2017 (4) TMI 359 - HC - Income Tax

Denial of credit for advance tax deposited and tax deducted at source (TDS) - Held that - The only bar discernable under the scheme in question is evident from Section 189 is that no person declaring under the Act shall not be entitled to claim any set off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment. Also, under that provision the person so declaring shall not be entitled to to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957 (27 of 1957) . Therefore, the court is of the opinion that there is no bar for an assessee or declarant to claim credit of advance tax amounts paid previously relative to the assessment years or periods for which it seeks benefits under the scheme. In the decision in Shelly 2003 (5) TMI 4 - SUPREME Court is decisive that advance tax is a mode of tax recovery, which the assessee is bound to pay under the scheme of the Income Tax Act and also the clarification by the Revenue, that credit for TDS paid, can be enjoyed for availing the benefit (under the scheme in question) precludes any meaningful argument by it that advance tax payments relative for the assessment years covered by the declaration cannot be taken into consideration as payments under and for purposes of availing the benefits of the scheme. Thus the petition has to succeed. Accordingly a direction is issued to the respondents to process the petitioner s application under the IDS, 2016, and give adjustment or credit to the amounts paid as advance tax and TDS to its account, under the Income Tax Act, and accept the balance amounts (after also giving credit to the amounts paid during the interregnum, pursuant to the interim order of this court dated 29th November, 2016). The respondents shall ensure that the petitioner s payments and declarations are processed in accordance with the IDS, 2016.

Summary

Issues Involved:
1. Credit for advance tax and TDS under the Income Declaration Scheme, 2016.
2. Interpretation of the Scheme's provisions regarding previously paid amounts.
3. The legality of the Revenue's demand for tax without accounting for advance tax and TDS.

Issue-wise Detailed Analysis:

1. Credit for Advance Tax and TDS under the Income Declaration Scheme, 2016:
The petitioner challenged an order dated 16th September 2016, which failed to give credit for advance tax and TDS totaling ?16.49 crores for AY 2010-2011 and AY 2016-2017. The petitioner, a company incorporated under the Companies Act, had been unable to file returns due to internal disputes and litigation. Despite this, it paid advance tax and TDS. The petitioner argued that under the Income Declaration Scheme (IDS), 2016, it should receive credit for these payments. The Revenue's impugned order demanded a tax of ?19.60 crores without accounting for the advance tax and TDS already paid, which the petitioner contended was against the Scheme's intent and provisions.

2. Interpretation of the Scheme's Provisions Regarding Previously Paid Amounts:
The petitioner relied on Circular No. 25 of 2016, which clarified that credit for TDS should be given under the IDS. The petitioner argued that there was no logical reason to treat advance tax differently from TDS, as both are forms of "tax paid in advance." The Revenue argued that the IDS is a self-contained code, independent of other provisions of the Income Tax Act, and that advance tax credit is only given in regular assessments, not under the IDS. The court analyzed the provisions of the Scheme, including Sections 183, 184, 185, 187, and 188, and found no express bar to including previously paid amounts in the tax calculation under the IDS. The court noted that the Scheme's objective is to allow assessees to declare undisclosed income and pay the corresponding tax, surcharge, and penalty.

3. The Legality of the Revenue's Demand for Tax Without Accounting for Advance Tax and TDS:
The court examined the Revenue's contention that the Scheme should be interpreted strictly and independently of other tax provisions. However, it found that the Scheme did not explicitly exclude previously paid taxes from being credited. The court emphasized that the Scheme's provisions should be interpreted to allow credit for advance tax and TDS paid for the relevant assessment years. The court referenced the Supreme Court's decision in Shelly Products, which stated that advance tax is a mode of tax recovery and should be credited accordingly. The court also noted that the Revenue's own clarification allowed for TDS credit under the Scheme, further supporting the petitioner's argument for advance tax credit.

Conclusion:
The court directed the respondents to process the petitioner's application under the IDS, 2016, and give credit for the advance tax and TDS paid. The balance tax payable should be adjusted accordingly. The writ petition was allowed, and the respondents were instructed to ensure compliance with the IDS, 2016, in processing the petitioner's payments and declarations. The court concluded that there shall be no order as to costs.