2012 (6) TMI 624 - HC - Income Tax

TDS denial credit of tax based on TDS certificates Held that - respondents-assessee are not entitled to credit of tax on the interest income based on TDS certificates issued by the banks, the assessees are entitled to credit of tax based on the very same TDS certificates in the year in respect of which the subject-matter of deduction of tax is assessed. Decided in favour of revenue.

Summary

Issues:
- Maintainability of appeals under Section 268 A of the Income Tax Act based on Circular dated 18.5.2008
- Whether High Court can proceed to decide appeals on merits despite tax effect being below Rs. 4 lakhs
- Assessment of tax deducted at source and credit based on TDS certificates issued by banks

Analysis:
1. Maintainability of appeals under Section 268 A and Circular dated 18.5.2008:
The appeals were filed by the Revenue, but the respondents argued that as per Section 268 A of the Income Tax Act and Circular dated 18.5.2008, appeals by Revenue are maintainable before the High Court only if the tax effect is above Rs. 4 lakhs. Since in none of the cases the tax effect exceeded this threshold, the respondents contended that the appeals were not maintainable.

2. High Court's authority to proceed on merits despite tax effect threshold:
The Senior counsel for the Revenue cited a decision of the Supreme Court in CIT v. Surya Herbal Ltd., where it was held that the High Court can ignore Circulars and proceed to decide appeals on merits if the question involved is substantial and arises in many cases or for subsequent years. Given that the issue in these appeals pertained to a substantial question of law regarding the assessment year for crediting tax deducted at source, the objection of maintainability raised by the respondents was rejected. The High Court proceeded to consider the appeals on merits.

3. Assessment of tax deducted at source and credit based on TDS certificates:
The issue raised in the appeals was found to be covered by previous judgments in other appeals. Following those judgments, the High Court allowed the Departmental Appeals by reversing the orders of the Tribunal and the first appellate authority. The assessments were restored, denying credit of tax based on TDS certificates issued by banks for interest income that had not been assessed. However, it was clarified that while the assessees were not entitled to credit of tax on the interest income based on TDS certificates issued by banks, they were entitled to credit of tax based on the same TDS certificates in the relevant assessment year.

In conclusion, the High Court allowed the appeals by reversing the previous orders and restoring the assessments, clarifying the treatment of tax deducted at source and credit based on TDS certificates issued by banks.