2016 (4) TMI 569 - AT - Income Tax

TDS credit to the assessee - CIT(A) allowed the claim - Held that - CIT(A) by considering Income Tax (8th Amendment) Rules, 2011, observed that in the case of the assessee, the payment for work contract was made to the assessee by Bangalore Metro Railway Corporation(deductee); the assessee recorded the receipts of ₹ 69,97,50,697 in its books as its turnover; that what is relevant for purposes of S.199 and Rule 37B(2)(i) is whether the contract receipts formed part of the income computation of the assessee; and that the fact that the contract receipts were given credit in the Profit & Loss Account of the assessee. He further observed that there is no requirement in the law that the assessee itself should execute the works and it is not possible for any person, leave alone, a legal entity like a consortium, to physically execute mammoth contracts running into cores on its own. He also observed that the very fact that the assessee engaged IVRCL to execute the works does not take away the fact that the contract receipts constitute its turnover and the income therefrom was assessable in the hands of the assessee. It is also observed by the learned CIT(A) that it is irrelevant whether the project resulted in a profit for the assessee or whether the assessee chose to sub-contract it to IVRCL on a no-margin basis. With these observations and also by following the decision of the jurisdictional High Court in the case of CIT V/s. Bhooratnam & Co.(2013 (1) TMI 478 - ANDHRA PRADESH HIGH COURT ), the CIT(A) directed the Assessing Officer to give credit for the TDS to the assessees. We concur with the reasoning given by the CIT(A) for allowing the claims of the assessees for TDS credit. - Decided in favour of assessee

Summary

Issues:
Dispute over disallowance of TDS credit by the Assessing Officer and direction of the CIT(A) to allow TDS credit to the assessees.

Analysis:

Issue 1: Disallowance of TDS Credit
The appeals filed by the Revenue were against orders of the Commissioner of Income Tax (Appeals)-3, Hyderabad, concerning the disallowance of TDS credit for the assessment year 2011-12. The common issue in both appeals was the disallowance of TDS credit by the Assessing Officer, with the Revenue challenging the CIT(A)'s direction to allow TDS credit to the assessees.

Detailed Analysis:
The assessees, partners in a joint venture, were involved in a consortium for Bangalore Metro Railway projects. The dispute arose when the Assessing Officer rejected the TDS credit claim, stating that no work was executed by the assessees, and the income offered was only the compensation fee paid to a consortium member. The CIT(A) directed the Assessing Officer to allow the TDS credit, citing Section 199 of the Income Tax Act and Rule 37BA of the IT Rules.

Issue 2: Interpretation of Section 199 and Rule 37BA
The crux of the matter revolved around whether the income on which tax was deducted was assessable in the hands of the assessees. The CIT(A) emphasized that the contract receipts constituted the turnover of the assessees and were part of their income computation, regardless of subcontracting the project execution to another entity.

Detailed Analysis:
The CIT(A) highlighted that the law does not mandate the assessees to physically execute the works themselves, especially in large-scale projects. Referring to a relevant case law, the CIT(A) emphasized that the income considered for TDS certificates should be acknowledged while determining the total income of the assessees, warranting the allowance of TDS credit.

Conclusion:
The ITAT Hyderabad upheld the CIT(A)'s decision to allow TDS credit to the assessees, dismissing the Revenue's appeals. The tribunal concurred with the reasoning that the contract receipts formed part of the assessees' income computation, and subcontracting the project did not negate their entitlement to TDS credit. The judgment underscored the importance of assessing the income on which tax was deducted to determine the eligibility for TDS credit, aligning with the provisions of Section 199 and Rule 37BA of the Income Tax Act.