Full Judgment
2. That on the facts, circumstances and legal position of the case, the learned CIT (Appeals) has erred in law in holding that the appellant has claimed credit for TDS for the first time by filing application under Section 154 of the Income Tax Act dated 15-5-2004 and before that no claim for credit for TDS has been made at any point of time.
3. That on the facts, circumstances and legal position of the case, the learned CIT (Appeals) has erred in law in not allowing credit for tax deducted at source amounting to Rs. 2,18,15,062 attributable to interest income offered and subjected to tax in the year under appeal.
4. Without prejudice to Ground No. 3 hereinabove, the learned CIT (Appeals) has erred in law in not considering and allowing credit for the entire amount of tax deducted at source amounting to Rs. 3,29,90,648 in assessment year 2003-04 when the deductee had provided for interest & deducted TDS. 5. That the appellant craves to reserve to itself the right to add, alter, amend, substitute, withdraw and/or vary any ground(s) of appeal of or before the time of hearing.
1. That the impugned appellate order dated 17-3-2003 (sic) passed by the learned CIT (Appeals) is bad in law and wrong on facts.
2. That on the facts, circumstances and legal position of the case, the learned CIT(Appeals) has erred in law in holding that the appellant has claimed of TDS by filing original certificate by way of application under Section 154 of the Income Tax Act to substantiate the claim of TDS already made in the return of income is not a mistake apparent from record which can be rectified.
3. That on the facts, circumstances and legal position of the case, the learned CIT (Appeals) has erred in law in not allowing credit for tax deducted at source amounting to Rs. 35,68,320 attributable to interest income offered and subjected to tax in the year under appeal.
4. Without prejudice to Ground No. 3 hereinabove, the learned CIT(Appeals) has erred in law in not considering and allowing credit for the entire amount of tax deducted at source amounting to Rs. 3,29,90,648 during the year under reference when the deductee had provided for interest and deducted TDS. 5. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute, withdraw and/or any ground(s) of appeal at or before the time of hearing.
1. That the impugned appellate order dated 8-2-2005 passed by the learned CIT (Appeals) is bad in law and wrong on facts.
2. That on the facts, circumstances and legal position of the case, the learned CIT(Appeals) has erred in law in holding that the appeal filed before her is not maintainable.
3. That on the facts, circumstances and legal position of the case, the learned CIT (Appeals) has erred in law in not considering and allowing credit for tax deducted at source amounting to Rs. 76,06,766 attributable to interest income offered and subjected to tax in the year under appeal.
4. Without prejudice to Ground No. 3 hereinabove, the learned CIT (Appeals) has erred in law in not considering and allowing credit for the entire amount of tax deducted at source amounting to Rs. 3,29,90,648 in the assessment year 2003-04 when the deductee had provided for interest and deducted TDS. 5. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute, withdraw and/or any ground(s) of appeal at or before the time of hearing.
2. Rival contentions have been heard and record perused. As common grounds have been raised by the assessee in all the years, all the appeals were heard together and for the sake of brevity and convenience, all these appeals are disposed of by this consolidated order. In all the years under consideration, the assessee has claimed credit for TDS with respect to the interest income disclosed by it, being amount receivable from Escorts Finance & Investment Leasing (P.) Ltd. and Escorts Finance Investment & (P.) Ltd. As there was no TDS certificate filed along with the return of income, while processing the returns, the assessing officer did not give any credit for the alleged amount of TDS. However, the assessee filed application under Section 154 along with TDS certificate dated 29-3-2004, and requested for giving credit for the tax deducted at source with respect to the interest income offered by it in the assessment years 2001-02, 2002-03 and 2003-04. It was contended that the TDS certificate issued by both the deductors, clearly mentioned that the interest has been paid for the period 1-4-2002 to 31-3-2003. The assessing officer declined assessee's claim for giving credit of TDS by observing that Section 199 stipulates for credit for tax deducted at source only on the production of certificate furnished under Section 204 of the Act. Section 203 clearly states that the certificate issued by the tax deductor should contain particulars which are prescribed. The TDS certificate clearly provides that the particulars in respect of the period for which payment is to be made or credited, should be mentioned in the TDS certificate itself. According to the assessing officer, the claim under Section 199 can be entertained only when the certificate itself mentions that the TDS has been deducted for different assessment years and the assessee satisfies the assessing officer that, such income has been assessable/assessed in those years. He further pointed out that combined reading of provisions of Section 199 along with Sections 190 and 194A of the Act, clearly indicate that in case any income is to be assessed in subsequent assessment years, then credit for tax deducted at source should be given in the subsequent assessment year in which such income is assessable. Accordingly, the claim of TDS were declined in all the three years.
3. By the impugned order, the CIT(Appeals) confirmed the action of the assessing officer by observing that credit for tax deducted at source is to be allowed, only on production of certificate under Section 203 of the Act. He further observed that only the credit of TDS certificate issued under Section 203 of the Act is to be given in the year in which income is assessable, but the same is also further subject to fulfilment of the various conditions prescribed in other sections of the Act.
4. Aggrieved by the above order of the CIT(Appeals), for not giving credit of tax deducted at source in any of the assessment years in which income was offered for taxation, as well as in the assessment year 2003-04, when the tax was actually deducted with respect to the period 1 -4-2002 to 31-3-2003, the assessee is in appeal before us.
5. We have considered the rival contentions carefully gone through the orders of the authorities below and the TDS certificates and other documents placed on record. It is quite evident from the TDS certificate dated 29-3-2004 issued by the deductee that the tax was actually de-ducted and paid into Government treasury only on 29-3-2004.
Prior to 29-3-2004, neither the tax was deducted at source nor any amount was deposited in the Government treasury, nor any certificate was issued to the assessee with respect to the tax alleged to be deducted at source. From the record, we found that assessee has disclosed interest income receivable from M/s. Escorts Finance Investment & Leasing (P.) Ltd. and Escorts Finance & Investment (P.) Ltd. However, during the years under consideration, the assessee neither actually received any interest, nor any certificate was given for deduction of tax at source. It appears that there was some dispute between the assessee and its associates concerns to whom loans were given on interest. When the dispute was resolved, the tax was deducted at source for the period 1-4-2002 to 31-3-2003 at the rate of 21% on the amount credited to the assessee's account, the tax so deducted was also deposited in the Government treasury on 29-3-2004 through ITNS No.209 in Indian Overseas Bank, Janpath, New Delhi and a certificate dated 29-3-2004 was also issued to the assessee. Since prior to the date of issue of this certificate, as the assessing officer has processed the returns for all the three years pending before him, there was no occasion for giving any credit for the tax claimed to be deducted. The application filed by the assessee under Section 154 after receipt of TDS certificate dated 29-3-2004 was also declined by the assessing officer. As per provisions of Section 199, the credit for TDS has to be given in the assessment year in which the income relating to the tax deducted is assessed to tax. It also stipulates for giving credit to the assessee only on the production of certificate furnished under Section 203 of the Income Tax Act, 1961. In the instant case, the TDS certificate furnished by the assessee clearly indicated that it pertains to the period 1-4-2002 to 31-3-2003 in respect of amount paid/credited, on which the deductor has deducted tax at source on 29-3-2004. Under the provisions of Sections 194B, 199, 201, 203 and 205 of the Income Tax Act, 1961, a person responsible for making the payment to the assessee is under a statutory obligation to deduct tax at source and after deduction of the amount of tax, he is required to deposit the same to the credit of the Central Government and to issue a certificate of deduction. The assessee is entitled to claim credit for amount deducted at source only when the amount so deducted is found to be actually deposited to the credit of the Central Government and a certificate under Section 203 is also furnished to this effect. Only on payment of amount to the credit of the Central F Government, it would be treated as payment of tax. Accordingly, a mere claim of deduction of tax at source, or mere disclosing the respective income receivable in its books of account without any corresponding deduction of tax at source, would not entitle the assessee to claim credit of tax relatable to such income. So long as the amount deducted is not deposited in the coffers of the Central Government, there is no question of giving any credit for such amount of tax. But once tax is deducted on the income credited by assessee in its books of account and a requisite certificate to this effect is issued by deductor after deposit of tax amount in the Government treasury, the assessee becomes entitled for the credit of such TDS while computing the tax liability for the relevant period.
6. The scheme for giving credit for TDS was sought to be modified through Clauses 56 and 59 of the Finance Bill, 2002 and the same have also been explained in the Memorandum explaining the provisions of the Finance Bill to state that : Under the existing provisions of Section 199 of the Income Tax Act, any deduction made in accordance with the provisions of Sections 192 to 194, 194A, 194B, 194BB, 194C, 194D, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194K, 194L, 195, 196A, 196B, 196C and 196D and paid to the account of Central Government is treated as a payment of tax on behalf of the person from whose income the deduction was made or the owner of the security or depositor or owner of the property or of unit-holder or of the shareholder, as the case may be, and credit given to such person for the amounts so deducted on the production of a certificate furnished under Section 203 in the assessment made under this Act for the assessment year for which such income is assessable.
Hardship is being faced by the assessee since in many cases certificates under Section 203 are not furnished to them and as a result credit is not given for the tax so deducted.
With a view to mitigate this hardship, it is proposed to insert a new Sub-section (14) in Section 155 to provide that where in the assessment for any previous year or in any intimation or deemed intimation under Sub-section (1) of Section 143 for any previous year, credit for tax deducted in accordance with the provisions of Section 199 has not been given on the ground that the certificate furnished under Section 203 was not filed with the return and subsequently such certificate is produced before the assessing officer within two years from the end of the assessment year in which such income is assessable, credit of TDS shall be given to the assessee on production of such certificate. Nothing contained in the proposed sub-section shall apply unless the income from which tax has been deducted has been disclosed in the return of income filed by the assessee for that assessment year.
The proposed amendment shall enable the assessing officer to rectify the order of assessment or any intimation or deemed intimation under Sub-section (1) of Section 143.
As a consequence, it is also proposed to amend Sub-section (9) of Section 139 to provide that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted at source, the return of income shall not be regarded as defective if such certificate was not furnished under Section 203 to the person furnished his return of income and such person produces the certificate within a period of two years specified under Sub-section (14) of Section 155.
7. As per our considered view, credit for TDS must in every case be given to the assessee from whose income tax was deducted at source and paid to the credit of the Central Government. If the recipient of the income considers that he is not liable to tax in respect of the income, wholly or partly, therefore, does not disclose the amount of such income in his return, the Income-tax Department cannot refuse to give credit merely by contending that the income had not been disclosed in the return filed by the assessee for the assessment year. The assessee may as per relevant provisions of Income Tax Act, consider the income either as not taxable in his hands or as being relatable to a different assessment year and he may even claim set off of loss or other deductions against such income. The assessee may also be not chargeable to tax on the income because of the overriding provisions of Double Taxation Avoidance Agreement and/or because of the provision for exemption of such income, whether wholly or partly, under some provisions of the Income Tax Act. It would be, therefore, improper and even impermissible for the revenue to swallow the amount of TDS after having received and enjoyed the same. It cannot be ignored that every item of TDS carries with it an obligation of trust and accountability to return the amount and/or give credit for the amount so deducted depending upon the tax liability of the recipient to be determined in the course of his assessment. If a wrong assessment is made for whatever reasons, the Department has all the powers to rectify the same by resort to rectification of mistakes, revision and/or other proceedings, legally available under the Statute. Assessee's income for which tax is deducted at source should not be refused to be given credit. Being a case of direct tax, there is also no question of unjust enrichment being claimed so as to take the credit of tax without an obligation to return the same to the assessee. The payer does not pay the amount of TDS as his own liability and he only acts as the agent of the Government or as trustee to collect the TDS for the Government, free of cost. If no credit is to be given to the payer and/or to the payee, the Government would have no authority to treat the same as tax and Article 265 does not empower the Government to make any levy or collection of tax not authorized by law. There may be cases in which the assessee is not in a position to have the records and make complete claim of credit for TDS due to many factors beyond his control, therefore, provisions relating to time-limit for claiming credit of TDS should also be liberally construed. If the tax due to the Government is not barred by limitation for collection or recovery, the refund of TDS due to the assessee should not be equally hit by any bar of F limitation nor should there be any fetter on the assessee to claim credit for TDS at any time.
8. When once deduction of tax at source has been made and that amount had been credited/paid to the Government, there is no justification for treating the assessee as in default for that amount by denying the credit nor should any demand of tax or interest be raised against the assessee.
9. Keeping in view facts and circumstances of the instant case, and the amended provisions of the Act, as discussed hereinabove, we are persuaded to agree with learned authorised representative Mr. Mehta that lower authorities were at all not justified in giving credit for TDS at least in the assessment year 2003-04. Accordingly, we direct the assessing officer to allow credit of tax deducted at source in the assessment year 2003-04 relevant to the financial year 2002-03, by passing a suitable order. We direct accordingly.
10. In the result, appeals filed by the assessee are allowed in terms indicated hereinabove.