2007 (5) TMI 362 - AT - Income Tax

Tribunal Orders TDS Credit for 2003-04, Stresses TDS Certificate Importance and Compliance with Income-tax Act.

The Tribunal allowed the appeals, directing the Assessing Officer (AO) to grant credit for Tax Deducted at Source (TDS) in the assessment year 2003-04. It ... Denial of credit of tax deducted at source - According to the Assessing Officer, the claim u/s 199 can be entertained only when the certificate itself mentions that the TDS has been deducted for different assessment years and the assessee satisfies the AO that, such income has been assessable/assessed in those years - HELD THAT:- The scheme for giving credit for TDS was sought to be modified through clauses 56 and 59 of the Finance Bill, 2002 and the same have also been explained in the Memorandum explaining the provisions of the Finance Bill As per our considered view, credit for TDS must in every case be given to the assessee from whose income tax was deducted at source and paid to the credit of the Central Government. If the recipient of the income considers that he is not liable to tax in respect of the income, wholly or partly, therefore, does not disclose the amount of such income in his return, the Income-tax Department cannot refuse to give credit merely by contending that the income had not been disclosed in the return filed by the assessee for the assessment year. The assessee may as per relevant provisions of Income-tax Act, consider the income either as not taxable in his hands or as being relatable to a different assessment year and he may even claim set off of loss or other deductions against such income. The assessee may also be not chargeable to tax on the income becuase of the overriding provisions of Double Taxation Avoidance Agreement and/or because of the provision for exemption of such income, whether wholly or partly, under some provisions of the Income-tax Act. It would be, therefore, improper and even impermissible for the revenue to swallow the amount of TDS after having received and enjoyed the same. It cannot be ignored that every item of TDS carries with it an obligation of trust and accountability to return the amount and/or give credit for the amount so deducted depending upon the tax liability of the recipient to be determined in the course of his assessment. If a wrong assessment is made for whatever reasons, the Department has all the powers to rectify the same by resort to rectification of mistakes, revision and/or other proceedings, legally available under the Statute. Assessee’s income for which tax is deducted at source should not be refused to be given credit There may be cases in which the assessee is not in a position to have the 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 the tax due to the Government is not barred by limitation for collection or recovery, the refund of TDS due to the assessee should not be equally hit by any bar of limitation nor should there be any fetter on the 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 the Government, there is no justification for treating the assessee as in default for that amount by denying the credit nor should any demand of tax or interest be raised against the assessee. Thus, we are persuaded to agree with learned AR Mr. Mehta that lower authorities were at all not justified in giving credit for TDS at least in the assessment year 2003-04. Accordingly, we direct the Assessing Officer to allow credit of tax deducted at source in the assessment year 2003-04 relevant to the financial year 2002-03, by passing a suitable order. We direct accordingly. In the result, appeals filed by the assessee are allowed. Issues Involved:1. Validity of the appellate orders.2. Credit for Tax Deducted at Source (TDS) claims.3. Rectification under Section 154 of the Income-tax Act, 1961.4. Conditions for allowing TDS credit.5. Timing and assessment year for TDS credit.Detailed Analysis:1. Validity of the Appellate Orders:The assessee challenged the appellate orders dated 8-2-2003, 17-2-2003, and 8-2-2005, claiming they were 'bad in law and wrong on facts.' The Tribunal heard the rival contentions and consolidated the appeals for brevity and convenience. The Tribunal found that the lower authorities were not justified in denying the credit for TDS in the assessment year 2003-04, thus allowing the appeals.2. Credit for Tax Deducted at Source (TDS) Claims:The assessee claimed credit for TDS with respect to interest income disclosed for the years 2001-02, 2002-03, and 2003-04. The Assessing Officer (AO) did not give credit for TDS as no TDS certificate was filed with the return of income. The assessee later filed an application under Section 154 along with a TDS certificate dated 29-3-2004. The AO declined the claim, stating that Section 199 allows credit for TDS only upon production of a certificate under Section 204 of the Act. The Tribunal directed the AO to allow credit for TDS in the assessment year 2003-04, as the tax was deducted and deposited on 29-3-2004.3. Rectification under Section 154 of the Income-tax Act, 1961:The assessee filed applications under Section 154 for rectification, which were declined by the AO. The Tribunal noted that the TDS certificate dated 29-3-2004 indicated that the tax was deducted and paid into the Government treasury on that date. The Tribunal held that credit for TDS should be given in the assessment year in which the income is assessed to tax, provided the TDS certificate is furnished.4. Conditions for Allowing TDS Credit:The Tribunal emphasized that credit for TDS must be given when the tax deducted is deposited to the Central Government's credit, and a certificate under Section 203 is furnished. The Tribunal found that the TDS certificate indicated the period 1-4-2002 to 31-3-2003, and the tax was deducted on 29-3-2004. The Tribunal held that mere disclosure of income without corresponding TDS deduction does not entitle the assessee to claim TDS credit.5. Timing and Assessment Year for TDS Credit:The Tribunal referred to the Finance Bill, 2002, which aimed to mitigate hardships faced by assessees in claiming TDS credit. The Tribunal held that credit for TDS should be given in the assessment year in which the income is assessable, even if the TDS certificate is furnished later. The Tribunal directed the AO to allow credit for TDS in the assessment year 2003-04, as the tax was deducted and deposited in the Government treasury in that year.Conclusion:The Tribunal allowed the appeals, directing the AO to give credit for TDS in the assessment year 2003-04. The Tribunal emphasized the statutory obligation to deduct and deposit tax at source and the necessity of furnishing a TDS certificate for claiming credit. The Tribunal's decision was based on the provisions of the Income-tax Act, 1961, and the amendments introduced by the Finance Bill, 2002.