2015 (11) TMI 284 - HC - Income Tax

Entitlement to the TDS without offering the corresponding income to taxation by declaring it as total income - vendor had billed M/s Relcom Engineering Pvt. Ltd. ( REPL ), its sister company, for the work but had mistakenly mentioned its (assessee s) PAN in the TDS certificate, thus inadvertently crediting its TDS account in the 26AS statement, which is PAN based. Held that - The assessee fairly admitted throughout the proceedings for its TDS claim of ₹ 1,20,73,097/- that the benefit of such claim has not been availed by M/s. REPL. Therefore, the revenue, having assessed M/s REPL s income in respect to such TDS claim cannot now deny the assessee s claim on the mere technical ground that the income in respect of the said TDS claim was not that of the assessee, given that M/s Relcom (the assessee) and M/s REPL are sister concerns and M/s REPL has not raised any objection with regard to the assessee s TDS claim of ₹ 1,20,73,097/-. The provisions of Rule 37BA of the Income Tax Rules, 1962, which envisions grant of TDS credit to entities other than the deductee (herein, M/s REPL). We must clarify that we are not oblivious of the fact that Rule 37BA is not directly applicable in the facts of this case. The reliance placed on Rule 37BA is merely to demonstrate that in not all circumstances is TDS credit given to the deductee. This Court relies upon the well-settled dictum in Sardar Amarjit Singh Kalra v. Pramod Gupta, (2002 (12) TMI 607 - SUPREME COURT) . Therefore, the revenue s contention that the assessee, instead of claiming the entire TDS amount, ought to have sought a correction of the vendor s mistake, would unnecessarily prolong the entire process of seeking refund based on TDS credit. - Decided against the revenue

Summary

Issues:
1. Interpretation of Section 199 of the Income Tax Act, 1961 regarding entitlement to TDS without offering corresponding income for taxation.
2. Validity of TDS claim by the assessee based on receipts of another entity within the same group.
3. Applicability of Rule 37BA of the Income Tax Rules, 1962 in granting TDS credit.
4. Consideration of common sense and justice in allowing TDS claims.

Issue 1: Interpretation of Section 199 of the Income Tax Act, 1961

The revenue challenged the TDS claim of the assessee, arguing that Section 199 mandates TDS to be treated as payment of tax on behalf of the entity from whose income the deduction was made. However, the assessee contended that the benefit of the TDS claimed had not been utilized by the other entity, thus justifying the claim. The court analyzed Section 199, emphasizing that the mere technicality of income ownership should not impede rightful TDS claims when the actual utilization aligns with the claimant's circumstances.

Issue 2: Validity of TDS claim based on receipts of another entity

The revenue insisted that the TDS claim could only be made against the assessee's income, not that of another entity within the same group. However, the CIT(A) and ITAT allowed the claim, considering the interrelation between the entities and the non-utilization of TDS benefit by the other entity. The court upheld this decision, emphasizing the practical approach taken by the assessee and the injustice of denying the claim based on technical grounds.

Issue 3: Applicability of Rule 37BA in granting TDS credit

Although Rule 37BA was not directly applicable in this case, the court referred to it to highlight situations where TDS credit can be granted to entities other than the deductee. This reference aimed to demonstrate that TDS credit allocation is not always restricted to the deductee, supporting the assessee's claim in this scenario.

Issue 4: Consideration of common sense and justice in TDS claims

The court emphasized the importance of common sense and justice in tax matters, citing precedents that favored granting TDS credits based on practical considerations rather than rigid technicalities. It rejected the revenue's argument that the assessee should have rectified the vendor's mistake, noting that such an approach would unduly prolong the refund process based on TDS credit.

In conclusion, the court dismissed the revenue's appeal, upholding the decisions of the CIT(A) and ITAT to allow the TDS claim of the assessee. The judgment underscored the importance of fairness, practicality, and justice in interpreting tax laws and granting TDS credits, even when the technical ownership of income differs from the TDS claimant.