2019 (9) TMI 1173 - AT - Income Tax

Assessee firm converted into Private Limited Company - Addition on account of Sales Tax refund - Status of the assessee is Firm - HELD THAT - Assessee, admitted during the course of arguments that in assessment year under appeal in which sales tax refund have been received by the assessee firm, assessee firm continued its activities and exist. This fact is also corroborated by the fact that assessee firm has filed the return of income for assessment year under appeal on 20.09.2011 declaring income at ₹ 26,04,046/-. It would mean assessee firm exist in assessment year in appeal. It is not in dispute that the contract had been awarded to the assessee firm on which sales tax had been deducted by the deductee at the time of payment of contract receipts to the assessee. Therefore, refund of sales tax shall have to be taxed in the hands of the assessee firm only. Since the assessee firm exist in assessment year under appeal and also declared business income in assessment year under appeal, there was no reason to show the impugned amount as income of Private Limited Company. It is well settled Law that income is to be taxed in the hands of person liable for taxation. Income is to be assessed in the hands of right person, even if wrong person paid tax. We rely on Judgment of Hon ble Supreme Court in the case of Ch. Atchaiah s case 1995 (12) TMI 1 - SUPREME COURT - Decided against assessee.

Summary

Issues:
Challenge against addition of Sales Tax refund in the assessment for A.Y. 2011-2012.

Analysis:
The appeal was filed against the Order of the Ld. CIT(A)-20, New Delhi, challenging the addition of ?7,60,929/- on account of Sales Tax refund. The assessee, a Civil Contractor firm, had received the sales tax refund but had not added it to their income. The firm argued that the amount had already been shown as income in the Private Limited Company to which the assets and liabilities were transferred. However, both the Assessing Officer (A.O.) and the Ld. CIT(A) held that since the contract was awarded to the assessee firm and sales tax was deducted at the time of payment, the refund should be taxed in the hands of the assessee firm. The A.O. made the addition, and the Ld. CIT(A) upheld it, stating that statutory receipts like sales tax refund must be shown as income. The appeal contended that taxing the amount in both the firm and the Private Limited Company would result in double taxation.

Upon review, the tribunal found no merit in the appeal. The counsel for the assessee argued that the amount had already been declared as income by the Private Limited Company. However, it was acknowledged that the assessee firm continued its activities and existed during the assessment year in question, as evidenced by the filed return of income. As the contract was awarded to the assessee firm and the sales tax was deducted at the time of payment, the tribunal concluded that the sales tax refund should be taxed in the hands of the assessee firm. Citing the principle that income is to be taxed in the hands of the person liable for taxation, the tribunal relied on a Supreme Court judgment to support its decision. Consequently, the tribunal dismissed the appeal of the assessee.

In conclusion, the appeal challenging the addition of Sales Tax refund in the assessment for A.Y. 2011-2012 was dismissed by the tribunal.