2007 (12) TMI 479 - HC - Income Tax

Summary

Issues Involved:
1. Whether the ITAT was right in law in upholding the order of the CIT (Appeals), directing the Assessing Officer to allow full credit of T.D.S to the assessee, in contravention of the provisions of section 199 of the Income Tax Act.
2. Whether the findings recorded by ITAT in allowing full credit of TDS to assessee are perverse and sustainable in view of statutory provisions of Section 199 of Income Tax Act, 1961.

Summary:

Issue 1: Credit of T.D.S to the Assessee
The appeals were filed u/s 260-A of the Income Tax Act, 1961, challenging the composite order dated 25.01.2007 by the ITAT, which upheld the CIT (Appeals) decision directing the Assessing Officer to allow full credit of T.D.S to the assessee. The CIT (A) relied on CBDT circular No. 2 of 2002, which stated that the entire T.D.S benefit was to be given to the holder of the bond at the time of maturity. The CIT (A) concluded that the assessee-secondary purchaser was entitled to the T.D.S credit as the T.D.S certificate was issued in her name at the time of bond maturity. The Tribunal upheld this view, interpreting that the circular resolved issues arising from Section 199 for deep discount bonds, and T.D.S should be credited to the bondholder at maturity.

Issue 2: Findings of ITAT and Statutory Provisions of Section 199
The Tribunal interpreted Section 199 and the CBDT circular correctly, stating that any deduction made and paid to the Central Government should be treated as payment on behalf of the 'owner of the security' or 'unit holder'. The Tribunal found that the assessee-secondary purchaser, being the bondholder at maturity, was rightly entitled to the T.D.S credit. The Tribunal's interpretation was that the original purchaser did not claim any T.D.S benefit, and the subsequent income was declared by the assessee-secondary purchaser, who claimed the T.D.S credit. The Tribunal's decision was based on the amended Section 199 effective from 01.04.1997 and the guidelines issued in the CBDT circular.

Conclusion:
The High Court dismissed the appeals, agreeing with the Tribunal's interpretation of Section 199 and the CBDT circular. The Court held that the assessee-secondary purchaser was entitled to the T.D.S credit as the bondholder at maturity. The judgments cited by the revenue were not applicable as they pertained to earlier assessment years before the amendment and the issuance of the CBDT circular. The substantial questions of law raised by the revenue were answered against the revenue, and the appeals were dismissed.