2014 (4) TMI 820 - AT - Income Tax

Allowability of Credit for TDS assessee, an individual, claimed credit for tax deduction of source (TDS) on interest for ₹ 56.80 lacs received by her for and on behalf of an Association of Persons (AOP) - Held that - The AOP returned the interest income on the bonds, with the assessee excluding the same from her return. Why, we wonder, then, the TDS could not be claimed in the hands of AOP? Tax deduction at source, it is to be appreciated, is only toward the charge of tax u/s. 4 of the Act and, therefore, credit for same would normally be to the person in whose hands the said income is assessable (u/s. 199(1)), and for the relevant year/s (ss. 199(2) & (3) r/w s. 190), being consistent and in accord with the scheme of the Act. That the said person has paid the tax in full on his own, or has not preferred to claim credit in respect of the TDS, is no ground for allowing credit to another. The amendment to sec. 199, as already clarified, is toward mitigating and resolving difficulties that may arise on account of the difference in the ostensible and the real owner of the underlying security (property) and the income thereon, so that on a declaration being made by the deductee, credit for TDS could be claimed by and allowed to the real (de facto) owner, even as the TDS certificate/s is in the name of the ostensible owner (deductee). Recourse to the rule 37BA, introduced subsequently (w.e.f. 01/04/2009), would arise only where the rule denies, as it did in some of the cases cited, credit to the AOP on the ground the TDS certificate being in the name of the assessee (deductee). Relying upon ITO v. Shri Anupallavi Finance & Investments 2010 (12) TMI 334 - ITAT, CHENNAI the deduction of tax at source does not necessarily, or is required to, march alongside the corresponding income, recognition of which by the recipient could be either on accrual or on receipt basis - The tax liability would arise only on it becoming assessable - It is in view of and to address this mismatch in time between the TDS and the accrual and/or receipt of the corresponding income that section 199 r/w ss. 190 and 191 clarifies that the credit for TDS shall be available for the year/s in which the corresponding income is assessable - there was complete harmony between the erstwhile section 199 and section 199 as it stands after substitution by Finance Act, 2008 w.e.f. 01.04.2008 read with r. 37BA Decided in favour of Revenue.

Summary

Issues:
Allowance of credit for TDS to the assessee as per sec. 199 of the Act.

Analysis:

Issue 1: Allowance of credit for TDS to the assessee

The case involved an appeal by the Revenue against the Order of the Commissioner of Income Tax (Appeals) allowing the assessee's appeal regarding assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09. The primary dispute was whether the interest income received by the assessee on behalf of an Association of Persons (AOP) should be assessed in her hands or in the hands of the AOP. The Assessing Officer allowed credit for Tax Deducted at Source (TDS) in the assessee's name, but the CIT (A) directed deletion of the interest income on the basis that the beneficial interest was with the AOP. The Revenue challenged the direction of the CIT (A) regarding the allowance of TDS credit to the assessee, citing section 199 of the Act.

Issue 1.1: Interpretation of section 199 of the Act

The tribunal analyzed the provisions of section 199 of the Act, which deals with the treatment of TDS as tax paid for and on behalf of the person from whose income tax is deducted. The amended law allows for credit of TDS to the person other than in whose hands the income is assessable, in cases of joint ownership. The tribunal emphasized that the real owner of the security was the AOP, and the assessee was only the de jure owner. The amendment aimed to resolve difficulties arising from differences between the ostensible and real owners of income-yielding property.

Issue 1.2: Ambiguity and Application of Rule 37BA

The tribunal dismissed the argument of ambiguity in the law, stating that TDS is a method of tax collection on income. The introduction of Rule 37BA post-2009 aimed to specify instances for credit of TDS. The tribunal highlighted that TDS should normally be credited to the person in whose hands the income is assessable, as per the scheme of the Act. The case law cited by the parties was analyzed to distinguish the applicability of previous judgments in the current scenario.

Issue 1.3: Judicial Precedents and Conclusion

The tribunal examined various judicial precedents cited by the parties to determine the applicability of past decisions in the present case. It emphasized that each assessment year is a separate unit and must be considered independently. Ultimately, the tribunal allowed the Revenue's appeal, indicating that the credit for TDS should be in line with the provisions of the Act and the specific circumstances of the case.

In conclusion, the tribunal's judgment focused on the interpretation of section 199 of the Income Tax Act regarding the allowance of credit for TDS to the assessee. The decision highlighted the importance of considering the real ownership of income-yielding property and ensuring consistency with the provisions of the Act. The analysis of relevant legal provisions and judicial precedents led to the allowance of the Revenue's appeal in this case.