Thus, the Legistature having modified the language of Section 199 w.e.f.
1.6.1987, in my considered view, there is no escape from the view that the credit for TDS is to be given in the year in which the income in respect of which tax has been deducted at source is assessable to tax.
8. It is not disputed that assessee has not offered the income credited by the three parties in respect of which tax has been deducted at source on the ground that income is offered to tax on receipt basis and the amounts have not in fact been received The AO has, in my view, been reasonable to give crecstt for the tax deducted at source to the extent the income has been offered for taxation by the assessee in the year under appeal As pointed out earlier, the assessee has disclosed the amount of TDS as income in the year under appeal as provided under the statute and credit to the extent TDS relates to such income has been allowed by the AO.9. The decision of the Bombay Bench of the ITAT in the case of Toya Engineering India Ltd. (supra) has rightly been distinguished by the CIT(A) insofar as in that case the assessee had credited the work-in-progress in the books of account and, therefore, the said amount was assessable to tax in the year of tax deducted at source and was accordingly directed to be allowed credit for.
10. In the light of above discussion, I am of the considered view that as per provisions of Section 199, the assessee is entitled to the credit in respect of tax deducted at source in the year in which the income is assessable and not in the assessment year relevant to previous year in respect of which tax has been deducted at source. This ground of appeal raised by the assessee in this regard is accordingly dismissed.
11. Before parting, I would like to mention that the ld Departmental Representative had pointed out before us that major portion of income received by the assessee is from M/s Ajanta, a sister concern. In that case, deductin for expenses is claimed on accrual basis and tax is deducted at source from the income due to the assessee.But the assesssee in not showing the income on the ground of following caseh system of accounting and simultaneously claiming refund of the tax deducted at source The contention is firstly unverifiable from record.
Secondly, these facts are not crucial for deciding the issue.