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2012 (5) TMI 138 - AT - Income TaxDisallowance of credit of TDS no chargeable income in the hands of assessee - The franchisee pays rent to the assessee after deducting applicable TDS. The assessee explained the transaction with the help of accounting entries passed in its books of account. It was, therefore, urged that the assessee and M/s Arvind Brands Limited were only the link between Landlords of the property and the franchisee. That was stated to be the reason for which the assessee had not shown any rental income. The Assessing Officer, on going through the assessee s explanation, agreed that the assessee did not receive any rental income. He, therefore, did not make any addition on this account. However he held that the amount of TDS could not be refunded to the assessee as the assessee had not shown any income from rent. Held that - As per section 199 any deduction made in accordance with the foregoing provisions of Chapter and 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 and credit shall be given to him for the amount so deducted for the assessment year for which such income is assessable - The Revenue will never allow credit as the amount is not chargeable to tax and it cannot retain such amount in contravention of Article 265 of the Constitution so to circumvent the situation credit for the tax deducted at source to the payee of the amount in the year for which such tax was deducted and the amount was paid after deduction of tax at source is allowed in favour of assessee.
Issues Involved:
1. Disallowance of credit of Tax Deducted at Source (TDS) amounting to Rs. 8,77,881. 2. Direction for not allowing interest under section 244A. Issue-wise Detailed Analysis: 1. Disallowance of Credit of TDS: Facts of the Case: The assessee filed a return declaring a total loss of Rs. 7.72 crore. Based on AIR information, it was revealed that the assessee received rent of Rs. 39 lakh. The Assessing Officer (AO) noted that the assessee claimed credit for TDS amounting to Rs. 8,77,881 without offering the rental income for taxation. The assessee explained that the rent agreement was between the landlord and M/s. Arvind Brands Limited, and the franchisee paid rent to the assessee after deducting TDS. The AO agreed that the assessee did not receive any rental income and did not make any addition on this account. However, the AO held that the TDS amount could not be refunded as the assessee had not shown any rental income. The Commissioner of Income Tax (Appeals) [CIT(A)] echoed this decision, invoking section 199. Tribunal's Observations: The Tribunal noted that the assessee acted as a middleman, receiving rent from Guys & Gals and passing it to M/s. Arvind Brands Limited for onward transmission to the landlords. The assessee did not earn any rental income, and the AO accepted this by not taxing the rent in the assessee's hands. The Tribunal observed that the rent suffered TDS twice: once when Guys & Gals paid the assessee and again when M/s. Arvind Brands Limited paid the landlords. Legal Provisions and Interpretation: - Section 190 mandates that tax on income is payable by deduction at source. - Section 194-I requires deduction of tax at source from rental income. - Section 199 provides that TDS is treated as a payment of tax on behalf of the person from whose income the deduction was made and credit is given for the assessment year for which such income is assessable. The Tribunal emphasized that TDS should be deducted only when the amount is in the nature of income. Since the assessee acted as a conduit, the rent was not income in its hands. The Tribunal highlighted that the credit for TDS should be allowed to the payee of the income and not to an intermediary. The Tribunal also referred to Article 265 of the Constitution of India, which states that no tax shall be levied or collected except by authority of law. Conclusion: The Tribunal concluded that the credit for TDS must be allowed to the assessee in the year the income was received, even if the income was not chargeable to tax in its hands. The Tribunal directed that the credit for TDS amounting to Rs. 8,77,881 be allowed to the assessee for the relevant assessment year. 2. Direction for Not Allowing Interest under Section 244A: Facts and Tribunal's Observations: The second ground concerned the direction of the CIT(A) for not allowing interest under section 244A even if the credit for TDS was allowed by higher forums. The learned Authorized Representative (AR) did not press this ground. Conclusion: The Tribunal dismissed this ground as not pressed. Final Judgment: The appeal was partly allowed, with the Tribunal directing that the credit for TDS amounting to Rs. 8,77,881 be allowed to the assessee for the assessment year under consideration. The second ground regarding interest under section 244A was dismissed as not pressed.
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