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2010 (12) TMI 334 - AT - Income TaxNon recognition of TDS as Income - Accrual basis of account - Claim of credit of TDS - Where tax has been deducted at source and paid to the Central Government and income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax - Held that - where the course yielded by plain common sense matches with that statutorily provided, i.e., allow credit for TDS against the corresponding income on its assessment, so that even the absence of section 199 would yield the said course in view of the dictum by the hon ble apex court that tax laws should be applied, as far as circumstances may admit, in an equitable manner refer CIT v. Ghotla J.H. 1985 -TMI - 5903 - SUPREME Court .
Issues Involved:
1. Denial of credit for tax deducted at source (TDS) for the assessment year 2006-07. 2. Applicability and interpretation of Section 199 and Section 198 of the Income-tax Act, 1961. 3. Relevance and application of Rule 37BA of the Income-tax Rules, 1962. 4. Consistency of Tribunal's decisions and the binding nature of Third Member decisions. Detailed Analysis: 1. Denial of Credit for TDS: The primary issue revolves around the denial of credit for TDS amounting to Rs. 2,35,493 by the Assessing Officer (AO) because the relevant income on which TDS was deducted was not admitted by the assessee for the assessment year 2006-07. The assessee, a firm in the investment and finance business, maintained its books on a cash basis and recognized interest income only when actually received. The CIT(A) allowed relief to the assessee by following a previous Tribunal decision, which stated that credit for TDS could not be denied if the amount of TDS was offered as income for the year. 2. Applicability and Interpretation of Section 199 and Section 198: The Revenue argued that the issue was settled by the Tribunal's Third Member decision in Pradeep Kumar Dhir v. Asstt. CIT, which held that credit for TDS should be allowed on a prorata basis in the proportion in which the income is offered to tax for the current year, as per Section 199. Section 199 states that credit for TDS would be allowed in the assessment year for which such income is assessable. Section 198 clarifies that all sums deducted as TDS shall be deemed to be income received for computing the income of an assessee. 3. Relevance and Application of Rule 37BA: The assessee's representative argued that Rule 37BA, which came into effect from 1/4/2009, supports their case. Rule 37BA(3)(ii) states that where income is assessable over several years, credit for TDS should be allowed proportionately across those years. However, the Revenue contended that Rule 37BA only formalized what was already implicit in Section 199 and that the rule's prospective application does not negate the Tribunal's earlier consistent view. 4. Consistency of Tribunal's Decisions and Binding Nature of Third Member Decisions: The Revenue emphasized that the Tribunal had consistently taken the view that credit for TDS should be allowed in the year the corresponding income is assessable, as supported by various decisions, including the Third Member decision in Pradeep Kumar Dhir. The assessee's argument that the issue was debatable and required reference to a Third Member was countered by the Revenue, stating that the Third Member decision is binding on a co-ordinate bench. Conclusion: The Tribunal concluded that the provisions of Sections 198 and 199, along with Rule 37BA, clearly mandate that credit for TDS should be allowed in the assessment year for which the corresponding income is assessable. The Tribunal found no basis for the assessee's claim that the impugned TDS amount was returned as income for the year, especially given the assessee's cash basis of accounting. The Tribunal also noted that the decisions cited by the assessee did not consider the Third Member decision and were not applicable to the present case. Consequently, the appeal of the Revenue was allowed, and the denial of credit for TDS by the AO was upheld. Order: The appeal of the Revenue is allowed. Order pronounced in the court on 10th December 2010.
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