Assessee entitled to TDS credit under Section 199(1) even without declaring corresponding income in return

The ITAT Delhi held that an assessee is entitled to TDS credit even when corresponding income is not offered for taxation. The AO denied TDS credit claiming the assessee failed to declare related income in the return. The tribunal ruled that under Section 199(1), TDS deducted and deposited with the government creates automatic entitlement to credit regardless of whether income is disclosed or considered taxable. The decision was supported by precedents from Escorts Ltd. and Supreme Renewable Energy Limited cases, establishing that the Income Tax Department cannot refuse TDS credit merely because income wasn't declared in the return.

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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.

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