2022 (5) TMI 1675 - AT - Income Tax

Tax Credit Allowed for Delayed TDS Deposit Under Section 199, Ensuring Fair Treatment for Taxpayers Despite Timing Discrepancies

GSR Ventures Private Limited, Hyderabad Versus Deputy Commissioner of Income Tax, Circle 2 (1), Hyderabad

GSR Ventures Private Limited, Hyderabad Versus Deputy Commissioner of Income Tax, Circle 2 (1), Hyderabad - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:Whether the assessee is entitled to claim credit for Tax Deducted at Source (TDS) in the Assessment Year (AY) 2018-19, when the TDS was deducted during the Financial Year (FY) 2016-17 but was deposited late by the deductor, resulting in the TDS credit appearing in Form 26AS only in AY 2018-19;Whether the amended provisions of Section 199 of the Income Tax Act, 1961, which omit the phrase 'for the assessment year for which such income is assessable,' allow the assessee to claim TDS credit irrespective of the year to which the income relates;Whether Rule 37BA(3)(i) of the Income Tax Rules, 1962, which denies TDS credit if there is no corresponding income in the relevant AY, applies in the present facts;The legal effect of the delay in deposit of TDS by the deductor on the assessee's entitlement to TDS credit;The applicability and interpretation of precedents regarding the timing and year of claiming TDS credit when there is a delay in deposit by the deductor.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to TDS Credit in AY 2018-19 when TDS was deducted in FY 2016-17 but deposited lateRelevant legal framework and precedents: The provisions of Section 199 of the Income Tax Act, 1961, govern the credit of TDS to the deductee. Rule 37BA(3)(i) of the Income Tax Rules provides that TDS credit shall be allowed only if there is corresponding income in that AY. The Tribunal relied on the decisions in ACIT Vs. Peddu Srinivasa Rao and Zelan Projects (P) Ltd Vs. DCIT, which dealt with similar issues of delayed deposit of TDS and the year in which credit can be claimed.Court's interpretation and reasoning: The Tribunal noted that the assessee received income in FY 2016-17 and declared the same on accrual basis in AY 2017-18. The TDS was deducted by the State Government department at that time but was deposited late on 31/07/2017, resulting in the credit appearing in Form 26AS only in AY 2018-19. The Assessing Officer denied the TDS credit in AY 2018-19 on the ground that there was no corresponding income in that year, applying Rule 37BA(3)(i).The Tribunal observed that the facts regarding the delay in deposit and appearance of TDS credit in Form 26AS in a subsequent AY were undisputed. It emphasized that the issue is well-settled by the Tribunal's earlier decisions, which held that once TDS is deducted and paid to the Government, it must be treated as payment of tax on behalf of the deductee, regardless of the year to which it relates.Key evidence and findings: The TDS was deducted on 18/03/2017 but deposited late on 31/07/2017. The credit appeared in Form 26AS during AY 2018-19. The assessee declared the income on accrual basis in AY 2017-18 and paid tax accordingly. The Assessing Officer denied TDS credit in AY 2018-19 due to absence of corresponding income in that year.Application of law to facts: The Tribunal applied the amended Section 199, which no longer restricts TDS credit to the assessment year in which income is assessable. It held that the delay in deposit by the deductor should not prejudice the assessee's right to claim TDS credit when it appears in Form 26AS.Treatment of competing arguments: The Revenue argued that each AY is separate and the assessee cannot claim TDS credit in AY 2018-19 when income was offered in AY 2017-18. The Tribunal rejected this, relying on the legislative amendment and judicial precedents that recognize TDS as a payment of tax irrespective of the year of income assessment.Conclusions: The Tribunal concluded that the assessee is entitled to claim TDS credit in AY 2018-19 corresponding to the TDS deposited late by the deductor, even though the income was declared and taxed in AY 2017-18.Issue 2: Interpretation of amended Section 199 of the Income Tax ActRelevant legal framework and precedents: Section 199 of the Income Tax Act, 1961, before amendment, required that TDS credit be given for the assessment year for which the income is assessable. The amendment deleted this phrase, thus broadening the scope of TDS credit. The Tribunal relied on the decision in ACIT Vs. Peddu Srinivasa Rao, which analyzed the amendment and its implications.Court's interpretation and reasoning: The Tribunal extracted the relevant observations from the precedent, noting that the legislature was conscious of hardships faced by assessees due to delayed deposit of TDS by deductors. The omission of the phrase 'for the assessment year for which such income is assessable' was deliberate to allow credit of TDS irrespective of the year to which the income relates.Key evidence and findings: The amended Section 199(1) states that any deduction made and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made, without reference to the assessment year.Application of law to facts: Applying this, the Tribunal held that the assessee is entitled to the benefit of TDS credit in AY 2018-19 when the TDS credit appeared in Form 26AS, even though the income was assessable and declared in AY 2017-18.Treatment of competing arguments: The Revenue's contention that TDS credit must correspond to the year of income assessability was rejected as inconsistent with the amended statutory provision.Conclusions: The Tribunal confirmed that the amendment to Section 199 removes the requirement of mapping TDS credit to the assessment year of income, thereby allowing the assessee to claim credit in the year the TDS credit appears.Issue 3: Applicability of Rule 37BA(3)(i) of the Income Tax RulesRelevant legal framework: Rule 37BA(3)(i) states that TDS credit shall be allowed only if there is corresponding income in the AY in which the credit is claimed.Court's interpretation and reasoning: The Tribunal observed that Rule 37BA(3)(i) was applied by the Assessing Officer to deny TDS credit in AY 2018-19 on the ground that no income was declared in that year. However, the Tribunal held that this rule cannot override the amended Section 199, which governs the credit of TDS.Application of law to facts: Since the amended Section 199 allows credit irrespective of the year of income assessability, Rule 37BA(3)(i) cannot be applied to deny credit where the TDS credit appears in a later AY due to delay in deposit by the deductor.Conclusions: The Tribunal ruled that Rule 37BA(3)(i) cannot be invoked to deny TDS credit in the circumstances of delayed deposit by the deductor, consistent with the legislative intent of Section 199.Issue 4: Effect of delay in deposit of TDS by deductorRelevant legal framework and precedents: The Tribunal referred to precedents where it was held that delay in deposit of TDS by the deductor should not prejudice the deductee's right to claim credit once the amount is deposited and reflected in Form 26AS.Court's interpretation and reasoning: The Tribunal noted that the delay was on the part of the State Government department and not the assessee. The assessee declared income on accrual basis and paid tax accordingly. The TDS credit appeared late due to delayed deposit by the deductor.Application of law to facts: The Tribunal held that the assessee cannot be penalized for the delay by the deductor and is entitled to claim credit once the TDS is deposited and reflected in Form 26AS.Conclusions: The Tribunal directed the Assessing Officer to allow the claim of TDS credit in AY 2018-19, despite the delay in deposit by the deductor.3. SIGNIFICANT HOLDINGSThe Tribunal crystallized the following key principles and holdings:'According to the pre-amended provisions of section 199, the credit of deduction made in accordance with the relevant provisions of this chapter and paid to the Central Government, shall be given for the amount so deducted on the production of the certificate furnished u/s 203 for the assessment made under this Act for the assessment year for which such income is assessable. But in the amended provisions the words 'for the assessment year for which such income is assessable' has been omitted. Meaning thereby, that the legislature was quite conscious about the facts and hardships faced by some assessee's, while making the amendments in section 199 and in amended provisions nothing has been stated about the year in which the credit of TDS is to be claimed. As per amended provisions of section 199, in sub-section 1, it has been stated that any deductions made in accordance with the foregoing provisions of this chapter 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. Therefore, as per the amended provisions, once the TDS was deducted, a credit of the same to be given to the assessee's, irrespective of the year to which it relates.'Core principles established include:The entitlement to TDS credit arises upon deposit of TDS with the Government, irrespective of the assessment year to which the income relates;The amendment to Section 199 removes the requirement of matching TDS credit to the year of income assessability;Delay in deposit of TDS by the deductor cannot prejudice the deductee's right to claim credit once the amount is reflected in Form 26AS;Rule 37BA(3)(i) cannot be invoked to deny TDS credit in cases of delayed deposit by the deductor;Each assessment year is separate, but the statutory amendment and judicial precedents allow TDS credit to be claimed in the year in which it appears in Form 26AS.Final determinations:The assessee's claim for refund of TDS credit amounting to Rs. 12,57,976/- for AY 2018-19 is allowed;The Assess