2015 (9) TMI 435 - AT - Income Tax

Credit for tax deducted - CIT(A) allowed claim - Held that - CIT(A) has given a clear finding that there was no revenue impact, since the payments made by the assessee has been fully reimbursed during the year under consideration, meaning thereby, if the profit and loss account is recast by including the payments and reimbursements as its expenditure and income respectively, then the provisions of sec. 199 of the Act read will Rule 37BA would stand complied with. Since the Ld CIT(A) has followed the decision rendered by the Delhi bench of Tribunal in the case of Escorts Ltd (2007 (5) TMI 362 - ITAT DELHI) and since the said view also finds support from the decision rendered in the case of Arvind Murjani Brands (P) Ltd (2012 (5) TMI 138 - ITAT MUMBAI ) and further since the entries passed by the assessee do not have any revenue impact, no reason to interfere with the order passed by Ld CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in directing the AO to allow the credit of TDS of Rs. 13,76,800 to the assessee company.

Detailed Analysis:

1. Justification of CIT(A) in Allowing TDS Credit:

Facts:
The assessee, a subsidiary of M/s DIGI Cable Network Private Limited, is engaged in cable television distribution. The assessee made payments towards "broadcasters pay channel charges" for CAS areas, which were reimbursed by its holding company. The holding company deducted TDS at 2% from the reimbursed amount. The assessee did not route these payments and reimbursements through its profit and loss account but claimed credit for the TDS amount.

Assessment Officer's (AO) Stand:
The AO denied the TDS credit on the grounds that the reimbursements were not part of the assessee's income, and hence, the income related to the TDS should have been offered for taxation to claim the credit.

CIT(A)'s Decision:
The CIT(A) allowed the TDS credit, stating that the payments made by the assessee on behalf of its holding company were reimbursed within the same year, resulting in no revenue impact. The CIT(A) relied on the Delhi Tribunal's decision in Escorts Ltd (15 SOT 368), which held that the IT department cannot refuse TDS credit merely because the income was not disclosed in the return filed by the assessee. The CIT(A) directed the AO to allow TDS credit, emphasizing that credit must be given once the tax is deposited in the government treasury, regardless of whether the income is taxable or exempt.

Tribunal's Observations:
The Tribunal upheld the CIT(A)'s decision, noting:
- The CIT(A) provided a clear finding that there was no revenue impact since the payments were fully reimbursed.
- The Tribunal in Escorts Ltd. ruled that the IT department cannot deny TDS credit merely because the income was not disclosed in the return.
- The Mumbai Tribunal in Arvind Murjani Brands (P) Ltd. (137 ITD 173) also supported this view, emphasizing that TDS credit must be allowed to the payee in the year the tax was deducted, even if the income is not taxable.

Legal Provisions and Interpretation:
- Section 199 and Rule 37BA: These provisions clarify that TDS credit should be given to the person from whose income the tax was deducted. The CIT(A) interpreted these provisions to mean that the credit must be allowed once the tax is deposited, irrespective of whether the income is taxable or exempt.
- Article 265 of the Constitution of India: The Tribunal referred to this article, which states that no tax shall be levied or collected except by authority of law, reinforcing the necessity to allow TDS credit to avoid unjust enrichment by the government.

Conclusion:
The Tribunal concluded that the CIT(A) correctly allowed the TDS credit, as the payments and reimbursements had no revenue impact, and the legal provisions and precedents supported this interpretation. The appeal by the Revenue was dismissed.

Final Order:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order to allow TDS credit to the assessee. The judgment was pronounced on 4th August 2015.