2024 (3) TMI 571 - AT - Income Tax

Credit of TDS - consideration received for offshore supply of rolling stock, when no corresponding income has been offered for taxation by the assessee - AO held that credit of TDS is not allowable since the Assessee did not offer corresponding income to tax in its RoI - HELD THAT - As per Section 199(1) of the Act, any deductions made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction is made. Therefore, as per the provisions, once TDS was deducted, a credit of the same is to be given to the assessee. Considering the same, the claim of credit of withholding tax should be allowed to Assessee as per provisions of the Act. The Co-ordinate Bench of ITAT, in the case of Escorts Ltd. 2007 (5) TMI 362 - ITAT DELHI held that once deduction of tax at source is made and the same is deposited with the Government then the assessee becomes entitled for credit of such TDS while computing the tax liability for the period irrespective of the fact that the assessee considered that he is not liable to tax in respect of the income and, therefore, does not disclose the amount of income in his return. The Income-tax Department cannot refuse to give credit merely by contending that the income has not been disclosed in the return filed by the assessee for the assessment year. Co-ordinate Bench of ITAT in the case of Supreme Renewable Energy Limited 2008 (8) TMI 432 - ITAT MADRAS-C held that assessee is entitled to TDS even if the income has not directly been offered to tax as the same was not liable to tax. Thus we hold that the assessee is entitled to credit of TDS/Withholding tax and the consequent refunds thereof.

Summary

Issues:
The judgment involves issues related to the allowance of credit for Tax Deducted at Source (TDS) on offshore supply of rolling stock, the treatment of income from offshore supply, and the eligibility of the assessee for TDS credit and refund.

Issue 1 - Revenue's Appeal (ITA No. 8429/Del/2019):
The Revenue raised grounds regarding the allowance of TDS credit on offshore supply of rolling stock without corresponding income being offered for taxation by the assessee. The Revenue contended that the credit of TDS of Rs. 2,41,05,620/- should not have been allowed.

Issue 2 - Assessee's Appeal (ITA No. 7275/Del/2017):
The assessee challenged the order of the Commissioner of Income Tax (Appeals) regarding the denial of credit for Tax Deducted at Source (TDS) of INR 68,82,340. The assessee argued that the income from offshore supply is not taxable in India under the Double Taxation Avoidance Agreement with China.

Details:
The assessee, a Chinese company, entered into a contract for offshore supply of Rolling Stock and received Rs. 111,44,52,342/- with TDS of Rs. 24,105,620/- deducted by the contracting party. The assessee claimed a refund of the TDS amount but the Assessing Officer disallowed it in the assessment order under section 143(3) of the Income Tax Act, 1961.

During the assessment proceedings, the assessee contended that the receipt was not taxable in India and submitted relevant documents including Form 16A. The Assessing Officer held that credit of TDS is not allowable as the assessee did not offer corresponding income for taxation. The assessee argued that credit for tax withheld is not linked to actual tax liability discharge and should be allowed based on provisions of the Act.

The ITAT referred to precedents where it was established that once TDS is deducted and deposited, the recipient is entitled to credit regardless of whether the income was disclosed for tax. The ITAT emphasized that the Revenue cannot deny TDS credit if the income is not taxable, as every TDS carries an obligation of trust and accountability.

The CIT(A) noted that similar addition had been deleted in a previous assessment year for the assessee. The CIT(A) held that the credit for TDS should be allowed even if the consideration did not yield taxable income, as the deductee has the right to claim credit of the tax deducted.

Based on the findings and precedents, the ITAT held that the assessee is entitled to credit for TDS and subsequent refunds. Therefore, the appeal of the Revenue was dismissed, and the appeal of the assessee was allowed.

This judgment clarifies the entitlement of an assessee to TDS credit even if the income is not directly offered for tax, emphasizing the importance of honoring TDS credits based on legal provisions and precedents.