ESCORTS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX
[Citation -2007-LL-0511-3]

Citation 2007-LL-0511-3
Appellant Name ESCORTS LTD.
Respondent Name DEPUTY COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 11/05/2007
Assessment Year 2001-02 TO 2003-04
Judgment View Judgment
Keyword Tags credit for tax deducted at source • mistake apparent from record • deduction of tax at source • deduct tax at source • statutory obligation • barred by limitation • powers to rectify • double taxation • tds certificate • interest income • payment of tax • deposit of tax • demand of tax • unit-holder • time-limit • tax due
Bot Summary: Prior to 29th March, 2004, neither the tax was deducted at source nor any amount was deposited in the Government treasury, nor any certificate was issued to the assessee with respect to the tax alleged to be deducted at source. 29th March, 2004 was also declined by the AO. As per provisions of s. 199, the credit for TDS has to be given in the assessment year in which the income relating to the tax deducted is assessed to tax. 194B, 199, 201, 203 and 205 of the IT Act, 1961, a person responsible for making the payment to the assessee is under a statutory obligation to deduct tax at source and after deduction of the amount of tax, he is required to deposit the same to the credit of the Central Government and to issue a certificate of deduction. Accordingly, a mere claim of deduction of tax at source, or mere disclosing the respective income receivable in its books of account without any corresponding deduction of tax at source, would not entitle the assessee to claim credit of tax relatable to such income. Once tax is deducted on the income credited by assessee in its books of account and a requisite certificate to this effect is issued by deductor after deposit of tax amount in the Government treasury, the assessee becomes entitled for the credit of such TDS while computing the tax liability for the relevant period. Being a case of direct tax, there is also no question of unjust enrichment being claimed so as to take the credit of tax without an obligation to return the same to the assessee. If no credit is to be given to the payer and/or to the payee, the Government would have no authority to treat the same as tax and article 265 does not empower the Government to make any levy or collection of tax not authorized by law.


These are three appeals filed by assessee against separate orders of CIT(A) dt. 8th Feb., 2003, 17th Feb., 2003 and 8th Feb., 2005 for asst. yrs. 2002-03, 2003-04 and 2001-02, in matter of order passed under ss. 154/143(i) of IT Act, 1961 wherein following grounds of appeal have been raised: Grounds in ITA No. 2436/Del/05: "1. That impugned appellate order dt. 8th Feb., 2003 (sic) passed by learned CIT(A) is bad in law and wrong on facts. That on facts, circumstances and legal position of case, learned CIT(A) has erred in law in holding that appellant has claimed credit for TDS for first time by filing application under s. 154 of IT Act dt. 15th May, 2004 and before that no claim for credit for TDS has been made at any point of time. That on facts, circumstances and legal position of case, learned CIT(A) has erred in law in not allowing credit for tax deducted at source amounting to Rs. 2,18,15,062 attributable to interest income offered and subjected to tax in year under appeal. Without prejudice to Ground No. 3 hereinabove, learned CIT(A) has erred in law in not considering and allowing credit for entire amount of tax deducted at source amounting to Rs. 3,29,90,648 in asst. yr. 2003-04 when deductee had provided for interest and deducted TDS. That appellant craves to reserve to itself right to add, alter, amend, substitute, withdraw and/or vary any ground(s) of appeal of or before time of hearing." Grounds in ITA No. 2437/Del/05: "1. That impugned appellate order dt. 17th March, 2003 (sic) passed by learned CIT(A) is bad in law and wrong on facts. That on facts, circumstances and legal position of case, learned CIT(A) has erred in law in holding that appellant has claimed of TDS by filing original certificate by way of application under s. 154 of IT Act to substantiate claim of TDS already made in return of income is not mistake apparent from record which can be rectified. That on facts, circumstances and legal position of case, learned CIT(A) has erred in law in not allowing credit for tax deducted at source amounting to Rs. 35,68,320 attributable to interest income offered and subjected to tax in year under appeal. Without prejudice to Ground No. 3 hereinabove, learned CIT(A) has erred in law in not considering and allowing credit for entire amount of tax deducted at source amounting to Rs. 3,29,90,648 during year under reference when deductee had provided for interest and deducted TDS. That appellant craves leave to reserve to itself right to add, alter, amend, substitute, withdraw and/or any ground(s) of appeal at or before time of hearing." Grounds in ITA No. 2464/Del/05: "1. That impugned appellate order dt. 8th Feb., 2005 passed by learned CIT(A) is bad in law and wrong on facts. That on facts, circumstances and legal position of case, learned CIT(A) has erred in law in holding that appeal filed before her is not maintainable. That on facts, circumstances and legal position of case, learned CIT(A) has erred in law in not considering and allowing credit for tax deducted at source amounting to Rs. 76,06,766 attributable to interest income offered and subjected to tax in year under appeal. Without prejudice to Ground No. 3 hereinabove, learned CIT(A) has erred in law in not considering and allowing credit for entire amount of tax deducted at source amounting to Rs. 3,29,90,648 in asst. yr. 2003-04 when deductee had provided for interest and deducted TDS. That appellant craves leave to reserve to itself right to add, alter, amend, substitute, withdraw and/or any ground(s) of appeal at or before time of hearing." Rival contentions have been heard and record perused. As common grounds have been raised by assessee in all years, all appeals were heard together and for sake of brevity and convenience, all these appeals are disposed of by this consolidated order. In all years under consideration, assessee has claimed credit for TDS with respect to interest income disclosed by it, being amount receivable from Escorts Finance & Investment Leasing (P) Ltd. and Escorts Finance Investment & (P) Ltd. As there was no TDS certificate filed along with return of income, while processing returns, AO did not give any credit for alleged amount of TDS. However, assessee filed application under s. 154 along with TDS certificate dt. 29th March, 2004, and requested for giving credit for tax deducted at source with respect to interest income offered by it in asst. yrs. 2001-02, 2002-03 and 2003-04. It was contended that TDS certificate issued by both deductors, clearly mentioned that interest has been paid for period 1st April, 2002 to 31st March, 2003. AO declined assessee s claim for giving credit of TDS by observing that s. 199 stipulates for credit for tax deducted at source only on production of certificate furnished under s. 204 of Act. Sec. 203 clearly states that certificate issued by tax deductor should contain particulars which are prescribed. TDS certificate clearly provides that particulars in respect of period for which payment is to be made or credited, should be mentioned in TDS certificate itself. According to AO, claim under s. 199 can be entertained only when certificate itself mentions that TDS has been deducted for different assessment years and assessee satisfies AO that, such income has been assessable/assessed in those years. He further pointed out that combined reading of provisions of s. 199 along with ss. 190 and 194A of Act, clearly indicate that in case any income is to be assessed in subsequent assessment years, then credit for tax deducted at source should be given in subsequent assessment year in which such income is assessable. Accordingly, claim of TDS were declined in all three years. By impugned order, CIT(A) confirmed action of AO by By impugned order, CIT(A) confirmed action of AO by observing that credit for tax deducted at source is to be allowed, only on production of certificate under s. 203 of Act. He further observed that only credit of TDS certificate issued under s. 203 of Act is to be given in year in which income is assessable, but same is also further subject to fulfilment of various conditions prescribed in other sections of Act. Aggrieved by above order of CIT(A), for not giving credit of tax deducted at source in any of assessment years in which income was offered for taxation, as well as in asst. yr. 2003-04, when tax was actually deducted with respect to period 1st April, 2002 to 31st March, 2003, assessee is in appeal before us. We have considered rival contentions carefully gone through orders of authorities below and TDS certificates and other documents placed on record. It is quite evident from TDS certificate dt. 29th March, 2004 issued by deductee that tax was actually deducted and paid into Government treasury only on 29th March, 2004. Prior to 29th March, 2004, neither tax was deducted at source nor any amount was deposited in Government treasury, nor any certificate was issued to assessee with respect to tax alleged to be deducted at source. From record, we found that assessee has disclosed interest income receivable from M/s Escorts Finance Investment & Leasing (P) Ltd. and Escorts Finance & Investment (P) Ltd. However, during years under consideration, assessee neither actually received any interest, nor any certificate was given for deduction of tax at source. It appears that there was some dispute between assessee and its associates concerns to whom loans were given on interest. When dispute was resolved, tax was deducted at source for period 1st April, 2002 to 31st March, 2003 at rate of 2196 on amount credited to assessee s account, tax so deducted was also deposited in Government treasury on 29th March, 2004 through ITNS No. 209 in Indian Overseas Bank, Janpath, New Delhi and certificate dt. 29th March, 2004 was also issued to assessee. Since prior to date of issue of this certificate, as AO has processed returns for all three years pending before him, there was no occasion for giving any credit for tax claimed to be deducted. application filed by assessee under s. 154 after receipt of TDS certificate dt. 29th March, 2004 was also declined by AO. As per provisions of s. 199, credit for TDS has to be given in assessment year in which income relating to tax deducted is assessed to tax. It also stipulates for giving credit to assessee only on production of certificate furnished under s. 203 of IT Act, 1961. In instant case, TDS certificate furnished by assessee clearly indicated that it pertains to period 1st April, 2002 to 31st March, 2003 in respect of amount paid/credited, on which deductor has deducted tax at source on 29th March, 2004. Under provisions of ss. 194B, 199, 201, 203 and 205 of IT Act, 1961, person responsible for making payment to assessee is under statutory obligation to deduct tax at source and after deduction of amount of tax, he is required to deposit same to credit of Central Government and to issue certificate of deduction. assessee is entitled to claim credit for amount deducted at source only when amount so deducted is found to be actually deposited to credit of Central Government and certificate under s. 203 is also furnished to this effect. Only on payment of amount to credit of Central Government, it would be treated as payment of tax. Accordingly, mere claim of deduction of tax at source, or mere disclosing respective income receivable in its books of account without any corresponding deduction of tax at source, would not entitle assessee to claim credit of tax relatable to such income. So long as amount deducted is not deposited in coffers of Central Government, there is no question of giving any credit for such amount of tax. But once tax is deducted on income credited by assessee in its books of account and requisite certificate to this effect is issued by deductor after deposit of tax amount in Government treasury, assessee becomes entitled for credit of such TDS while computing tax liability for relevant period. scheme for giving credit for TDS was sought to be modified through cls. 56 and 59 of Finance Bill, 2002 and same have also been explained in memorandum explaining provisions of Finance Bill to state that: "Under existing provisions of s. 199 of IT Act, any deduction made in accordance with provisions of ss. 192 to 194, 194A, 194B, 194BB, 194C, 194D, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194K, 194L, 195,196A, 194D, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194K, 194L, 195,196A, 196B, 196C and 196D and paid to account of Central Government is treated as payment of tax on behalf of person from whose income deduction was made or owner of security or depositor or owner of property or of unit-holder or of shareholder, as case may be, and credit given to such person for amounts so deducted on production of certificate furnished under s. 203 in assessment made under this Act for assessment year for which such income is assessable. Hardship is being faced by assessee since in many cases certificates under s. 203 are not furnished to them and as result credit is not given for tax so deducted. With view to mitigate this hardship, it is proposed to insert new sub-s. (14) in s. 155 to provide that where in assessment for any previous year or in any intimation or deemed intimation under sub-s. (1) of s. 143 for any previous year, credit for tax deducted in accordance with provisions of s. 199 has not been given on ground that certificate furnished under s. 203 was not filed with return and subsequently such certificate is produced before AO within two years from end of assessment year in which such income is assessable, credit of TDS shall be given to assessee on production of such certificate. Nothing contained in proposed sub-section shall apply unless income from which tax has been deducted has been disclosed in return of income filed by assessee for that assessment year. proposed amendment shall enable AO to rectify order of assessment or any intimation or deemed intimation under subs. (1) of s. 143. As consequence, it is also proposed to amend sub-s. (9) of s. 139 to provide that where return is not accompanied by proof of tax, if any, claimed to have been deducted at source, return of income shall not be regarded as defective if such certificate was not furnished under s. 203 to person furnished his return of income and such person produces certificate within period of two years specified under sub-s. (14) of s. 155. proposed amendment will take effect from 1st June, 2002." As per our considered view, credit for TDS must in every case be given to assessee from whose income tax was deducted at source and paid to credit of Central Government. If recipient of income considers that he is not liable to tax in respect of income, wholly or partly, therefore, does not disclose amount of such income in his return, IT Department cannot refuse to give credit merely by contending that income had not been disclosed in return filed by assessee for assessment year. assessee may as per relevant provisions of IT Act, consider income either as not taxable in his hands or as being relatable to different assessment year and he may even claim set off of loss or other deductions against such income. assessee may also be not chargeable to tax on income because of overriding provisions of Double Taxation Avoidance Agreement and/or because o f provision for exemption of such income, whether wholly or partly, under s o m e provisions of IT Act. It would be, therefore, improper and even impermissible for Revenue to swallow amount of TDS after having received and enjoyed same. It cannot be ignored that every item of TDS carries with it obligation of trust and accountability to return amount and/or give credit for amount so deducted depending upon tax liability of recipient to be determined in course of his assessment. If wrong assessment is made for whatever reasons, Department has all powers to rectify same by resort to rectification of mistakes, revision and/or other proceedings, legally available under Statute. Assessee s income for which tax is deducted at source should not be refused to be given credit. Being case of direct tax, there is also no question of unjust enrichment being claimed so as to take credit of tax without obligation to return same to assessee. payer does not pay amount of TDS as his own liability and he only acts as agent of Government or as trustee to collect TDS for Government, free of cost. If no credit is to be given to payer and/or to payee, Government would have no authority to treat same as tax and article 265 does not empower Government to make any levy or collection of tax not authorized by law. There may be cases in which assessee is not in position to have records and make complete claim of credit for TDS due to many factors beyond his control, therefore, provisions relating to time-limit for claiming credit of TDS should also be liberally construed. If tax due to Government is not barred by limitation for collection or recovery, refund of TDS due to assessee should not be equally hit by any bar of limitation nor should there be any fetter on assessee to claim credit for TDS at any time. When once deduction of tax at source has been made and that amount had been credited/paid to Government, there is no justification for treating assessee as in default for that amount by denying credit nor should any demand of tax or interest be raised against assessee. Keeping in view facts and circumstances of instant case, and amended provisions of Act, as discussed hereinabove, we are persuaded to agree with learned Authorised Representative Mr. Mehta that lower authorities were at all not justified in giving credit for TDS at least in asst. yr. 2003-04. Accordingly, we direct AO to allow credit of tax deducted at source in asst. yr. 2003-04 relevant to financial year 2002-03, by passing suitable order. We direct accordingly. In result, appeals filed by assessee are allowed in terms indicated hereinabove. *** ESCORTS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX
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