2016 (4) TMI 1099 - AT - Income Tax

TDS credit refunded to assessee for interest income in fiduciary role. Income Tax Department to pay, to be returned to State.

The Tribunal held in favor of the assessee in the case concerning the credit of TDS on interest income received in a fiduciary capacity for the State of ... Credit of TDS - CIT (A) not allowing credit of TDS deducted by our Bank on interest and deposited to the Income Tax Department and holding that the interest belongs to Police department and the provisions of section 199 are applicable - Held that:- In the present case the amount was deposited as FDR’s by the assessee on behalf of State of Rajasthan with the Bank of Rajasthan and on the FDR’s deposit the interest has been accrued . The TDS was deducted by the Bank on the interest accrued on the FDRs. In our view, the Revenue is taking the hyper technical plea of not returning the TDS to the assessee on the pretext that the amount has been deposited with the bank on behalf of State of Rajasthan. Since the State of Rajasthan is not a taxable entity, therefore, refund of TDS cannot be given to the State of Rajasthan. It is not disputed that the assessee after realizing the interest income from the bank has given back the amount to the State of Rajasthan . Similarly it is also undisputed that the refund of TDS has not been claimed by the the State of Rajasthan and is only claimed by the Assessee being the nodal agency of the State of Rajasthan for this project . In our view, no prejudice will be caused to any person if the TDS is refunded to the assessee being the nodal agency with the undertaking to return the amount to the State of Rajasthan. The TDS deducted by the Income Tax Department is directed to be paid to the assessee and we accordingly hold the same. - Decided in favour of assessee Issues Involved:1. Credit of TDS on interest income.2. Taxability of interest income received in fiduciary capacity.3. Applicability of Section 199 and Rule 37BA of the Income Tax Act and Rules.Issue-wise Detailed Analysis:1. Credit of TDS on Interest Income:The primary issue revolves around whether the assessee is entitled to claim credit for TDS deducted on interest income that was not offered for tax by the assessee. The assessee argued that the interest income was accrued on funds received from HUDCO and deposited in FDRs, which were held in a fiduciary capacity for the State of Rajasthan. Thus, the interest income belonged to the State Government, and the TDS credit should be refunded to the assessee.The Revenue, however, contended that as per Section 199 of the Income Tax Act, credit for TDS can only be given to the person in whose hands such income is taxable. Since the interest income was not offered for tax by the assessee, the credit for TDS could not be claimed by the assessee.2. Taxability of Interest Income Received in Fiduciary Capacity:The assessee maintained that it acted as a nodal agency for the State Government and held the funds in a fiduciary capacity. The interest income accrued on these funds was not taxable in the hands of the assessee, as it belonged to the State Government. The lower authorities agreed that the interest income was not taxable in the hands of the assessee but denied the TDS credit on the grounds that the income was not offered for tax by the assessee.3. Applicability of Section 199 and Rule 37BA of the Income Tax Act and Rules:The Tribunal referred to the provisions of Section 199 and Rule 37BA, which allow for the credit of TDS to be given to a person other than the deductee in certain circumstances. The Tribunal also cited the judgment in CIT vs. Relcom (2015) and the ruling of the Andhra Pradesh High Court in CIT v. Bhooratnam & Co. (2013), which supported the view that TDS credit should be granted to the assessee in the absence of any claim by the actual recipient of the income.Judgment:The Tribunal held that the Revenue's refusal to refund the TDS to the assessee was hyper-technical. Since the State of Rajasthan, being a non-taxable entity, had not claimed the TDS refund, and the interest income was indeed received by the assessee in a fiduciary capacity, the TDS credit should be refunded to the assessee. The Tribunal directed the Income Tax Department to pay the TDS amount to the assessee with the undertaking that the assessee would return the amount to the State of Rajasthan.Conclusion:Both appeals for the assessment years 2009-10 and 2010-11 were allowed in favor of the assessee. The Tribunal concluded that the TDS credit should be refunded to the assessee, who acted as a nodal agency for the State of Rajasthan, ensuring no prejudice to any party involved.