1992 (6) TMI 60 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of CIT to set aside the order of the Assessing Officer and withdraw the credit of tax deducted at source by SAIL.
2. Interpretation of Section 199 of the Income-tax Act regarding the timing of allowing credit for tax deducted at source.
3. Whether credit for tax deducted at source should be given in the assessment year following the year of payment.

Analysis:
1. The case involved the jurisdiction of the Commissioner of Income Tax (CIT) to set aside the order of the Assessing Officer and withdraw the credit of tax deducted at source by Steel Authority of India (SAIL). The CIT issued a notice under section 263 of the Income-tax Act, stating that the Assessing Officer wrongly allowed credit for tax when there was no assessable income. The appellant challenged the jurisdiction of the CIT, arguing that the order lacked legal sanction as it was based on a different ground from the notice. The Tribunal held that the CIT's order lacked justification and was quashed, emphasizing the need for the CIT to pass orders based on the grounds of initiation.

2. The interpretation of Section 199 of the Act was crucial in determining the timing of allowing credit for tax deducted at source. The section outlines that any deduction of tax paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. The Tribunal analyzed the legislative intent behind the section, emphasizing that the actual date of payment is not crucial as long as the tax is paid to the Central Government. It concluded that the CIT was not justified in holding that credit could only be given in the assessment year following the year of actual tax deposit.

3. The Tribunal further delved into whether credit for tax deducted at source should be given in the assessment year following the year of payment. It noted that the Act required credit for tax deducted in a financial year to be allowed in the assessment year following the year of deduction. In this case, since the tax deduction occurred in the financial year ending March 1982, the credit for the tax was correctly allowed in the assessment year 1982-83. The Tribunal rejected the contention that credit should only be given when the income was assessable, emphasizing the legislative provisions regarding the timing of credit allowance.

In conclusion, the Tribunal set aside the CIT's order, highlighting the importance of adhering to the legal grounds of initiation and providing the assessee with a fair opportunity to be heard. It clarified the interpretation of Section 199 regarding the timing of allowing credit for tax deducted at source, emphasizing compliance with legislative provisions and rejecting the CIT's basis for disallowing the credit.