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

Tribunal adjudicated TDS credit claim involving delayed tax deposit. The SC held that amended Section 199 allows TDS credit irrespective of assessment ... Seeking refund of the TDS credit for tax deducted during the Financial Year 2016‐17, but remitted to the Central Government and reflected in the Form‐26AS during the AY 2018‐19 - Stay petition seeking stay of enforcement of the demand resulted on disallowance of the TDS credit - HELD THAT:- In the case of ACIT Vs. Peddu Srinivasa Rao [2011 (3) TMI 1495 - ITAT VISAKHAPATNAM] observed that once any TDS is effected in accordance with the provisions of the Act and paid to the Central Government, such an amount shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, and, therefore, a credit of the same must be given to the person on whose behalf such TDS was made, irrespective of the year to which it relates. The said view is followed by the another case of Zelan Projects (P) Ltd [2015 (6) TMI 66 - ITAT HYDERABAD] Since consistent view has been taken by the Co‐ordinate Benches on this aspect, we are of the considered opinion that the refund of TDS though in fact was effected during the AY.2017‐18 cannot be denied to the assessee when it was appearing in Form‐26AS in the AY.2018‐19 and claimed by the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether credit/refund of tax deducted at source (TDS) that was deducted in one financial year but remitted to the Government and reflected in Form 26AS in a subsequent assessment year can be claimed and allowed in the assessment year in which it appears in Form 26AS. 2. Whether the deletion of the words 'for the assessment year for which such income is assessable' from Section 199 alters the requirement to map TDS to the assessment year of the underlying income and consequently requires allowance of TDS credit irrespective of the year to which the income relates. 3. Whether the assessing officer's reliance on Rule 37BA(3)(i) (denying TDS credit because there was no corresponding income in the assessment year in which the TDS appears) precludes allowance of TDS credit when statutory amendment to Section 199 is considered. ISSUE-WISE DETAILED ANALYSIS Issue 1: Allowability of TDS credit in the assessment year in which TDS appears in Form 26AS Legal framework: Section 199 of the Income Tax Act treats deductions made (TDS) and paid to the Central Government as payment of tax on behalf of the person from whose income the deduction was made; Rule 37BA(3)(i) was applied by the assessing officer to deny credit where there was no corresponding income in that assessment year. Precedent treatment: Coordinate Benches of the Tribunal in ACIT vs. Peddu Srinivasa Rao and Zelan Projects (P) Ltd. vs. DCIT have held that once TDS is deducted and paid to the Government, credit must be given to the person on whose behalf TDS was made irrespective of the year to which the TDS relates. Interpretation and reasoning: The Tribunal examined that the TDS in question was deducted when payment was made to the assessee but was remitted late by the deductor, so the TDS credit appeared in Form 26AS in a subsequent assessment year. The Tribunal relied on the amended language of Section 199 and the above coordinate-bench precedents to conclude that the timing of remittance by the deductor - and consequent appearance in Form 26AS - is determinative of claimability of credit in that year. The Tribunal noted there was no factual dispute that the TDS appeared in Form 26AS for the later year and was claimed in that year. Ratio vs. Obiter: Ratio - Where TDS has been deducted in accordance with law and paid to the Central Government and reflected in Form 26AS in a particular assessment year, the person for whom the deduction was made is entitled to credit of that TDS in that assessment year irrespective of the year in which the underlying income was assessable. Conclusion: The Tribunal directed allowance of the TDS credit/refund in the assessment year in which the TDS appeared in Form 26AS and was claimed, and accordingly set aside the denial. Issue 2: Effect of amendment to Section 199 deleting 'for the assessment year for which such income is assessable' Legal framework: Pre-amendment Section 199 required credit to be given 'for the assessment year for which such income is assessable'; the amended Section 199 omits that phrase and provides that deductions 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. Precedent treatment: The reasoning in the Peddu Srinivasa Rao decision interprets the omission as legislative intent to remove the strict mapping requirement between TDS and the assessment year of the income, thereby alleviating hardships arising from delayed remittances by deductors. Interpretation and reasoning: The Tribunal accepted the coordinate-bench interpretation that the legislature, by omitting the phrase, intended to remove year-linking constraints and to permit claim of TDS credit when the TDS is actually paid to the Government and reflected in the records. The Tribunal found that the amended statutory language supports allowing credit irrespective of the year to which the underlying income pertains. Ratio vs. Obiter: Ratio - The statutory amendment effectuates that TDS paid to Government should be treated as tax paid on behalf of the deductee and creditable when reflected as paid, without requiring that the credit be limited to the assessment year of the income. Conclusion: The Tribunal held that the amendment to Section 199 supports allowing TDS credit in the year in which it appears in Form 26AS, and the assessing officer's reliance on the pre-amendment mapping requirement was inconsistent with the amended provision. Issue 3: Applicability of Rule 37BA(3)(i) and the separate assessment-year principle Legal framework: Rule 37BA(3)(i) was invoked by the assessing officer to deny TDS credit on the ground that no corresponding income was offered to tax in that assessment year; general tax law principle holds that each assessment year is separate. Precedent treatment: Coordinate-benches have consistently allowed TDS credit when TDS is shown in Form 26AS for the year in which it appears, notwithstanding the separate-assessment-year principle, where the statutory amendment to Section 199 removes the year-linking requirement. Interpretation and reasoning: The Tribunal acknowledged the principle of separation of assessment years but concluded that the amended Section 199 and the status of TDS as payment of tax on behalf of the deductee supersede the argument based solely on year separation. The Tribunal treated Rule 37BA(3)(i)-based denial as incompatible with the legislative amendment and the established coordinate-bench view. Ratio vs. Obiter: Ratio - The separate-assessment-year principle does not bar allowance of TDS credit in the assessment year in which TDS is reflected as paid to the Government; Rule 37BA(3)(i) cannot operate to deny credit where statutory provision and Form 26AS reflect payment. Conclusion: The Tribunal directed the assessing officer to allow the claim of TDS credit despite the absence of corresponding income in that assessment year; the stay application became infructuous accordingly. Cross-reference The Tribunal expressly followed and applied the reasoning of the coordinate-bench decisions cited (Peddu Srinivasa Rao and Zelan Projects), treating those decisions as binding on the issue and adopting their interpretation of the amended Section 199 to grant the contested TDS credit.