2014 (9) TMI 520 - HC - Income Tax

TDS Credit - treatment of TDS as income - relevant assessment year - Whether the Tribunal is right in holding that the assessee is not entitled to the credit of tax deducted at source on the amounts paid on sub- contract works Held that - At the time when the amounts were deducted by the principal while making payments to the subcontractors, the amounts were deducted at 2% towards TDS u/s 194C of the Act giving effect to the orders of the Tribunal, AO had deleted the amount relating to the TDS which was treated as the income of the assessee u/s 198 of the Act - The amount deducted initially as TDS either can be treated as part of the income of the assessee or as representing and relatable to the receipts which are liable to be reckoned in the process of assessment - The amount received by the assessee on account of the TDS came to be treated as part of the commission, which the assessee is entitled to receive under agreement entered into with the subcontractor it is rightly treated as income for the respective AYs - the assessee obviously is not entitled to the benefit of treating the amounts initially deducted as TDS, as part of the tax paid by the assessee Decided against assessee.

Issues:
1) Entitlement to credit of tax deducted at source on sub-contract works.

Analysis:
The judgment involves two appeals filed under Section 260A of the Income Tax Act by the assessee, questioning the decision of the Income Tax Appellate Tribunal regarding the credit of tax deducted at source on sub-contract works for the assessment years 1988-89 and 1989-90. The primary issue is whether the Tribunal was correct in holding that the appellant/assessee is not entitled to the credit of tax deducted at source on the amounts paid on sub-contract works. The facts reveal that the assessee, a Civil Contractor, was assessed for income from works executed by himself and subcontractors. Initially, the Assessing Officer sought to tax the entire turnover related to subcontract works, but through various appeals, the Tribunal deleted the turnover corresponding to the T.D.S amounts. However, while giving effect to the Tribunal's order, the assessing officer treated the T.D.S amount as income of the assessee, leading to further appeals and the current proceedings.

The crux of the matter lies in the treatment of the T.D.S amounts in the assessment of the assessee's income. The assessee argues that since the T.D.S amounts were not treated as income in earlier assessments and were settled through Tribunal orders, they should be credited as such. On the contrary, the revenue contends that the disputed amounts should be considered part of the assessable income rather than tax paid on behalf of the assessee. The Tribunal examined the nature of the T.D.S deductions made by the principal and the agreements with subcontractors. It was observed that the turnover related to subcontract works was erroneously included in the assessee's income twice, leading to the deletion of the T.D.S amounts treated as income under Section 198 of the Act.

Ultimately, the Tribunal held that the T.D.S amounts initially deducted cannot be considered as tax paid by the assessee, as they were already treated as part of the assessable income. The amounts received as T.D.S were rightfully treated as income under the agreement with subcontractors. Consequently, the assessee was deemed ineligible for the benefit of treating the deducted T.D.S amounts as tax paid. As a result, the common substantial question of law raised in the appeals was answered against the assessee, leading to the dismissal of both appeals with no order as to costs.

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