2021 (4) TMI 915 - AT - Income Tax

Denial of grant of credit for tax deducted at source - whether the assessee is lawfully entitled to the adjustment of TDS for the year under consideration in the computation of total income by the AO in the order passed giving effect to the order of the ITSC? - AO in denying such credit for TDS, has primarily held that section 240 of the Act is inapplicable to the assessee s case as no return of income for the year was filed u/s 139 of the Act before filing application before the ITSC - HELD THAT - AO shall compute the tax payable after giving credit for taxes already paid by the applicant . Taxes already paid do not mean only the taxes directly paid by the assessee but also those paid on its behalf. Sub-section (1) of section 199 with the caption Credit for tax deducted states that Any deduction made in accordance with the foregoing provisions of this 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 . . Thus, it is glaring from section 199 that the tax deducted at source is also a payment of tax on behalf of the assessee in the instant case. The ITSC s direction for giving credit for taxes already paid by the applicant brings into its fold not only the amount of tax paid by the assessee but also the amount of tax deducted at source on behalf of the assessee. To sum up, the order passed by the ITSC u/s 245D(4) of the Act even de hors the filing of return u/s 139 of the Act is an order passed under other proceeding under this Act for the purposes of section 240 and the amount of TDS is a component of the amount of taxes already paid in terms of section 199 of the Act. The sequitur is that the ld. CIT(A) was fully justified in directing the AO to allow credit for TDS amounting to ₹ 70.53 lakh in determining the amount of refund due to the assessee for the year under consideration - Decided against revenue.

Summary

Issues:
Denial of grant of credit for tax deducted at source.

Analysis:
The appeal pertains to the denial of credit for tax deducted at source by the Assessing Officer (AO) for the assessment year 2014-15. The main contention revolves around the interpretation of section 240 of the Income-tax Act, 1961, which mandates the refund of any amount due to the assessee without requiring a formal claim in certain situations. The AO denied the adjustment of TDS, citing the non-filing of a return under section 139 of the Act before the application to the Income-tax Settlement Commission (ITSC). However, the ITSC order under section 245D(4) is considered an order passed in 'other proceeding under this Act,' necessitating the grant of refund without a formal claim. The ITSC order directed the AO to compute the tax payable "after giving credit for taxes already paid by the applicant," which includes tax deducted at source. The ITSC's direction aligns with section 199 of the Act, treating TDS as a payment of tax on behalf of the assessee. Therefore, the denial of credit for TDS was deemed unjustified, and the CIT(A) rightly directed the AO to allow credit for TDS amounting to ?70.53 lakh in determining the refund due to the assessee for the year in question. Consequently, the appeal was dismissed, affirming the CIT(A)'s decision.

This judgment clarifies the applicability of section 240 of the Income-tax Act in granting refunds to assesses, particularly in cases involving ITSC orders and the treatment of tax deducted at source in refund computations. It emphasizes the broader interpretation of 'other proceeding under this Act' and the inclusion of TDS amounts in taxes already paid by the assessee. The ruling provides a comprehensive understanding of the legal framework governing tax refunds and highlights the importance of adhering to statutory provisions while processing refund claims.