1984 (6) TMI 91 - AT - Income Tax

Tribunal clarifies TDS credit timing in tax assessment

ARYA TEA CO LTD. Versus INCOME TAX OFFICER.

ARYA TEA CO LTD. Versus INCOME TAX OFFICER. - TTJ 023, 151, Issues Involved:1. Depreciation rate for the generator installed in the tea factory.2. Allocation of expenditure towards dividend income.3. Credit for tax deducted at source (TDS) on interest income.Analysis:1. Depreciation Rate for the Generator Installed in the Tea Factory:The primary issue is the appropriate rate of depreciation for the generator used in the tea factory. The assessee argued that the generator, used to power tea manufacturing machines, should be eligible for a 15% depreciation rate, similar to other machinery used in the tea industry. The assessee also highlighted that the CIT(A) had allowed investment allowance for the generator, suggesting it was part of the machinery used in the tea industry. However, the Tribunal noted that electrical machinery, including generators, is not eligible for special depreciation rates. Generators are considered electrical machinery, not general machinery, and their function remains unchanged regardless of the industry. Therefore, the CIT(A) was justified in not allowing the special depreciation rate for the generator. The Tribunal emphasized that the relevant entry only allows a special rate for 'General Machinery' used in tea factories, not all machinery.2. Allocation of Expenditure Towards Dividend Income:The second issue concerns the allocation of Rs. 50 towards the dividend income of Rs. 3,300 earned by the assessee. The assessee contended that no expenditure was incurred in earning the dividend, and thus, no allocation should be made. The Tribunal found this contention incorrect, stating that some nominal expenditure must be allocated towards earning the dividend income. Given the nominal amount of Rs. 50, the Tribunal refused to interfere with the authorities' decision on this point.3. Credit for Tax Deducted at Source (TDS) on Interest Income:The final issue pertains to the refusal to allow the benefit of TDS credit for Rs. 5,805 on interest income of Rs. 27,000. The tax was deducted by the payer but deposited in July 1980, not within the financial year corresponding to the previous year under consideration. The assessee argued that the TDS credit should be given in the year the income was included in the total income. The Tribunal examined the relevant sections of the IT Act, including sections 194A, 198, 199, 200, 201, 203, and 205. Section 199 specifies that credit for TDS shall be given in the assessment for the immediately following assessment year upon the production of the certificate furnished under section 203. The Tribunal noted that the responsibility to pay the deducted tax rests with the payer, not the assessee. The Tribunal concluded that credit for TDS should be given in the assessment year immediately following the financial year in which the tax was deducted, not when it was paid to the government. The Tribunal clarified that while the tax deducted is treated as paid on behalf of the assessee when deposited, the credit is given in the assessment year following the deduction year. Therefore, the tax paid in July 1980 should be adjusted against the tax due for the assessment year under consideration.Conclusion:The Tribunal confirmed the CIT(A)'s order on the depreciation rate for the generator and the allocation of expenditure towards dividend income. However, it provided a detailed interpretation of the TDS credit issue, ultimately allowing the appeal in part by clarifying the correct treatment of TDS credit. The appeal was treated as partly allowed.