2011 (3) TMI 1495 - AT - Income Tax

Tribunal allows TDS credit on mobilization advance in year deducted, rejects revenue's appeal

The Tribunal upheld the CIT(A)'s order directing the A.O. to allow the credit of TDS in the year of receipt, confirming that the assessee is entitled to ... Credit for tax deducted under section 199 - Tax deducted at source on mobilization advance - Year of allowance of TDS credit - Mobilization advance adjustable against future bills - Amendment to section 199 omitting assessment year linkage - Beneficial construction to avoid hardshipTax deducted at source on mobilization advance - Credit for tax deducted under section 199 - Year of allowance of TDS credit - Amendment to section 199 omitting assessment year linkage - Mobilization advance adjustable against future bills - Whether the assessee is entitled to claim credit for TDS deducted on mobilization advance in the year of deduction/certificate even though the mobilization advance was not adjusted and did not form part of gross contract receipts in that year. - HELD THAT: - The Tribunal found as a fact that the amounts in question were mobilization advances to be adjusted against subcontract bills in subsequent years and were not income on receipt, though interest was payable thereon. The pre amendment text of section 199 expressly linked TDS credit to the assessment year in which the income was assessable; the amended provision omitted the words 'for the assessment year for which such income is assessable' and treated any deduction made and paid to the Central Government as a payment of tax on behalf of the person from whose income the deduction was made. Having regard to the amendment, the Tribunal endorsed earlier decisions of other benches which held that where TDS has been deducted and deposited and a certificate issued, the credit should be allowed in the year of deduction to avoid practical hardships and complications in later years when adjustments may be spread over multiple years. Applying that construction and the cited precedents, the Tribunal concluded there was no infirmity in the CIT(A)'s direction to allow the TDS credit in the impugned assessment year. [Paras 7, 8, 9, 10]Credit for TDS deducted on mobilization advance is allowable in the year of deduction/certificate despite the corresponding amount not being offered to tax in that year; CIT(A)'s direction to allow the credit is confirmed.Final Conclusion: Revenue appeal dismissed; order of the CIT(A) directing allowance of TDS credit in the assessment year in which the certificate was issued is confirmed. Issues Involved:1. Entitlement to credit of TDS on mobilization advance.2. Nature of mobilization advance in terms of taxability.3. Applicability of Section 199 of the Income Tax Act regarding TDS credit.Detailed Analysis:1. Entitlement to Credit of TDS on Mobilization Advance:The primary issue was whether the assessee is entitled to the credit of TDS made in respect of the mobilization advance received, even though the mobilization advance was not adjusted against the work bills during the year and did not form part of the gross contract receipts credited to the P&L account. The A.O. disallowed the credit of TDS on the mobilization advance, arguing that it does not represent revenue receipt and should not be considered for TDS credit in the current assessment year.2. Nature of Mobilization Advance in Terms of Taxability:The A.O. observed that the mobilization advance of Rs.11,88,75,000/- received from M/s. Gammon India Limited does not represent revenue receipt since it was a mobilization advance and cannot partake the character of contract receipt. The mobilization advance is to be adjusted against the work bills in subsequent years and does not form part of the total income of the assessee. Therefore, the credit of TDS certificate can only be given in the subsequent years when the relevant receipts are assessable.3. Applicability of Section 199 of the Income Tax Act Regarding TDS Credit:The A.O. and the revenue argued that as per the provisions of Section 199, the credit of TDS can only be given on production of the certificate furnished u/s 203 in the assessment made for the assessment year for which such income is assessable. However, the CIT(A) and the Tribunal noted that the amended provisions of Section 199 omit the words 'for the assessment year for which such income is assessable,' indicating that credit of TDS should be given in the year of deduction irrespective of the year to which it relates.Tribunal's Findings:- The Tribunal noted that the mobilization advance received by the assessee was to be adjusted against subcontract bills raised in subsequent years and was not an income at the time of receipt.- The Tribunal examined the amended provisions of Section 199, which state that any deduction made 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, without specifying the assessment year for which such credit is to be given.- The Tribunal referred to various judgments, including those of the Hyderabad Tribunal in the case of Progressive Constructions Limited Vs. JCIT and the Chennai Bench in the case of Supreme Renewable Energy Limited Vs. ITO, which consistently held that the credit of TDS should be given in the year of receipt.- The Tribunal concluded that once TDS was deducted and paid to the Central Government, credit should be given to the assessee in the year of deduction to avoid complications.Conclusion:The Tribunal upheld the CIT(A)'s order directing the A.O. to allow the credit of TDS in the year of receipt, confirming that the assessee is entitled to the credit of TDS on the mobilization advance in the year it was deducted, irrespective of the year in which the income is assessable. The appeal of the revenue was dismissed, and the cross-objection of the assessee was also dismissed as infructuous.